The Disruption Cycle – A Dime a Dozen.
Before the dust even settled around the whopping Dell/EMC deal, another bombshell was dropped with the Red Hat acquisition of Ansible over the weekend. While I was still processing my thoughts on what I think the Dell deal means for the enterprise IT industry – I had to make an abrupt about-face and think about this poster-child of the community and bottom-up startup approach of Ansible means for the IT industry as a whole, and how this may be an even more substantial win.
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The EMC/Dell deal seems to be centered more on the merits of a financial transaction, i.e. grabbing billions of dollars from the existing customer base, refunding debts, latching onto VMware as the only publicly traded company and so forth. The following diagram summarizes this quite nicely:
Dell Acquisition of EMC (and associated Federation assets) – blue text is new [Source: Wikibon, 2015]
What seems to be clear is that while the EMC/Dell deal is good for its shareholders its equally bad news for their customers as noted by the David Vellante report on Wikibon as both companies will have to squeeze their customer base to justify the ROI for the deal.
“Dell is promising within 18-24 months it will de-leverage (i.e. pay down its debt). How do companies manage cash cows? Answer – they leverage their lockin: 1) Longer product cycles; 2) Increase maintenance/support costs; 3) Cut salaries; 4) Narrow the R&D focus; 5) Charge a premium – We expect this to be the likely Dell playbook for VMAX, VNX, Data Domain, Compellent, etc”
It’s hard not to notice that there’s nothing in this deal that tells a clear story on how the new company will transform into the new cloud/web-scale business model.
So if anything I think that the Dell/EMC deal marks an end of an era more than a new beginning as Cade Metz puts this nicely on wired.com
“HP. Cisco. Dell. EMC. IBM. Oracle. Think of them as the walking dead. Oh, sure, they’ll shuffle along for some time. They’ll sell some stuff. They’ll make some money. They’ll command some headlines. They may even do some new things. But as tech giants, they’re dead…When someone asked what we should call that IBM-HP-EMC-Dell-Cisco merger, his response was wonderfully descriptive. He suggested we call the company Fucked By The Cloud.”
It’s also interesting to read the reaction to this post on twitter :100:
The case for Red Hat/Ansible is the exact antipode of the EMC/Dell deal. The financial factor didn’t really play any real factor at all, what really mattered is the developer mindshare, adoption rate and popularity of Ansible in the DevOps community.
The Ansible stats tell the story – plain & simple – high adoption rate, low revenue, and I would add, in essence a high adoption rate at the expense of revenue.
- Founded in 2013
- 40 people
- $6M investment round
- High & rapid adoption
- Low sales – Estimated to be ~$1M
- Acquired at $150M
The ROI on this deal is a no brainer for Ansible. The rationale for the Red Hat acquisition isn’t so much on the direct revenue from Ansible as a product, but rather the potential monetization from its impressive adoption. This is interesting as it clearly put the benchmark for a successful startup these days back on eyeballs and popularity, and less on having a sustainable business model. But this seems to be the new game, and technology companies are all scrambling to get in line with this new model.
What’s also interesting is that we’re starting to see new companies emerging to disrupt not just the dinosaur of the world, but also the early cloud companies such as Puppet and Chef that are now being disrupted…and there’s a long list of such companies. Salesforce is a good example for one that is also being threatened by this rapid disruption.
We can see a clear vicious cycle that applies to all companies old and new. New generation companies rise on the wave of adoption by providing free and open source tooling, as they start to monetize and build a sustainable business model they start to lose popularity, and a call for a new disruptive tool is heard.
That explains the timing behind this acquisition, Ansible had reached a ceiling when it comes to adoption, and failed to build a sustainable business model out of their product. Containers/Docker have disrupted the entire configuration management market, and to a large degree render it obsolete (the adoption curve shows a clear declining trend on all the other configuration management tools).
With this in mind Ansible is clearly at its peak right now, so their best option was to be acquired by a bigger company like Red Hat. Red Hat is probably the only company with a sustainable business model around open source, so for them the direct revenue from Ansible isn’t that interesting but more of the combined revenue that could be generated by bundling Ansible into a bigger DevOps tool set. I’m sure that the fact that Ansible’s founders are also formerly Red Hat played a not small factor in the overall decision.
What have we learned from all this?
- Cisco, EMC, Dell, HP, IBM are “walking dead”
- Adoption/popularity is the new king
- The only constant is change!
Disrupt yourself before your competitors do –> Embrace change
Steve Jobs’ main mantra was “disrupt yourself before your competitors do” and indeed what’s clear in both deals is that change is inevitable, and it can and will happen to big companies just as it can happen to a smaller company. Therefore, the assurance that we used to think we had by relying on big companies isn’t a safe bet anymore, similarly the risk of using new technologies from startups isn’t as great as it used to be.
In this world those who would survive are only those who are set to adopt new technologies fast. There’s a direct correlation between the speed of adoption and the speed of innovation. The challenge is actually even bigger for companies who grow fast. Chef and Puppet are a good example in this regard. They created a new disruption, grew fairly fast, but stagnated for a long time, and failed to respond to the new disruption in their domain.
This is where I see the biggest shift in the value chain specifically in the new data center. The value is less on how we build the tools, but more on how we put them together, and how we can adopt new tools or replace existing ones fast in way that will allow us to always be ready for the next disruption. This explains the rise in orchestration tools, as I pointed out at the last OpenStack Summit, and in my previous post orchestration tool roundup. that plays an important role as a “gluing” mechanism in the area of DevOps and automation.