Changing of the Guard – Part II

October 18, 2013

Synopsis: Global IT systems companies like IBM and HP play an invaluable role for enterprise and government customers as well as for the whole ecosystem of software and hardware vendors, and systems integrators. In this new article, I attempt to describe how the membership of this select group is evolving as a result of the growth of analytics, mobile, cloud, and social. – Philip Lay, Strategy Advisor

Just after Oracle acquired Sun Microsystems two or three years ago I wrote an article called “Changing of the Guard”. In it I described the shifts taking place in the rankings of global systems companies. There aren’t many of them. They are generally defined by being a one-stop shop for hardware systems, software and services, with the added attribute of true global reach. And, if you have any doubt as to why they matter to practically every participant in the tech industry, consider that they are “acquirers of first and last resort”, constantly refreshing their portfolios with a steady stream of acquisitions of new technologies and businesses. This makes them particularly important to every young or growing tech company out there, publicly or privately owned, in their capacity as potential partner or acquirer. For enterprise and government customers, they provide a comprehensive portfolio of products and services, plus assurance, reach, and one throat to choke.

IBM has been the dominant global systems player for over four decades, with companies such as Univac, Burroughs, DEC, HP, Compaq (post-DEC acquisition) and even Dell occupying the number two or three slots during certain periods along the way. For a short period during the dotcom boom of the late nineties, Sun Microsystems also had a good run and looked as if it might elevate itself beyond HP, but then fell on hard times after the dotcom bust hit in the early 2000s. Among the other up-and-coming companies, Compaq was eventually absorbed into HP a decade ago, and Dell, despite acquiring Perot Systems and other companies, has just not managed to make the cut. Worse, it has been in free fall for what seems like aeons and shows little sign of recovering any significant momentum.

In the 2010-2011 time frame things changed with the entry of new global systems candidates. Oracle acquired Sun, and during that same time frame Cisco increased its participation in the data center by introducing its own servers and storage, making it a bigger player than its networking portfolio had previously allowed it to be. During the last seven or eight years, Cisco had also been arming itself with more acquired software-centric businesses, mainly in unified communications (web conferencing, telepresence, and so on), but hasn’t yet developed a notable services business.

At the time of my first article, I speculated that Cisco or Oracle would soon become number two and three, with HP fading to number four. And I left Dell out of the running despite its increased investments in software and services. Oracle has since shown itself to be struggling to make the acquired Sun unit profitable – and it’s definitely not a growth engine – and this has slowed Oracle’s overall momentum somewhat. Cisco is having some success at becoming a broader systems player though as far as I can see the jury is still very much out of the room as to how effectively. Overall, we can probably say that not much has changed recently in the rankings among these four major players, except that IBM continues to be the unchallenged number one, with a massive investment in analytics during the past four years or so, and increasing focus on cloud and mobile computing.

What we now see emerging during the past year or two are three new global systems vendors. In the world of complex systems focused on enterprise customers, SAP, which had hitherto restrained itself from entering the hardware systems business, launched its in-memory database appliance, HANA, which has shown itself to be a promising early success. And in the world of volume operations businesses focused on consumers and/or SMB, Google entered the smartphone business to compete against Apple with an open ecosystem and also acquired Motorola. More recently Microsoft recently announced the acquisition of Nokia’s devices business, and has finally built some promising momentum as a cloud systems provider with its Azure and Windows Live offerings. Both Motorola and Nokia’s device business are troubled and will take some time to revitalize, but they still contribute assets such as patents and technology, large installed bases, and global reach in their respective categories. In any case, these companies do not yet have an established model for dealing with enterprise and government customers as a global systems provider is expected to do.

What is significant with these newer entrants to the global systems game is that their credentials for joining this select group are based on their assets in four hot categories – analytics, mobile, cloud, and social (collaboration) – rather than mainly on mainframe (IBM) and client/server (HP, Oracle, Cisco) hardware, software and service assets from prior eras. And for sure they are all trying to make their enterprise field forces more effective in building relationships with larger customer organizations. As such, our very definition of what makes a global systems company could conceivably change to include a broader set of players.

A fourth player with future potential to enter the mix could be Accenture, if and when it adds data center assets to its portfolio. If this happens, don’t discount the possibility that the Tatas, Infosys’s and Cognizants of the world might want to join them. Alongside these systems integrators, we mustn’t forget the telecoms carriers such as Verizon, AT&T, China Mobile or NTTDocomo. But the overall likelihood of this development confirming itself is still unclear to me.

The AWS unit of Amazon, which is attempting to become a global player in cloud systems, might at a stretch become a candidate to join the club sometime in the next five years or so. However, as yet there is no sign that Bezos’ company will evolve its model to market software and professional services (except via partnerships). More especially I see no real possibility that AWS will ever undertake accountability for successful customer outcomes, as major systems companies inevitably must do. So despite their early lead in the much-anticipated and fast-growing cloud infrastructure category, it doesn’t seem valid to include them in the list of serious future candidates. Another cloud company that could eventually have the ambition and capacity to join the group is, though I see this possibility as at least 5-7 years out. That said, Benioff’s strategy and overall approach to competing in the market is so Oracle-like that it is impossible to discount the possibility of making a concerted move in this direction at some point.

Finally, as the so-called internet of things gradually exits the land of buzzwords and becomes a reality, prepare to see GE and possibly Siemens and ABB join a broader set of global systems players to reflect the reach and relevance of what we may soon see as a dramatically expanded information technology industry.

So what kind of dynamic can we see forming here, in terms of companies that will become the leading global systems providers for large customers in the new world of cloud, mobile, and social computing? Can IBM, despite its current revenue decline, hold on to its traditional number one ranking as the tech company no major enterprise or government agency can afford to ignore, or will one of its traditional competitors overtake it? What about the newbies, can Google or Microsoft, become the new go-to companies based on leveraging their mobile systems assets? After all, mobile is the main tornado game that is being played out world-wide today, and Google has a tremendously powerful “indirect” franchise with Android.

My guess is that Oracle, whose Sun hardware-based business seems difficult to repair, and HP, with its fast-eroding PC business and less-than-stellar performance in software and services, risk losing some of their relevance. HP is in the midst of a very challenging, multi-year recovery process while almost none of its businesses are thriving. Oracle has started late in analytics, and somewhat late in cloud, mobile, and social. True, Larry Ellison smartly keeps his finger in these pies via his investments in cloud SaaS companies such as and NetSuite, which at some point Oracle might conceivably attempt to partner with or acquire. Microsoft has a long way to go to become credible as that one throat to choke, unless with a new CEO and other changes at the top it becomes more agile and finds a way to revitalize the Nokia business.

To my mind, Google might be the smartest of the bunch, with considerable assets in mobile through Android as well as Motorola, and in analytics as part of its business. SAP continues to be a dark horse. It has never really shown that it can (or even wants to) provide the broad “umbrella” of products and services that truly global companies that manage entire IT systems for their customers must commit to doing. Above all, don’t count GE out of the running for future membership in this club. It may or may not yet have sufficient smarts or expertise as a tech company, but it is making a very substantial investment to become a serious player in its field of “things”, it has great managerial know-how, and of course significant business assets around the globe.

So, there are many variables to play out. But for sure the ground is shifting between these companies, providing customers and competitors large and small with some interesting future choices regarding the IT vendors they will expect to count on the most. I’d be interested to hear from you, whether you agree with my speculations or see things developing in a different direction.