Archive for February 2013

Remember this blog post?

It’s my now infamous “Bell tolls for thee” blog that I authored just after VMworld last year. This was the blog for which I was so soundly flogged by the VMware community in the comments section, and even received a few nasty emails. (By the way, I do want to thank all of the people who comment on my blogs. Whether you agree or disagree with me, it’s always good to have the feedback. 

– BACKGROUND: VMware, the bell tolls for thee, and Microsoft is ringing it

Well, it appears the bell has indeed rung for VMware. Late last month, VMware held its most recent quarterly call to go over financial numbers, and all appeared well. After announcing a record December quarter and great earnings, VMware management lowered the boom. The outlook for the current quarter and the current year were both substantially lower than consensus estimates, marking several consecutive years of slowing revenue growth. 

The company now has the right products, some low hanging fruit with Lync and a channel that’s motivated to capitalize–so all it needs to do is execute.

Last week I attended Polycom’s TEAM conference, that is, its global sales and partner conference in one of my favorite cities, Vancouver, BC. In addition to being home of the Vancouver Canucks, Vancouver is where many Canadians feel the sun, the sky and the earth all come together. One can golf in the morning under a beautiful sunny sky then go night skiing on one of the local mountains. It all comes together in Vancouver. So it’s fitting that this be the venue that Polycom kicks off its next chapter, as its new product, channel and go-to-market strategies come together.

I really don’t think this is an enterprise play for Oracle. In my opinion, this is about growing its carrier business.

If you remember the old Looney Toons cartoons, the evil Wile E Coyote always used equipment from a company called “Acme” to try and destroy its arch enemy, the Road Runner. Today, another, shall we say “evil” character, Larry Ellison has armed himself with products from “Acme” by shelling out a reported $1.7 billion for Acme Packet, who is best known as the leader in session border controllers (SBCs).

I don’t believe Oracle was the only company looking at Acme Packet. Given its leadership position in session border controllers, the portfolio would have made sense as part of Ericsson, Siemens, Alcatel-Lucent, Cisco or Juniper. Considering where the stock price has reached (~$80/share) and where it was pre-acquisition announcement (~$24/share), the purchase price of around $29 seems like a steal for Oracle. When you look across the possible purchasers, Oracle seems to stick out as much as Leon Sandcastle would at an NFL combine–at least on the surface they did.

I’ve had a number of people ask me today how this makes sense. If you look at what Acme does (and Eric described it very well in his blog), the company is really a network vendor. So, on the surface it may leave you scratching your head. Eric did a nice job in his blog of outlining what this might mean to Oracle, its enterprise UC push and related CEBP ambitions.

However, in my opinion, I really don’t think this is an enterprise play for Oracle. In my opinion, this is about growing its carrier business. I know when people think of Oracle they think of enterprise software and rightfully so; it’s what Oracle does, and does it better than anyone (I know the other big enterprise software vendors would argue). Oracle does have a very broad communications portfolio that includes a Unified Communications Suite as well as messaging, calendaring and mobile synchronization servers.

But Oracle has slowly been gaining a footprint in mobile and wireline operators, primarily with applications like management and subscriber billing. In fact, if my information is correct, I believe Oracle has a footprint in almost every Tier 1 service provider today, just not in the areas listed above.

Now, the acquisition of Acme Packet should give them access to a customer base that it can pitch its messaging and communication servers to as part of a larger bundle. Clearly, mobility and cloud are playing a bigger role in the future of communications, and these are network-centric compute paradigms. This means that a company like Oracle needs to have greater control of the network to provide a top-quality user experience and Acme gives them that control.

In a sense, it’s similar to why VMWare bought Nicira. Did VMWare really want to get into networking? I doubt it. Did they want more control of the network? Without a doubt, and they were willing to pay up for it. Same thing here for Oracle.

The other reason I like this acquisition for Oracle is that the opportunity for Acme Packet should be huge. Acme is a critical piece of SIP trunking buildouts, which from my research still seems to be sub-5% penetrated of all the global trunks and an equally important piece of voice over LTE (VoLTE) deployments. Using the baseball analogy, we’re in the first inning of SIP trunking and the pitchers haven’t even started warming up in the VoLTE game, so the upside from the Acme acquisition is huge even if Oracle just leaves the business alone.

Because of this, I’m surprised Acme sold itself now. Shareholders may have been getting somewhat impatient and wanted to force a sale.

The reason I don’t feel this means much for the enterprise is that neither Oracle nor Acme are really strong enterprise communications players. Oracle obviously has strength as an application vendor but that’s not likely to pull through UC sales. Acme sells into the very large enterprises but there’s no synergy there with Oracle.

Acme’s next pot of gold in the enterprise would be if they could capitalize on Microsoft Lync deployments, but I just can’t see Oracle doing anything that would help Microsoft out or vice versa. So maybe the enterprise business remains a niche part of the business, but it’s unlikely Oracle made the acquisition for that purpose.

Clearly, the traditional IT silos are breaking down. Compute, applications and network are coming together. To win in one, you need to play in others, which means that companies like Sonus, Allot, Procera, Riverbed and F5 are all acquisition targets for the big enterprise vendors. Expect to see more M&A this year as vendors look to control more of the stack.

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