Oracle and Cisco Systems are rolling hard and fast on separate but parallel tracks to become full-service systems providers that want to enjoy the international business reputations and prestige of IBM and Hewlett-Packard.
As “full-service system providers,” Oracle and Cisco would have to demonstrate the ability to deliver and assemble all the hardware, software and services needed to build an enterprise IT system or a new data center.
Oracle, due largely to its planned $7.4 billion acquisition of Sun Microsystems, is a 32-year-old database and middleware software company aiming to become a new-generation systems vendor.
Cisco Systems, at 25 years of age, is primarily a networking hardware company that, behind its new Unified Computing System initiative, is evolving into its own network-centric systems company.
Both corporations are acquisition-oriented, each having added a number of companies in the last few years to build out their product lines. Both have charismatic chief executive officers [Oracle’s Larry Ellison, Cisco’s John Chambers]. Both are No. 1 in their specific market sectors; both are headquartered at IT’s Ground Zero in Silicon Valley.
Each has played a major role in the growth and maturity of enterprise IT. Oracle rules supreme in the enterprise parallel database and middleware businesses; Cisco invented and has produced much of the networking equipment that serves as the framework for business on the Internet.
That’s not all. Both have outgrown their primary market segments and must add incremental markets to their mix. They’re like sharks that can’t stop moving, needing more and more water through their gills and food in their stomachs to grow.
So, here’s the theorem: Oracle, in Redwood City, Calif., and Cisco, about 15 miles south in San Jose, may have started under completely different circumstances at different times, but they are clearly aiming at the same target: The top couple of steps on the IT systems ladder.
True or false?
“Yes, I agree wholeheartedly with your assertion,” David Hill, principal analyst with The Mesabi Group, told eWEEK. “Not all high-technology companies feel the compulsion to grow, but high-profile companies, such as Oracle and Cisco, want to grow — because their executives want to reap the rewards of growth, but also because financial analysts, in particular, and the investment community, in particular, expect it of them.”
As a “big fish in a size-limited pond, each has to grow outside its current market pond,” Hill said.
“Moreover, the decision in enterprise IT infrastructure purchases is often about what bundle of products and services that they need (say for the new generation of data center) and individual products may be left out (even if they are the better products),” Hill said.
Oracle: An Old-Line Growth Strategy?
Charles King, principal analyst with Pund-IT, told eWEEK he agrees in general, but with a couple of caveats.
“To my mind, Oracle’s efforts reflect old line thinking of a sort — with the company owning or having its fingers on every piece of the business datacenter infrastructure and services chain, including hardware, software, middleware and services,” King said. “In a sense, what Ellison is envisioning hasn’t been previously accomplished; virtually every major IT vendor partners with someone.
“In LarryWorld, partners are relegated to developers who build on Oracle’s platform. Cisco is approaching the future in a much more collaborative way, working closely with partners including EMC, VMware, NetApp and others. In fact, the company’s Unified Computing concept is broad enough that most any vendor of storage x86 servers (though Cisco is, of course, planning their own offerings) could play a part.”
Dave Vellante, an analyst with Wikibon, told eWEEK that he agrees that Oracle and Cisco are on similar tracks — not parallel, but very similar.
“Here’s the biggest similarity in my view: The IT business is becoming an oligopoly [a market form in which a market or industry is dominated by a small number of sellers] where IBM, HP, Cisco, Oracle and Microsoft really rule,” Vellante said. “Any move that any one of these vendors makes will have ripple effects throughout the industry.
“You can make a case that Dell and EMC/VMware are on that list, but these five are the big dogs with $100 billion revenues and/or market valuations. The data center stacks are integrating, and big companies are aggressively acquiring to integrate stacks because they can’t innovate (in house) fast enough.”
Cisco has quite an appetite for acquisitions, and clearly that’s always been part of its growth strategy, Vellante said. “Cisco also wants/needs to diversify; Oracle, on the other hand, sort of fell into this position which in my view occurred as a defensive play,” Vellante said.
“Specifically, there was no way Oracle was going to let Java get into the hands of IBM or any other competitor, because Oracle software is developed in Java,” Vellante said. “Ellison has always seen the value of integrated hardware and software (e.g. Apple), and I think saw this as an opportunity to continue to play with the big guns in the industry.”
Is this potential IT oligopoly good or bad for business overall?
“In some respects, it marks the beginning of a long, slow consolidation period,” Vellante said. “I think it can be bad for innovation, but good for stability. Customers like stability, so that’s good, but growth requires innovation.”
Room at the Top for a Big Four?
Hill said he believes there’s room for more large, full-service systems vendors at the top.
“Even though the IT infrastructure pool as a whole is much larger than the database management systems and networking pools, it is still quite large,” Hill said. “The resulting even fiercer competition that would result would be good for customers, from both a cost perspective and the chance to benefit from the innovation that the companies would have to accelerate.”
However, customers would have to face a much more complex decision-making process and the vendor that can hold a conversation at the highest executive levels and effectively communicate its value proposition is likely to be the winner, Hill said.
“It is too early to handicap the winners and losers right now. Moreover, even though it is not a ‘systems’ vendor EMC has a broad reach in information infrastructure and has to be considered a player in the horse race,” Hill said.
Would having four IT systems behemoths be a boost to the IT industry, or would four companies the scale and scope of HP and IBM be too many — such that somebody is doomed to fail?
“I’ve always thought that healthy competition has been at the heart if the IT industry’s historic vibrancy,” King of Pund-IT said. “The industry has matured rapidly, resulting in a certain stodginess among some (though not all) of the traditional larger players. Overall, I believe the additional competition should help keep everyone honest. If the future really is in cloud and ‘smarter planet’ computing, the market should be big enough for everyone.”
As far as failure goes, both Oracle and Cisco are playing out of their traditional comfort zones, King said.
“However, I’d say that Oracle has had more trouble that Cisco in managing its myriad acquisitions. The company’s bitten off a big piece with Sun Microsystems. Whether they digest it successfully or choke in the process in still playing out.”
Mark Peters of Enterprise Strategy Group said he isn’t particularly worried that having a large portion of the IT vendoring in the world done by a handful of companies is necessarily a bad thing.
“Let’s say we do end up with four behemoths? That could be good for the industry (and innovation and consumers) even if one is doomed to fail!” Peters said. “Plus, they each do things differently: There’s the acquire route, the R&D route, the partner route, et cetera, so smaller organizations are not necessarily ruled out.
“By the way, don’t forget Dell in your market equation, and even the possibilities from smaller organizations such as EMC with its VMware, that aspires to be ‘IT central’ and can be a force. Interestingly companies like Microsoft often get mentions for strategic importance and could easily partake in an infrastructure play.
“And there’s always the surprises, too (such as Google).”