What the…?

Okay, the 3Par bidding has hit the $2B level. That’s nearly twice the opening bid of $1.1.5B. The first bid seemed high but the offers have now gone into the exosphere. For those who don’t remember their 8th grade science, that perilously close to being in orbit. It’s a place where there is practically no air. Get that? No air to breathe.

Considering that 3Par had revenue of US$168M in fiscal 2010 (resulting in a net loss by the way), HP is bidding almost 12 times last year’s revenue! That’s insanely high. Even at an accelerated growth rate, HP won’t make that back before I’m a grandfather. Trust me, that is a long time from now (or better be – you kids listening?). This bidding war has generated a lot of analysis, including mine. Theories range from Dell and HP vying for the number 2 spot in storage behind EMC ( I like that one) to HP’s Dave Donatello being on a mission from god. Okay, not a mission from god per se but the storage business equivalent. At these numbers, none of the theories including mine make any sense.

Look, 3Par is a great company with a lot going for it. It is also a company that would have eventually topped out like Brocade. It might have hit the $500M level but not much more. Selling out is the best thing that they can do for their stockholders. David Scott, 3Par’s CEO, has really done his job.

As it stands, it is hard to imagine HP or Dell seeing much return on this investment. The number’s are just too high. Here’s my theory: like at an auction, these companies are now just into the bidding. The original reasons for doing the deal are now tangential. It’s about winning. It’s about the emotion.

My advice to Dell, let HP take it. Let them spend huge amounts of money that could otherwise have gone into a new storage product. Use the money you have set aside for this purchase to buy someone else. It’s not like there aren’t a bunch of companies out there. Isilon, Compellent, Xiotech, they’re all independent right now. Heck, buy Data Robotics. They’re private and everyone seems to love their stuff. I know it’s not “enterprise” but you could probably sell a boatload of those Drobo arrays to the SOHO market and walk them up to the mid-range. You would certainly see your way to a ROI much faster.

These numbers just don’t make sense anymore.

Computer Industry Goes Zoom Zoom

You would think that last week’s announcement that Dell was acquiring 3Par for US$1.15B was news enough. Ha! Intel then raised eyebrows by announcing the acquisition of McAfee for US$7.6B. Now, comes Monday morning and HP raises the stakes against Dell by sending in their own and bigger bid for 3Par. It’s nice to be loved. Somewhere in all this, Hitachi Data Systems announced that they had acquired the Intellectual Property and core engineering team of Parascale, a cloud software company. Too bad for them. What should have been a sweet announcement was lost in all the noise.

So, what the heck is going on here? On the one hand, this is actually not that surprising. Computer tech companies tend to throw off lots of cash so they have a lot sitting around for acquisitions. Most of these big companies can thus afford to buy expertise or market share. This is especially true when you are coming out from the bottom of the market. Best to build up the arsenal before the economy really picks up.

This is an industry with a tradition of letting smaller companies trail blaze new technology and markets then get their payoff from a big company. In the long run this is cheaper and less risky for big companies but profitable for small ones. More unusual are the Googles and Microsofts who start in a garage and end up a behemoth. That’s the myth of computer tech but not the reality. What is not a myth is that deal making gives folks like me something to talk about. So here’s the talking about part.

Intel-McAfee Makes for Secure Communications

The Intel-McAfee deal has a lot of pundits scratching their heads. It’s a lot of money for a company with a big consumer business. McAfee’s revenue would barely be a rounding error for Intel. In 2009 Intel’s revenue was 18.5 times McAfee’s (~US$35B vs. US$1.9B). $1.9B is nothing to sneeze at but it will be a long time before a McAfee revenue stream makes up for the money Intel paid for it. What McAfee has going for it is lots of core security technology. More importantly, it’s spread across all aspects of the digital world – web, mobile, desktop, and server. Combined with Intel hardware and chips and you have a much higher revenue generating business than McAfee alone. It’s like having your cereal with fruit and milk. It’s part of a complete breakfast. It also well positions Intel for the long term. This is an example of the Gestalt principle – the whole is way better than the sum of the parts.  Besides, people said similar things about EMC’s RSA acquisition and that has worked out well for them, right?

3Par Bid Up by HP

I wasn’t that thrilled about Dell’s acquisition of 3Par, except insofar as it worked well for the 3Par folks (nice folks). I’m both more and less thrilled about the HP bid along the same lines. It’s better for 3Par financially, so I’m more thrilled. It’s makes less sense for HP though. Unlike Dell they have a coherent storage story, reputation and brand going back decades, as well as an extensive product line. Do they need 3Par? At least with Dell, 3Par would be a prominent part of the line up. They might have even kept their name, like Equalogic did. With HP, they will be absorbed. It’s hard to see what this deal adds to the HP product mix that they can’t get or build more cheaply. I doubt they need 3Par’s customer base really. Perhaps it’s just a way to keep Dell from becoming a serious competitor in storage. Perhaps. Generally, I don’t like this for HP but do for 3Par investors. It will be interesting to see how high this one gets bid up. There could be crazy amounts of money tossed around here.

HDS Goes Parascaling Up In The Clouds

The cloud is about software. It sells hardware but doesn’t exist without software.  Parascale provides software that makes storage and servers into clouds. I don’t know enough about Parascale to say if it worked or was particularly good software. Assuming it worked just fine, then this is the kind of technology play that I like. It adds immediate value, helps move hardware, has broad, future potential in an emerging market, and is a deal that is easy to do. It’s kind of conservative but conservative often pays the bills.

Bye Bye to OpenSolaris

There were also a bunch of other, smaller announcements too. One that is significant was that Oracle will be dropping support for the OpenSolaris project. This is sad since there was a vibrant community around OpenSolaris. It was not, however, unexpected. Oracle has nothing to gain by supporting an open Unix product. In the end, this will be good for the Open Source community. There are already too many Linux and Unix projects and variants diluting the talent pool. Do we really need OpenSolaris and FreeBSD and OpenBSD and NetBSD and Darwin and so on and so on. Not really. So, while I understand how this bothers some people and generates a lot of “what else will Oracle kill?” questions (Don’t worry it won’t be Java or MySql. They generate revenue) it’s really for the better. Time to move on.

I must admit, all this activity is exciting. It’s rare that this industry gets a week like this. Deals are usually more evenly spaced out. It’s like NASCAR for computer geeks.

Piling on the Dell/3Par News

Whenever some news comes out about an acquisition, everyone chimes in. It’s like kids playing little league football. Someone tackles the kid with the ball and all the other kids pile on.  I promised myself I wouldn’t do that. I lied. Hey, if you can’t lie to yourself, who can you lie to?

But really, I follow the storage segment but don’t claim in-depth technical knowledge anymore. I’m too interested in technology and business strategy to dive into the deep technical details. I can make a thin provisioning joke but that doesn’t mean I have the kind of encyclopedic knowledge of the segment that folks like Marc Farley (of 3Par – ready to buy that boat?) or Chuck Hollis of EMC have. Sticking to what I know here are some thoughts.

Why it’s a good thing (in list form):

1. 3Par would have eventually hit the wall. The hardware industry is a game of numbers. Big volume plus low cost equals great margins. You need market share and manufacturing prowess for that. A company the size of 3Par would have eventually gotten eaten alive by the big boys.Or faded into irrelevance. That would have been the slow death.
2. The deal provides a nice Return on Investment for 3Par investors. I like it when people make money in startups. It provides fuel for more startups and gives hope to the rest of us entrepreneurs. Now, if you all want to swing some of that cash my way…
3. I bet Dell really wants 3Par. 3Par could have gotten bought up by someone who just wanted them out of the way.  That would have been sad for the industry. There is a better chance that some of what makes 3Par unique will continue to live on at Dell. It’s nice to be loved.
4. 3Par employees can get great deals on Alienware computers. I’m just speculating but wouldn’t that be cool. Those babies are hot! If that’s not in the term sheet then amend that puppy now.

Why it’s not a good thing (also in list form):

1. US$1.15B is a lot of money. Dell is going to have to sell a lot of storage to make that back. That’s especially hard to do when the 3Par message has often been how you could buy less storage at a cheaper price to get the same functionality. I get the “less is more” messaging for a startup but you all have to make back a big pile of money now.
2. Dell’s bought a lot of storage companies but still doesn’t have a cohesive storage message. This is actually a good-not good thing. On the one hand, you don’t think of Dell as being in storage the way you do, say, HP or EMC. They’ve bought up a boatload of storage companies but it’s like Yatzee - all tossed in an incomprehensible pile. On the other hand the scrappy 3Par people are really good at new marketing. If they stick around (and Dell should make it worth their while to stick around) they could have a positive effect on Dell’s overall storage marketing. If they’re allowed to which brings us to…
3. They can’t use what makes 3Par special. People think that companies like 3Par are about technology. Not really. They are about ideas. The simple audacity of 3Par is part of what makes it successful. That rarely translates well in a big company. Just because Dell wants 3Par doesn’t mean they know what to do with them.  The impact of the creative folks that have been driving the company will be diluted once they are just a cog in the Dell machinery. 
4. On some level, this has to annoy EMC, Dell’s big storage partner. The more meat Dell adds to the storage stew, the less tasty it is for EMC. I keep wondering how long EMC will put up with this. Dell clearly wants to create a business that competes with EMC. An ugly breakup would be bad for Dell since EMC could probably crush them in the enterprise storage segment. My guess is that the only reason this has yet to happen is that Dell has not gotten it’s act together enough to really get in EMC’s way. Maybe this is what EMC needs to go buy a server company and finally become the full service provider that they should. Some of those Taiwanese computer companies have good SOHO servers that would fit in well with Iomega and Mozy. Just sayin’…

Ultimately, this is very good for 3Par, it’s investors, and many of it’s employees. Making honest money always is. Whether Dell gets it’s $1.15B out of the deal remains to be seen.  They need to develop a simplified but cohesive product line. Better storage marketing would also help. 3Par people can help but will they be allowed to? Wish i knew.

The Magic of Magic Hat

Magic Hat, for those who don’t know but should, makes beer. Really good beer. Beer lovers’ beer. Hoppy, complex, flavorful, and often wonderfully bitter. Not your garden variety swill here. Magic Hat is very good at making beer. They are also incredibly good at marketing and brand management. They have built their brand based on magic, Halloween, and Mardi Gras imagery with a hippy aesthetic. They carry that brand throughout everything they do. Cartons, labels, product names (such as the new Hex). Even the factory reflects their image of whimsical scariness.

The Sticker Licker!

On the factory tour (which is actually called the Artifactory) in South Burlington Vermont, they have massive signs that explain what all the machines and process steps are. They are not your typical bland signs though. For example, the labeling machine has been given the moniker “Sticker Licker”. All the signs, of course, reflect the corporate color palette. The tasting room is like none I’ve ever been in (and I’ve been in … a few). Ambient light is kind of orange and dim but not too dim to read. It’s weird and edgy without being threatening. The soundtrack is decidedly hippy with lots of Grateful Dead and Cream. The signage is, like their labels and cartons, in keeping with the overall look and feel of the product.

Everything about the tasting room screams the Magic Hat brand. 

 

You might be asking yourself “What has this to do with technology?” That’s okay. Go ahead, I’m not insulted. I’ve not gone off the rails. In fact, it has everything to do with technology. Technology folks forget that technology is usually realized as a product. Products are bought and sold and how we manage to do that is important. The type of tight brand and product management that you see at Magic Hat is the same that you see at companies like Apple. Everything connects. They have a playbook and stick to it. Deviation from form is not a good thing. It confuses consumers and makes it hard for them to connect to your products.

I can still hear you out there saying “Well, we don’t make consumer products so this doesn’t apply.” What?! You have consumers too, no matter who you are. You might call them customers, clients, or fellow employees but someone is consuming  the stuff you make. Branding matters to them for these reasons:

1. It provides a point of reference. When you see an HP computer you know it’s an HP because of it’s design elements. This is why monkeying around with your logo is a dangerous thing. Not just the logo either but colors, shapes, packaging, the whole tragedy.
2. It attracts people. Consumers need to know about what you have to offer. Branding helps cut through the white noise of the marketplace. It doesn’t matter if it’s the whimsy of a beer company or the messaging of an OEM tech company. Folks need a reason to listen to you. Your being there isn’t enough.
3. If coupled with great product, it builds loyalty. The ultimate goal of branding is to associate your product with some set of emotions that makes them want to keep in touch and consume more. And to tell all their friends too.

So much technology marketing is bland and gyrating, changing with every new model. Shifting branding causes confusion. Again, the technology master here is Apple. You can instantly recognize their products, logo, even color schemes. It changes over time but always in line with the overall branding. Their brand changes incrementally not radically.

Now, there are reasons for radical brand transformation. If the brand has gotten so stale it sends the wrong message, it may need a facelift. If something very bad has gotten connected with your current brand, then a reboot may be in order. Radical restarts of a brand without real need are usually disastrous. New Coke anyone? Didn’t think so. As the Magic Hat (and Apple) example shows, brand is not just a logo. It’s everything from the box it ships in to the design of the product to social media. It all has to come from the same source, from the same core.

So, tech companies have a lot to learn from how a small company like Magic Hat makes it’s presence known in a very competitive field. Take marketing beyond just a graphics manual and encompass all aspects of the company and products. At Magic Hat, even the guy pouring beer in the tasting room exuded the Magic Hat brand. That is the only way to attract and keep customers. That and awesome product. Don’t forget that. Magic Hat would be nothing if the beer was lousy. And their beer is anything but lousy.

Storm Clouds Approaching

IT shops have gotten to the point where they have a good handle on managing servers, networks, and storage. Headway is being made toward managing their virtual equivalents. Now, we have to add cloud computing to the mix. Cloud management may be the next great pain in the neck for IT shops. At the moment, not enough folks are seriously deploying in the cloud for it to be a crisis. That will change as more IT professionals accept cloud computing as something they can use to manage that tricky balance between cost and performance.

There are two paths we can go down (but in the long run) there’s still time to screw things up¹. First, if cloud systems management is too difficult and the tools too primitive for too long, deployment to the cloud will be much slower and might even reverse. If, however, the benefits of the cloud are enough that deployment continues apace, sysadmins and programmers alike will find themselves wishing for someone to put them out of their misery. The sheer lack of tools will drive them to drink.

Cloud management is unlike other systems administration. Usually big chunks of an application, such as a service, are deployed to servers. With clouds, little bits of application, including individual and transient objects can be anywhere. Worse yet, individual objects might be parceled out to different clouds depending on their resource or security needs. It is possible to have different objects instantiated on different cloud services, public and private, which in turn execute them on different physical resources. Distribution on this scale can be very tough to deal with on conventional systems. No one is really sure how that will play out in a cloud.

The other big difference between clouds and other infrastructure, at least public clouds, is that you don’t necessarily have much visibility into the infrastructure. Managing applications that are not only distributed in a cloud but hidden behind a vendor’s veil of secrecy is like driving in a blinding snow storm. I don’t recommend it. There’s too much trust in the unseen and unknown.

How do you manage this type of environment? One approach is to build monitoring into the individual application objects. Daesin, an open source cloud API written for Java, allows this. Problem is that you have to build monitoring into your application objects and may be language dependant.

Standards will make a difference. The DMTF just announced an initiative for cloud monitoring called the Open Cloud Standards. DMTF management standards have spurred vendors to develop management products in the past.  Open cloud interfaces such as Open Stack will also help since it will provide an open and standard platform for accessing clouds. These type of standards make it easier to develop software to manage cloud services. Right now, folks who develop cloud infrastructure software such as TwinStrata have to interact with nearly a dozen APIs from many different vendors. It’s basically a Tower of Babel which makes software development much more difficult. Development will become easier when there is a single or limited number of APIs to deal with. When development is easier more tools will become available.

So, if you truly be believe that clouds are the next big thing, the next SAN/NAS or the next J2EE or .Net, then you need to start worrying about how to manage them. Now. 

1. My apologies to Led Zeppelin. Stairway to Heaven does not deserve that kind of abuse.