Thursday, March 19, 2009

Virtualization / cloud M&A opportunities

We've entered the phase where M&A of technology companies gets interesting. Oddly, while the economics are less than stellar, and cut backs and lay-offs run rampant, a number of major companies sit on mountains of cash. Recent M&A activities and rumors thereof, will knee-jerk companies into the buying frenzy that accompanies this phase. But beyond that, there is a new trend of Unified Computing, written indelibly in ink by the recent Cisco move into the server market. This will focus the M&A urgency on a few specific areas, and light up the war rooms at many corporate headquarters. So I'm offering some related ideas.

Hypervisors

In the open source dimension I see a big future for Linux+KVM. Factoring in trends towards cloud computing, a bad economy putting a push behind Open Source, and a huge ecosystem surrounding Linux, Linux makes sense as the hypervisor. And as it so happens, the company behind the KVM hypervisor (Qumranet) is now owned by Red Hat, who has a focus on the Linux server business -- the same Red Hat who reported a 20% jump in earnings last quarter.

For those hiding under a news rock for the last week, Cisco's entry into the Unified Computing market means that to stay strong, players need to have an all-in-one solution. This reminds me greatly of the trend in the processor world, where to compete, players needed to pull in chipset and graphics logic to survive. So, for anyone who wants to be a big player in the cloud computing market, you'll need a strong virtualization and Linux and networking component. Buy Red Hat -- it'll cost you more than the USD 3 Billion market cap to not own it. You might also read my friend Tarry Singh's posting; he believes Oracle should snap up Red Hat.

Desktop virtualization isn't yet as pervasive as server virtualization. But it's a very interesting technology, and when implemented properly solves a lot of truly important problems: offering multiple OS personalities (one personal, one corporate), operating off-line or on-line, allowing remote unified image management, backup management, etc. We can really break this category down to two major bins, the hypervisor and everything else. The most interesting thing here is the everything else bin, because that's the logic that can potentially operate across a multitude of hypervisors. As far as promising companies here, the most interesting is Virtual Computer. Currently, they use Xen as the hypervisor, but their strength is really the everything else bin. My recommendation for big players who count corporate notebooks and desktops into their future, is to buy Virtual Computer now. So far, they are the most innovative private company in the space. Adding a team to extend it across Hyper-V and Linux+KVM environments would be a good follow-up idea.

Networking

In short, everything about cloud computing means more networking -- moving forward, computing is a dynamic fabric overlaying a multitude of physical sites. As soon as we start talking about dynamic and multi-site, many continuity problems arise which require more sophisticated techniques, with underlying networking. Storage becomes very much a networking issue, for example. If you want to see where multi-site memory optimizations (which enable cloud-wide long-distance VM migration and memory de-duplication) are going, check out a recent post of mine. These optimizations are new consumers of networking, and that will only increase. Networking continuity itself is a problem -- how do you maintain open TCP connections when migrating workloads to different physical sites?

To have a future selling solutions into tomorrow's data center, having a strong networking component is essential -- more so than ever before. Of course, some players will be forced to partner to get this. But Cisco's entry into the server market with their Unified Computing System, ought to send a smoke signal to the big players that they better get busy fast.

Rather than make recommendations here, I'll defer to some possibilities outlined in this article and this article (e.g. F5 and Brocade). My aim here is more to point out that networking is absolutely essential to the future of cloud computing. And I really don't separate virtualization out from cloud computing -- it's really and essential part of it. As well, I would think there'll be at least jockeying to partner or get busy with Juniper. A lesson learned from the processor and chipset market is that it doesn't pay fighting convergence. And convergence is exactly what is occurring. You need to offer it all-in-one, packaged neatly for the customer. IMO, M&A and deep partnership will have to occur soon.

Disclosure: no positions

1 comment:

SAM said...

What about the automation side of things? The whole dynamic notion of clouds rests on the assumption that we can control the movement of applications and software infrastructure within the cloud and into and out of the cloud.

Cisco's approach is proprietary, as one would expect a first offering to be. Independent Run Book Automation providers deliver a way to get the benefits of dynamic compute environments without vendor lock in.

Disclosure: I work for one such company, Opalis Software