John Katsaros

Our next report

We're in the final stages of completing a new research report on the early use cases for Cloud Computing. There are a lot of interesting companies doing interesting things in the cloud. This report takes you behind the curtains to see how Cloud Computing early adoption is shaping up. Interested? — JKatsaros@irg-intl.com.

Is that a chip on your shoulder?

VMware spent a disproportionate amount of time in the Analyst meeting "explaining Microsoft's competitive playbook" (the Karl Rove perspective on industry competition) apparently in hopes of explaining how MS was lying and cheating and distorting the facts about virtualization. Given that a younger and brasher VMware in the not so distant past redefined vendor arrogance on more than one occasion, this seemed to fall in the category of "the pot calling the kettle black," and for us probably had the undesired outcome of demonstrating how much VMware really fears the Evil Empire from up north. Or are we unduly cynical for assuming that all vendors spin the facts to suit their pleasure? Isn't that the definition of "marketing?" Many of VMware's top execs spent significant successful portions of their careers at Microsoft and seem to be overly conscious of the Microsoft threat to the point where they may be caring more about Microsoft's reactions to what VMware does than to how customers may react. We had to sit through rather long diatribes about the "Microsoft Playbook" and what to expect from Redmond. There's an old adage in the advertising business that says you're winning the battle if you can get your competition reacting to what you do rather than paying attention to what customers want. Without even firing a shot across the bow, Microsoft is commanding more of their mindshare than it may be due. Let's hope that's not the case here.

Finally — A Major Acquisition

Unfortunately, where its ecosystem of software business partners is involved, VMware has been its own worst enemy. Potential partners have had difficulties building a business around the VMware platform not knowing what categories VMware is planning to compete in and which will be left to business partners to pursue. Compounding the problem, VMware has, until now, been low balling its acquisitions (see table below). Cisco is often accused of overpaying for startups it acquires but it surely makes it worthwhile for investors to back companies in new networking categories. On the other hand, venture capitalists have been cautious and overly negative about funding software companies in the virtualization space. Maybe the price it's paying for SpringSource might be an indication that Moritz intends to make a change here too and brighter days may be ahead.

  
 

Upgrade Status

In his keynote at VMworld, Paul Maritz predicted that 75% of customers intend to upgrade to VMware vSphere by the end of 2009. The chart below illustrates the anticipated adoption rate. Considering that vSphere shipments started in May and that VMware has such a large installed base largely made up of enterprises, meeting this year's end goal would be one of the more remarkable upgrade adoption rates in the software industry and a real testament of the customer loyalty that VMware has built. If this is the case, then many companies in the VMware ecosystem need to quickly understand the difference that vSphere adoption will make with regards to customer demand.

Apparently Brilliant

One of the more interesting demos that was at VMworld this week was at the Apparent Networks booth. The company has moved its AppCritical performance monitoring software into the cloud so that, rather than buying and installing a monitoring tool, customers can instead go to a self-service portal for monitoring critical business applications. So not only can an IT department sign up for Apparent's monitoring service, but even a business unit can monitor its applications with little or no IT intervention. This is an interesting example of how infrastructure companies can use cloud computing services to modify their business models and reach broader audiences.

New Kid On The Street

H3C, the former Huawei-3Com joint venture, now wholly owned by 3Com, is trying to grow its presence in the US market. In its simplest form, their strategy is: 1) Use merchant silicon (instead of custom chips); 2) Build on Open Standards; 3) Make use of its China based development and production capabilities and build on its relationship with Huawei; 4) Come to market with a broad enterprise portfolio ranging across switches, routers, wireless and security appliances; and 5) Cover the enterprise market with a direct sales force. While Cisco is constantly under attack in specific networking segments (HP and Brocade for example) it will be interesting to see if the time is right for a company with joint North American and China heritage to take on the networking giant in its own backyard - the US business networking market.

Keeping It Simple

Even just ten years ago you'd have thought it crazy that we'd be talking about 12 cents an hour for a server. Last week Microsoft announced its pricing model for Windows Azure making it clear that the company will play a very aggressive role to quickly develop usage once its cloud services become available. The table below compares Microsoft Azure's pricing to Amazon's cloud computing prices. Microsoft's pricing is simpler but Amazon's pricing has two years of experience behind it which account for it being more nuanced. The two charts below compare Microsoft and Amazon pricing for data transfer out of their Clouds. Microsoft is clearly being competitive in the small to medium categories which probably is illustrative of their overall strategy.

MX Logic Rings the Bell

At the end of July, McAfee announced its intentions to acquire anti-spam SaaS provider MX Logic for $140M (plus possibly $30M more based on an earn out). That brings the total acquisitions in the anti-spam (software and SaaS) acquisitions to over $4B since 2004. MX Logic had over 40K customers with over 4 million end users. MessageLabs, acquired by Symantec in Oct 2008, had sales of $145M, 19,000 customers (8 million users) in 86 countries (63% of its business from EMA). Timing is everything - MessageLabs with twice the end user base, was acquired by Symantec for $695M ($86 per customer versus the $34 per customer that MX Logic got). Who would have thought that this would be such a lucrative market? We always like to remind people that there are just a few hundred high volume spammers out there who have created over $3B in liquidity events in the past five years. (No wonder spam products don't completely shut down all spam and put spammers out of business - talk about co-conspirators...)

 Anti-Spam Hall of Fame

Dave's Shopping Spree

 Dave's Shopping Spree — McAfee's acquisition of MX Logic makes this the second anti-spam acquisition for McAfee - the first one occurred when McAfee acquired the CipherTrust product line as part of its acquisition of Secure Computing. Secure claimed to have its own SaaS offering and if left to its own devices probably would have tried to grow the business organically but McAfee apparently couldn't wait. Symantec made three acquisitions in this space (BrightMail, TurnTide and MessageLabs). Cisco might have a shoe or two to drop in the anti-spam SaaS arena. Since he was hired in March, 2007 McAfee's Dave DeWalt has spent over a billion dollars on seven acquisitions which completely reshape McAfee's security offerings and puts more McAfee branded security products out into channel. That works out to roughly $1.3M daily since he took over. McAFee ended 2007 with $1.3B in cash. That's now come down to $594M so there might not be room for any more major deals. And then there are the HP rumors which pop up regularly. Hopefully, some of its acquisitions will start paying off.

 Dave DeWalt's Shopping Spree

 

Drama Baby

Pardon my rant but I think we should dramatically cut back the dramatic way that infrastructure marketers, unable to find real product differentiation, revert to emotionally latent language and say things like "dramatically different" or it will have a "dramatic effect" on the market. Not to get melodramatic or anything, but it's discouraging to sit through so many vendor presentations and listen to these uninspired claims - so I figure we've got two choices - 1) Ban the word "dramatic" for an entire month or 2) Limit it's usage to once per hour and provide suitable penalties for breaking the ban. Maybe an outright ban is the only way to dramatically slow this thing down (or else I need to get back on my medicine).