This week in cloud: HP saga roils on, Cisco buys Meraki, Amazon’s tax bite

cloud stack

HP CEO Meg Whitman

Hewlett-Packard’s acquisition of Autonomy has turned into one of the industry’s slowest motion train wrecks. Last week, HP execs sicced the feds (and UK’s Serious Fraud office) on former Autonomy management charging  that it had been misled about the state of Autonomy’s fiscal health and thus overpaid for the company. Cynics might contend that HP had to say something given the $8.8 billion write-off it’s taking — mostly related to the $11.1 billion purchase.  HP completed the deal in October, 2011.

There’s a ton of blame to go around. On HP’s earnings call last weeek, CEO Meg Whitman mentioned that Deloitte was Autonomy’s auditor and that HP hired KPMG to look at Deloitte’s work. Cue the lawsuits. Former Autonomy CEO Mike Lynch denied any wrong doing, As did Deloitte. As did former HP CEO Leo Apotheker (Autonomy was his idea.) Whitman said the two HP execs — Apotheker and former chief strategy officer Shane Robison — are both gone. Whitman and HP executive chairman Ray Lane were on HP’s board when the Autonomy buyout was launched.

Cisco ponies up $1.2B for Meraki

A week after buying Cloupia to bolster its cloud management reach, Cisco dug deep to pay $1.2 billion for Meraki, a company born out of MIT to make setting up and managing Wi-Fi networks easy and inexpensive for resource-stretched organizations. Meraki’s mesh networking software, that lets admins prioritize the types of devices or apps that can access the network, is a big strategic value add for Cisco, the world’s largest provider of networking hardware, but which has seen its share price languish over the past few years.

In a statement, Rob Soderbery, SVP of Cisco’s Enterprise Networking Group said:

“The acquisition of Meraki enables Cisco to make simple, secure, cloud managed networks available to our global customer base of mid-sized businesses and enterprises. These companies have the same IT needs as larger organizations, but without the resources to integrate complex IT solutions. Meraki’s solution was built from the ground up optimized for cloud, with tremendous scale, and is already in use by thousands of customers to manage hundreds of thousands of devices.”

As Om wrote last week, Meraki’s web-centric approach to software, is something a company like Cisco sorely needs.

For Amazon, sales taxes loom

Massachusetts and other states are getting closer to winning sales tax concessions from Amazon.com, you’ve got to wonder what the impact will be not only on Amazon’s booming online retail operations but Amazon Web Services as well.  As Philly.com  reported on Black Friday:

“For the first time since the dawn of e-commerce, residents in California, Texas and Pennsylvania will be automatically charged state sales tax at the checkout on Amazon and some other online retail websites. Next year, Virginia and New Jersey residents will join them, followed by residents of Nevada, Indiana and Tennessee in January 2014

(Actually, California started charging sales tax in September.) Brick-and-mortar retailers say this move will let them compete more with Amazon and other on-line resellers.

Asked on the most recent earnings call what impact Amazon has seen from the new tax in California, CFO Tom Szkutak said it was too early to tell. “The only thing I could point to is, we collect in over — either sales tax or equivalent value-added tax,” he said. “We collect in over 50 percent of our revenue today. We have very good businesses in those states and geographies that we do that in long ago. That’s all I can point to today.”

One huge question around Amazon Web Services is just how fat (or not) the margins are. One camp holds that profit those cloud services is razor thin. The flip side — and an opinion held by at least one of Amazon’s huge would-be public cloud competitors — is that Amazon turns a tidy profit on what appears to be a $2.2 billion-a-year-business.

If you believe that Amazon’s retail business pays the freight on cloud, the sales tax is an obvious issue. But even if you don’t, it’s hard to see how increased sales taxes won’t impact the company as a whole,  and thus its ability to keep rolling out tons of low-cost cloud services.

And this is probably just the beginning. Going forward, there is more pressure from cash-strapped governments to levy sales tax on cloud services as well. Stay tuned.  The AWS: Reinvent show kicks off in Las Vegas Tuesday.

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