Analysis What do all ailing enterprise IT companies have in common? Trouble in their core businesses due to the rise of cloud computing.
The repercussions that the technology is having on the IT business are all around us, and its effects on the industry are as inevitable as gravity on a dropped bowling ball. Cloud computing's rise spells trouble for any traditional Western IT company you care to name, and has already started to bite into them.
Just how serious are the effects? Well:
- Rackspace was reported on Thursday to be in talks with Morgan Stanley to help it partner or sell itself, as the effects of the cloud pricing war among Google, Microsoft, and Amazon bite into its business.
- SAP is reported to be carrying out some "unavoidable" layoffs to help it restructure itself for the cloud while its earnings from traditional on-premise software continue to drop.
- IBM has agreed to sell its server division to Lenovo due to the margin-slump in hardware as the rise of cloud systems and low-cost servers has eroded the value of IBM's gear.
- EMC has had to create a new strategic software package named "ViPR" to protect it from the cloud-driven rise of low-cost storage hardware.
- HP has partnered with Asian manufacturing giant Foxconn to help it build and sell low-cost servers to big cloud customers.
- Oracle's proprietary hardware division has consistently failed to meet analyst expectations as the company's giant bet on an on-premises integrated appliance future looks less and less wise.
- Cisco is being hit by a slowdown in its traditional business from a combination of overseas competitors and a rise in "software-defined networking" that lets people choose cheaper kit rather than its expensive and capable gear.
There are also some moves in the opposite direction, with a few companies benefiting immensely from this shift. For example:
- Cloudera received hundreds of millions of dollars from Intel as the chip giant bought into the Hadoop-specialist to gain both a board seat and insight into a company whose tech is designed to run on low-cost commodity hardware.
- Amazon's Amazon Web Services division is on track to pull in almost $4bn in revenue this year alone.
- MongoDB – the anti-Oracle database startup whose tech is deployed widely on clouds – has been valued at $1.2bn despite what's thought to be a thin revenue stream.
- Startups – both frivolous and not-so-frivolous – are being given huge valuations partly because they have no capital that can depreciate. Examples: SnapChat, which uses Google's "App Engine" service, and room-sharer Airbnb, which sits on Amazon Web Services.
And then of course there are Google and Facebook: two advertising giants raking in phenomenal amounts of cash entirely due to the strength of their technical expertise.