Buy ‘em While They’re Hot

Old computing ideas never seem to die. For instance, grid and other forms of utility computing are updates of classic time-sharing. Besides the fact that both ideas are based around the idea of shared resource, both were — or are — being driven by brute economics. Twenty years ago, few companies could afford their own mainframe. Today, hardware has gotten so cheap that most companies have bought too much of it, winding up with lots of spare computing capacity that are inflating IT overhead dollars.

Behind the idea of shared resource is the notion of virtualization — a way to make multiple systems, or multiple parts of a system, look like one. An established idea from the mainframe world, the concept is gradually being introduced to the heterogeneous computing world, where virtualization has long proven easier said than done.

That’s especially been the case in storage, where the market for storage networks and tools has been highly fragmented (standards take-up has been slow). But for Intel machines, one company — VMware — has created a de facto standard. Initially a geek tool for partitioning test and development machines with several instances of Windows and Linux, the company’s business took off and entered the black last year when it introduced server virtualization. Today, over half of VMware’s revenues are coming from its newer server line, which isn’t surprising, since data center budgets are typically higher than development teams.

With little if any competition (Microsoft’s Virtual PC lags in server functionality), 5-year old VMware has been a rare bright spot in a down tech market. At roughly $635 million — roughly triple anticipated 2004 revenues — EMC paid dearly for the privilege. Originally, EMC was going to wait until next summer to buy VMware, because the ink is still drying on its 2-month old Documentum acquisition (expected to close in a few days). However, given VMware’s growth, EMC had to nip what would have been one of 2004′s most highly awaited tech IPOs in the bud.

The VMware acquisition is a solid but costly buy for EMC. The proof is that there is already significant customer overlap. That makes sense: If you’re virtualizing storage, you probably want to consolidate servers as well.

Operating Principles

What’s the most important piece of software in your enterprise? More than an idle question, the answer will shape, not only who gets most of your software dollars, but how
companies architect their software going forward. At first glance, Novell’s acquisition of #2 Linux vendor SuSE, SCO’s continuing legal rampage to extort millions in Linux royalties, and Microsoft’s Indigo announcement, point to the OS continuing its pivotal role. But the answer ain’t so simple.

Before 1980, things were simple: you bought hardware, then got a few miscellaneous files that we now call an operating system. Ironically, the IBM/Microsoft/Intel cartel creating the PC market was similarly based on the notion of OS as afterthought. But, once Microsoft outflanked OS/2 with overwhelming third-party support, it became clear that the OS was now king.

Ironically, client/server architectures, based on visions of open systems, were supposed to put OS’s back in their place. Yet, client/server fat clients wound up reinforcing the role of Windows as enterprise gatekeeper. Not until Netscape, with its retro chic Internet dumb client, did the OS finally meet its match. Java posed a further challenge, but not because of Sun’s “write once, run anywhere” strategy. Rather, it was the divergence of J2EE appserver implementations, recalling the disastrous forking of UNIX a decade earlier, which made middleware more critical to web applications than platforms.

And then came Linux, whose open source lineage was supposed to relegate the OS back to prehistoric commodity status.

Not so fast. Microsoft railed against the notion of relying on open source for enterprise-critical systems. They were recently joined by SCO, soon to litigate over the matter of who owns Linux. Ironically, Sun’s new Java Enterprise System, embedding the Java middleware stack atop Solaris, lent further moral backing to Microsoft’s contention of the OS being key. All this is happening as web services, a relatively new technology, is supposed to blur distinctions between Java, .NET, and whatever platform you’re using — theoretically making software truly interoperable.

However, the issues posed by web services go far beyond the relevance of the OS. Instead, the key question is who will own the critical “services” layer, or glue that will integrate your enterprise. It could be through an enterprise application like SAP. Or it could be driven by database, appserver, portal, or enterprise integration middleware. And yes, it might even be deployed through the OS. Microsoft’s recent announcement that Indigo, a new web services framework, will be embedded in Longhorn, its next major platform release, renews Microsoft’s vision that OS remains pivotal.

Against this backdrop, the ratcheting up of Linux litigation is at best a sideshow that won’t answer the question of whether OS still matters. The real battle is over which players will drive enterprise architecture, and in that arena, the stakes are far higher than whatever might happen in court.