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Summary:

[qi:044] As the world becomes increasingly digital, and data continues to grow, the importance of software in managing it all is on an upswing. Hardware vendors, realizing that building specialized software isn’t easy, and that is why they are busy opening up their check-books, looking to […]

[qi:044] As the world becomes increasingly digital, and data continues to grow, the importance of software in managing it all is on an upswing. Hardware vendors, realizing that building specialized software isn’t easy, and that is why they are busy opening up their check-books, looking to buy the software expertise. In fact, there were three such deals that hit the news wires today.

Of course, by now you may have already heard about HP buying Opsware for $1.6 billion in cash, because it would help sell HP’s datacenter hardware. Hifn, a Los Gatos, CA.-based storage and security hardware company snapped up Siafu Software for an undisclosed amount. Aruba Networks, a wireless networking equipment maker bought Network Chemistry’s wireless security business this morning, again for an undisclosed amount of money.

Bottomline: While Web 2.0 companies may get acquired by Google (or Yahoo), specialized software start-ups with products that enhance hardware will find buyers more often. Expect this trend to continue, and in fact gain momentum.

  1. It’s companies down the “stack” buying upwards.

    Intel just did the same with VMware: http://www.vmware.com/company/news/releases/vmware_intel.html

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  2. ‘Stack consolidation’ is rife at the moment, but just like the layer 3 consolidation of the 90’s with Cisco/Synoptics/Wellfleet/Kalpana/DEC (ahh the good old days). I think the winner will be the one who can successfully intergrate it all OR learn when to let it fly on its own, and use it as a cash cow. EMC earlier last year went on a good run with N-layers, Documentum, VMware (although it is spinning it off). I think many a good company has been has been broken by forced intergration strategies.
    I heard HP’s intergration story and it looks very daunting. They were very eloquent in describing the end-game but I have to admit no real substance on when or how they were going to go about it.

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  3. I think the same trend may apply in Telecom going forward, particularly if IMS catches on.

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  4. Rob Freeborn Monday, July 23, 2007

    I’m thinking that the OpsWare purchase is meant to be integrated into the HP OpenView suite, not to pimp their HW…even Mark mentions that it’s going to be part of their SW offering.

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  5. @Peter, that was Intel Capital, which is their investment arm and makes these types of investments all the time. Not very fun to deal with though.

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  6. HP needs to take some lessons in customer support from Dell…to attract business. Dell will support you almost unless you twist their hands behind their back, whereas HP will only support you if you twist their hands behind their back (badly written tongue twister).

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  7. Kudos to Marc Andressen for cashing out nicely, unloading a fairly unimpressive, low productivity, perpetually loss making outfit (600 employees mostly in valley and 100 million revenue? that doesn’t even begin to make money!) for 16 times sales.

    Goes to show how savvy younger generation like Marc Andressen are taking capital out from dumb old houses like HP. I suppose there is some justice to it in the sense of capital moving to smarter hands, where it will be better invested. A fool and his money deserve to be parted, I suppose …

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  8. I agree with you – it is especially true in increasingly commoditized markets. look at iphone, nokia and LG prada – all software plays built on fairly commodity hardware. it is all about marrying the software-with-hardware and then basically offering an enhanced experience.

    i agree with andrew – telecom is next. BT guys get it, most of our guys don’t.

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  9. Brad O'Neill Tuesday, July 24, 2007

    You’re spot-on, Om… However, it would be a mistake to think any of these companies have true grand ‘stack integration’ strategies… that’s all marketing BS. As you indicate, this has been happening in the infrastructure space for many years and its an established means of augmenting/replacing internal R&D across a wide spectrum of discrete usage cases that are not ever ‘integrated’ per se (e.g. interface software, management tools, accelerators, file systems, data protection niches, search tools, etc.). Every major player in data center, storage and networking has been quietly adding software intelligence through acquisitions in the $20m-$75m range since I can remember, albeit at a faster clip in the past 24 months, but it just doesn’t receive much attention in more popular media venues. EMC, HP, Cisco and even ‘smaller’ players like Brocade have been ravenous in expanding a wide range of capabilities…

    In the storage/storage networking industry alone last year I can count north of 30 acquisitions, the vast majority of which were very tiny, low revenue software outfits and were never touted loudly, if at all. The same number for the year prior. Nobody wants to make hay about the fact that they shored up their weakness in (for example) SATA interfaces or iSCSI routing by snapping up XYZ. They just DO it and start shipping it as their own…

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  10. Rob Freeborn is right in his comment – HP Software isn’t a way for HP to sell more hardware.
    HP sees its software business as a way to distance itself from Dell, whose hardware margins they can’t beat, and be more like IBM, which salvaged itself by becoming a software and services giant.
    At least, that’s the message that they communicate internally (I was an HP software employee until a few months ago).

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