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Market Roundup April 22, 2005 Microsoft Virtually Reaches the Market Adapting to New Realities, Building Momentum: Adobe Buys Macromedia |
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Microsoft Virtually Reaches the Market
At the Microsoft Management Summit this week, Steve Ballmer
discussed the company’s plans for server virtualization in the context of the
Dynamic Systems Initiative (DSI) and Microsoft Operations Manager (MOM).
Microsoft’s term for the ongoing virtualization and automation of IT
infrastructure is Dynamic IT, which it maintains should deliver business value
through automation, flexible resource utilization, interoperability, and
knowledge-based processes. Microsoft has also announced plans to invest both
short- and long-term in virtualization and virtualization management. In the
short term, Microsoft has released Virtual Server 2005 SP1 beta, delivering
64-bit compatibility and improved performance and availability. The company is
also working with industry partners to expand third-party guest operating
system support on SP1, so that Windows Server 2003 + Virtual Server 2005 will
be a platform for heterogeneous server consolidation. A MOM management pack for
Virtual Server 2005 was released that provides a central console for managing
the health and performance of physical and virtual machines seamlessly. Microsoft
will also license the Virtual Hard Disk (VHD) royalty-free so that partners can
develop VHD-based solutions and enhance capabilities and extensibility of the
VHD file format. For the longer term, Microsoft has discussed building
virtualization capabilities for Windows based on Longhorn, the next version of
the OS. This will support enhanced hardware technologies such as Intel
Virtualization Technology and AMD’s Pacifica specification. Finally, Microsoft
will increase investments in the System Center family of products.
From a technology viewpoint, Microsoft is finally making
progress on the integration and management issues which have been ongoing for
Microsoft users. Because systems were inexpensive, IT managers purchased them
in bulk and then discovered that they had an unwieldy lot to administer. Many
of these servers were isolated islands of compute power. Once the number of
production servers hit critical mass, they began to look like good candidates
for virtualization, which encompasses everything from server consolidation to
enhanced automated management features. Microsoft’s MOM management packs have
done a good job of automating management tasks for many Microsoft products and
are beginning to be shipped standard with the latest versions of the various
products. Bringing the technology to Virtual Server was just a matter of time,
and should be much appreciated by harried server administrators. We expect
Microsoft’s ongoing work with management will only continue to improve the
situation and bring Windows capabilities closer to those of high-end UNIX
systems. This is important as Windows capabilities have lagged seriously behind
those of the systems with which they often compete.
As for continued integration and virtualization, Longhorn remains the promised land of true next-generation product from Microsoft. As they begin to reveal bits and pieces of what the finished product will entail we are heartened and can only assume that Microsoft has finally made the shift on focus from the masses of individual systems of the past to the recognition that the IT environment is a single ecosystem (pardon the word) where heterogeneous resources must interact and the ability to share data across users and organizations requires more than simple email and file sharing. Microsoft’s greatest challenge now lies not in fulfilling its product roadmaps, which will happen in time, but in educating customers on how to take advantage of the evolving products to solve business problems. The ongoing challenge in organizations is that most business users really understand only the technology they use personally, and most IT staff’s knowledge of business is similarly limited. The value of vendors’ products continues to drift from superior technical feature differentiation to recognizable business value. That value however can only be realized if it is implemented in proper context. If IT and business managers within an organization cannot articulate their IT needs within a business context, then the partner channel, who is responsible for delivering the bulk of Microsoft’s product to customers, will be largely held responsible for being able to match customer needs to products. In this sense, while Microsoft has laid the foundations of the right direction for its products, it is its channel strategy and its partners’ ability to leverage that technology that will determine how successful the company is in growing its business.
EMC announced its first quarter financial results this week,
reporting revenues of $2.24 billion, up from $1.87 billion a year ago, and net
income of $270 million, a 91% jump over the $140 million of a year ago. Systems
revenue was up 15% over last year to $1.03 billion and EMC’s software licensing
and maintenance revenues grew 26% to $832 million, which now accounts for 37%
of EMC’s total revenues. The company reported that its Clarion networked
storage revenue grew by 47% over the past year and that its VMware acquisition
grew revenues by more than 100% to $80 million.
Not all that long ago EMC announced that it was pinning
future revenue growth on new software and value-added technologies that would
allow it to avoid falling into a low-margin business of simply selling storage
hardware. The company properly recognized that storage hardware was becoming a
commodity and subsequently began branching out with more software offerings. At
the time, we said such a strategy made a great deal of sense, and indicated
that the company had a long-term strategic vision that could help it escape
falling into a low-margin commodity product company. The only question that we
posed at the time was this: could EMC do it?
This latest quarterly report indicates that EMC is executing on its strategic vision and doing it rather nicely, at that. With software revenues growing to ever larger percentages of the company’s total revenue, we see EMC positioning itself well for the future. By applying its storage expertise to value-added products such as management software and the like, it brings greater value to its entire storage portfolio building a level of symbiosis that drives all parts of the company. Evidence of EMC’s care in doing acquisitions can be seen in the explosive growth of VMware offerings due , not only to the increasing acceptance of virtualization but also to EMC’s ability to offer VMware products in its systems and software sales presentations. We suspect that VMware revenues will continue to grow, as virtualization becomes a de facto minimum daily requirement of IT deployments due to its ability to drive down both costs and complexity. EMC is now building an increasingly compelling case that its long-term strategy is not only working, but working quite well. In a world full of talk, it is nice to see a company do the walk, as well.
IBM has announced its latest version of WebSphere MQ Series
for large enterprises and its WebSphere Business Integration Server Express
software for the SMB market. The company positioned both products as solutions
for large and small enterprises respectively to integrate IT environments with
the effect of lowering costs and streamlining business processes. Most notably,
the two products are designed to allow home-grown business applications —
complete with all of their technological quirks and idiosyncrasies — to connect
with other business systems. Version 6.0 of WebSphere MQ provides connectivity
to more than 150 new application environments. WebSphere Business Integration
Express offers wizard-driven business rules and increased simplicity of remote
deployment, configuration, and administration.
Rolling out the latest version of MQ Series may not be the
sexiest announcement in the world of IT, but it represents IBM’s ongoing
efforts to provide increasingly sophisticated middleware to the IT market at
large. MQ Series is akin to rebar in concrete columns supporting freeway
overpasses: largely ignored or unnoticed, but crucial nonetheless. This is core
technology that few CIOs may understand, but that IT
managers across the globe recognize as critical must-haves.
We have often criticized IBM for releasing new enterprise-class products while ignoring similar needs for the SMB market. Our past criticism is now obsolete, at least for the time being, since the company announced Business Integration Server for the SMB market along with the enterprise MQ Series product update. We take note of the fact that IBM also emphasized the SMB product at the top of its press release, and took great pains to acknowledge the revenue opportunities in the SMB market. We are not convinced at this point that IBM decided to heed our calls for simultaneous enterprise and SMB product releases; such a claim would verge on the preposterous. However, since they have seen the light independent of our ongoing clamoring, we can only say: well done. Offering SMBs — and the channel — products that can then be upgraded to enterprise-class offerings at some point in the future makes sense today, tomorrow, and well into the future.
Adapting to New Realities, Building Momentum: Adobe Buys Macromedia
This week Adobe announced that it would acquire Macromedia
in an all-stock transaction for approximately $3.4 billion. Macromedia
shareholders would own 18% of the combined company and would receive an
approximate $9 premium over their share value at announcement. The Adobe board
of directors has also authorized $1 billion in stock repurchases over the
twelve months following the close of the deal. It is estimated that the
combined company will have approximately $2 billion in revenues and 5,400 employees.
Bruce Chizen, Adobe CEO, will assume the CEO role in
the combined company and Stephen Elop, Macromedia
CEO, will join Adobe as president of worldwide field operations. The two
companies are working on a comprehensive Adobe/Macromedia integration plan to
be implemented at the close of the deal. It is expected that much of Macromedia
senior management and most employees will join Adobe and the combined company
will adopt the Adobe brand. The acquisition is expected to close in fall 2005,
subject to shareholder and regulatory approval.
The combination of Adobe and Macromedia would provide
customers a potentially powerful set of solutions for creating, managing, and
delivering content and experiences across multiple operating systems, devices,
and media. With an approximately $15 billion dollar market capitalization,
Adobe would become one of the larger software companies in the world, but well
behind behemoths such as Microsoft, Oracle, SAP, and Computer Associates. The
general and trade press have made a major point of this, with the claim that
the combined company could threaten Microsoft. The threat in this context is
relative. The Adobe/Macromedia combination, when integrated and fully
operational, could compete with Microsoft in the area of integrated rich media
and digital content creation, management, and delivery to the emerging mobile
and non-PC platform markets, but will have a formidable, intensely competitive,
deep-pockets combatant to face. On the other hand smaller players in Adobe’s
traditional space, such as Quark, could face marginalization, if not
extinction. The legacy Adobe user community of developers, creative
professionals, and end-users may view this development with concern. These
individuals maybe relegated to having only two choices: Adobe or Microsoft.
The combined Adobe would be aggressively positioned to capitalize not only on the increasingly available markets for non-PC, mobile platforms but also as well the growing market for such technology in enterprises. Forward-thinking enterprises are calling for integrated software solutions that enable them to create, manage, and deliver a wide range of compelling content and applications, from documents and images to audio and video. This new potential customer base may well find the combined Adobe future offerings attractive. For example, we seriously anticipate the combined Adobe to create a new era of “live document technology”: interactive documents that facilitate context-sensitive behavior and enable more effective and efficient interactions. Imagine government agencies using such technology to streamline, automate, and cut the cost of processing individual taxpayer filings, license registrations, or even library book renewals, using the combined Adobe and Macromedia technology. We believe that such technology has the potential to simplify the lives of individual users and provide notable benefit to corporations, governments, and other organizations. This is the wave of the future and Adobe may be on the verge of catching it.
EMC Extends High-end NAS Technology
EMC has introduced its new high-end EMC Celerra
NSX NAS gateway, focused on helping IT lower costs and achieve ILM benefits by
consolidating DAS with iSCSI, automating the creation
of tiered storage for NAS, and by providing data transparency between storage tiers.
The new Celerra NSX NAS gateway delivers up to
300,000 network file system operations per second and provides up to 112TB of
usable capacity. With up to eight X-Blades, this technology provides n+1
clustering for high availability. Celerra Automated
Volume Management (AVM) software provides a GUI to optimize system management,
based on predefined workload characteristic, and features multiple independent
file systems as a virtual file system for administration, access, manageability,
and control. EMC also announced Centera FileArchiver (CFA) software that integrates with EMC Celerra FileMover API, to deliver
policy-based data management and movement and help automate information
achieving. The list price of a four-X-Blade Celerra
NSX is approximately $278,000 and includes dual management stations, dual
uninterrupted power systems, the CIFS protocol, EMC Celerra
SnapSure software for local replication, and EMC Celerra Manager for web-based management. Celerra NSX systems are anticipated to be available in May.
NAS is about a fifth of the networked storage market and is
currently experiencing approximately a 15% annual growth rate: an attractive
market opportunity. On the other hand storage hardware, and particularly NAS,
is increasingly becoming a commodity. With this announcement EMC is advancing
in position against key NAS hardware competitors: Network Appliances (NetApps) and IBM. Network Appliances, with approximately 40%
of the NAS market, is the player to beat, and with the recent NetApps/IBM partnership, specifically aimed at competing
with EMC, this task is now more difficult. The combination of NetApps’ NAS products and IBM’s powerhouse sales and
distribution capabilities is a potent one and may prove effective at leveraging
NAS sales into large enterprises. However, based on EMC bench marks, EMC NSX
provides approximately 70% better price/performance with four times the
performance, when compared with NetApps’ NTAP GF980C
and IBM’s IBM 500G. This competitive performance, in conjunction with EMC’s new
scalable management software and virtual file system technology might tip the
balance in favor of EMC in large enterprise accounts, particularly those where
EMC already has a presence.
Enterprise IT will likely find the features of the EMC scalable management software attractive. For example, “at a glance” alert status monitoring across multiple systems could help cut administration costs and potential down time. Predictive file systems based on only a few weeks of historical data could assist in managing capacity across file systems. A similar commentary can be made for the virtual file system; for instance, automated volume management could help reduce storage administration costs and reduce complexity. In summary, we believe that the NSX NAS gateway, scalable management software, and file system virtualization technologies are well positioned to help IT avoid or reduce costs, provide a vehicle for enterprise data-center consolidation, and help companies further leverage existing IP network resources.