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Break Up or Make Up … Tech Companies Place Their Bets in 2014

2014 may eventually come to be characterized as the year of the tech break up. Tech conglomerates such as CA Technologies, HP, IBM and, most recently, Symantec have all opted to go down the “break up” route while others such as Cisco and EMC continue to experience internal and external pressures to pursue this option. But as enterprises look to create more agile, automated, cohesive infrastructures, it may be ultimately leave those such as Dell and Oracle that are opting to “make up” best positioned to deliver on these enterprise demands.

2014 is not yet over but the number and scope of tech company break-ups that occurred this year is notable. Consider:

  • In July, CA Technologies spun off its data protection line of products to create a new company, arcserve.
  • In September, IBM sold off its server line to Lenova
  • In October, HP announced it was splitting into two companies, one with a focus on printers and the other with a focus on servers and storage
  • Also in October, Symantec announced it would also split into two companies, one focused on information management (data protection and storage software) and the other on security

These examples fail to take into account some of the behemoths in the industry such as Cisco and EMC that are also under pressure to break up. Exactly how either of these companies might split up if they do break up is open to debate but, in the case of EMC, it owns diverse product lines such as Documentum, storage hardware (Data Domain, Isilon, VMAX, VNX, XtremeIO, etc.), storage software (Avamar, NetWorker) and RSA Security that give EMC’s investors ample cause to clamor for it to break-up since it is difficult to see how these respective product lines increase EMC’s overall value.

This lack of synergy between different product lines explains why breakups are justified and happening. Consider the arcserve data protection line. As part of CA Technologies, arcserve turned the corner and became a leading backup and recovery product in terms of its technical capabilities. While arcserve always had a sizable market share even before CA Technologies acquired it, the investments CA Technologies made in arcserve’s underlying technology and the resulting improvements in backup and recovery and end-user experiences were noted and documented over the last few years by DCIG and others.

The challenge for arcserve then lied in how it was marketed and sold. acrserve is a solution primarily aimed at small and midsized enterprise environments whereas CA Technologies’ broader product portfolio primarily consisted of software solutions targeted at large enterprise shops. This apparently created an unfortunate mismatch between product capabilities and sales motions which ultimately led to CA Technologies to decide to spin off arcserve as a standalone company so arcserve could focus its sales on markets that better aligned with its product capabilities. While it is yet too early to determine if this move will succeed, all of my conversations with and observations about arcserve suggest that it is on the right path.

This is the hope of every one  of the other companies listed above that are splitting up, selling off and divesting themselves of certain parts of these business. The new companies will ideally result in entities that can better focus on their respective core competencies.

HP clearly feels that the printer division is not that dependent on servers and storage to succeed and vice versa. So why should either division distract the other from their business at hand?

The same mindset seems to be in play at Symantec. I have seen the information management group capitalize on and incorporate some security technologies into its storage foundation suite. However I am not convinced that such innovations necessitated the two companies (Symantec and Veritas) becoming one almost a decade ago. If anything, I have seen the information management and security teams largely internally operate as two separate companies because there was not as much overlap between the two as some were originally led to believe or think.

Yet out of these break-ups two questions emerge:

  • Will they be successful?
  • Is this in their or their customers’ best interests long term?

The answer to the first of these two questions is largely yes. Practically speaking, these newly or soon-to-be created companies are already largely running independently inside of the existing company. The break up merely formalizes an existing condition and, without the distraction of having to try to co-exist with another complementary company, may actually better serve both themselves and their customers.

But the second question is a little more difficult to answer in light of what is happening in enterprises everywhere. Enterprises want to automate and simplify their data center environments. But by creating separate companies with their own distinct product lines, does this strategy align with the interests of enterprises today?

Providers such as Dell and Oracle contend that it does not. They are choosing to more tightly integrate today’s hardware and software and deliver them as a single solution that can be centrally managed so the features available on them can be effectively harnessed. In this way, enterprises ultimately get more value from the resulting, integrated solution because they are better able to harness the capabilities that the combined hardware and software have to offer.

Granted, it may be argued that integrated, bundled solutions may not offer all of the features as when enterprises take a “best-of-breed” approach when buying products. However it is also my experience that enterprises that take this approach typically fail to leverage most of the features that best-of-breed solutions have to offer because they are too complex and time consuming to implement and manage. By providing an integrated, bundled solution that (in theory) is pre-tested and comes ready to be put into production with minimal or no setup, enterprises ultimately get more value from bundled solutions than best-of-breed products that are implemented and managed separately.

Break up or make up – that’s the big bet that tech companies are making in 2014 and neither one is without its risks. Of the two, history tells us that breaking up is probably the better option for most tech companies and their customers. I have seen far too few (none?) companies successfully integrate their existing product lines into a single cohesive, easy-to-manage offering. This probably explains after why after years of acquisitions many of the tech companies being discussed in this blog entry are starting to divest themselves of certain product and/or break up.

However enterprises do need to keep their eye on providers such as Dell and Oracle. Dell has shown a commitment to executing upon the “make up” strategy by going private and putting the wheels in motion to deliver an integrated product line. Similarly, Oracle has already delivered some pretty amazing application-aware storage solutions in the form of its ZS Series that particularly benefit its Oracle Database customers. Though it will take some time for these two companies to integrate their software and hardware to function as one, the final make up of the solutions they deliver could well leave best-of-breed companies feeling very “broken up.”

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Jerome M. Wendt

About Jerome M. Wendt

President & Founder of DCIG, LLC Jerome Wendt is the President and Founder of DCIG, LLC., an independent storage analyst and consulting firm. Mr. Wendt founded the company in November 2007.

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