No Ruse: Hurd Joins Ellison at Oracle

A changing of the guard has occurred in the Oracle executive suite, with Charles Phillips on the way out and Mark Hurd, former chairman and CEO of Hewlett-Packard, taking his place as co-president alongside Safra Catz.

The move is both unsurprising and surprising at the same time. For example, it’s not surprising that Phillips is leaving Oracle. Reports had persisted for some time that he might depart. His departure needn’t have coincided with Hurd’s arrival, but that’s the way it worked out.

Comfortable Arrangement

Speaking of which, Hurd’s move to Oracle makes perfect sense considered within the context of his friendship with Larry Ellison. The two apparently are close, and they share considerable mutual admiration and respect. There’s every reason to think they’ll be able to co-exist at Oracle’s executive heights.

That said, I’m still not sure that Oracle needs Mark Hurd. It’s already a lean, mean ship, and Hurd’s modus operandi is to identify and rectify operational inefficiencies in pursuit of cost reductions. Oracle does that well today, and probably could have continued to do so without Hurd joining the company, no doubt at great expense to shareholders.

From Tennis Court to Boardroom

I have to wonder whether Ellison is making this move purely on the basis of business considerations or whether he made the decision more for personal reasons. It certainly feels like executive fiat. I don’t think Hurd will do any lasting damage at Oracle — he’ll be reporting to Ellison and will not be given the latitude he had, up until near the end, at HP — but nor am I convinced that he offers a lot of upside value.

I had thought Ellison and Oracle might have been engaging in a ploy in leaking discussions of Hurd taking a job there. I thought Ellison might have been trying to help his friend’s negotiating position in relation to a CEO position elsewhere. There had been talk to that effect in recent days.

In the end, though, the tennis tandem have become boardroom buddies. What will be interesting to watch now is not so much how Hurd coexists with Ellison, but how well he gets along with co-president Safra Catz. You know the old saying: Two’s company, three’s a crowd.

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Pondering Hurd-to-Oracle Reports

Everybody knows by now that Oracle CEO Larry Ellison and former HP CEO Mark Hurd are good friends, on and off the tennis court.

Ellison, you might recall, sent the New York Times an impassioned email missive decrying the HP board’s decision to show Hurd the door, ostensibly over dubious expense reports. That futile intervention by the Oracle chieftain was testament to his loyalty to his friend and it might actually have reflected Ellison’s true estimation of Hurd as an executive.

We’ll know soon enough, because reports have surfaced in the Wall Street Journal and the aforementioned New York Times suggesting that Oracle might offer a top executive position to Hurd. Other reports also suggest that Hurd could snag a seat on Oracle’s board of directors.

These reports all are fueled by “a person briefed on the talks” between Hurd and Ellison. The person in question has chosen to remain anonymous, apparently due to the confidentiality of the matters under discussion. We don’t know whether the talks are being leaked by somebody inside Oracle, someone close to Hurd, or by other parties with knowledge of the situation.

Like Dropping Anvil on Subdued Prisoner

If Hurd were to join Oracle, it would be in a senior executive capacity, especially if he also were to claim a position on the board. This suggests that one of Oracle’s current co-presidents, Charles Phillips or Safra Catz, could be displaced as a result of Hurd’s ascension. Of the two, Phillips is thought by many to be more likely to suffer if Hurd were to join the Oracle executive team.

Still, if Hurd were to join Oracle, I’d attribute the move to Ellison’s friendship with Hurd rather than to any burning need for Hurd’s talents at Oracle. Hurd would not come cheaply, and — on the basis of a rigorous cost-benefit analysis, surely an approach Hurd would appreciate — it’s not obvious that he’d bring a return on the considerable investment he’d entail.

After all, Oracle doesn’t have difficulty running a tight ship. Why would it have need for the services of an executive who is the technology industry’s answer to Al Dunlap, a man variously honored with affectionate sobriquets such as “Chainsaw Al” and “Rambo in Pinstripes.” Adding Hurd to the mix would be overdoing it, like dropping an anvil on a prisoner who’s already been subdued.

Potential Negotiating Leverage

The fact is, Oracle doesn’t need Hurd’s operational help with the integration of Sun Microsystems, and Larry Ellison doesn’t require or want assistance plotting the strategic course and vision for his company. Besides, Hurd’s strength is not and never was vision. His calling card, his speciality, is finding and then mitigating or eliminating operational inefficiencies. Oracle doesn’t have many of those.

All of which causes me to wonder whether this story has been leaked for other reasons. We know Ellison and Hurd are friendly. We know Ellison is inclined to come to his friend’s assistance. Allow me to hypothesize for a moment. Let’s assume Hurd is in negotiations for a CEO job with another technology company in Silicon Valley, one whose operations might benefit from some vigorous austerity measures. Let’s further suppose that Hurd is trying to negotiate the sort of boffo compensation to which he has become accustomed. Finally, let’s assume that the company in question is reluctant to acquiesce to his demands. In those circumstances, a putative offer of a plum job at Oracle could provide Hurd with convenient negotiating leverage.

No matter what transpires, I would not be surprised to see Hurd take a board seat at Oracle, effectively substituting for the one he lost at News Corporation in the wake of the scandal (or whatever it was) at HP. Ellison and Hurd are friends, after all.

OpenPlug Buy Deepens Alcatel-Lucent’s Commitment to Application Enablement

I spoke earlier today with representatives of Alcatel-Lucent about the company’s acquisition of OpenPlug and how it fits into a broader application-enablement strategy that bridges developers and service providers.

Laura Merling, vice president of Alcatel-Lucent’s developer platforms and related programs, explained that company’s move into developer tools is part of a long-term strategy that could help redefine the relationship between developers, primarily of the mobile variety, and service providers. In the process, of course, it also could help redefine Alcatel-Lucent relationships with both constituencies, particularly service providers.

The way Alcatel-Lucent sees it, the company is responding to an urgent needs in both camps. For a long time, developers have wanted wireless operators and other carriers to expose more of their network services. Wireless operators, for their part, often have been willing to play along, but they haven’t had the means of doing so. Meanwhile, smartphone vendors, such as Apple and Google, sought to fill the void with device-specific development tools for application creation and monetization.

Sending Strong Signal

With its Open API initiative, its earlier acquisition of ProgrammableWeb, and now its acquisition of OpenPlug, Alcatel-Lucent is sending a strong signal that it is serious about application-enablement. In sending that signal, it’s letting wireless operators know that it’s in their corner as they try to regain some of the developer and subscriber patronage they’ve surrendered to Apple and, increasingly, to Google.

In theory, Alcatel-Lucent’s push to become a valued intermediary between developers and service providers makes sense, but the challenge is daunting. On one side, it must convince developers that it is creating a new broad-based platform that will allow them to address network-layer services and target a wide range of smartphone and feature-phone handsets without having to compromise on application quality. On the other side, it must convince wireless operators and other carriers that it can help them draw the support of developers. It’s a chicken-and-egg dilemma, and it will need support and mutual reinforcement from both parties to have a viable shot at success.

Toward that end, Alcatel-Lucent is working hard to ensure that it precludes potential objections from either side of the aisle. Developers, for instance, can be wary of lowest-common denominator approaches to serving broad-based device demographics. They want to ensure that applications are optimized for the devices on which run and deliver good customer experiences. As such, Alcatel-Lucent takes pains to note that OpenPlug lets developers write once using a single development tool and then compile natively to each operating system.

Indeed, OpenPlug’s ELIPS Studio, which now becomes part of Alcatel Lucent’s developer platform, is a development environment that allows ISVs to create and deploy mobile applications cost-effectively and quickly across iPhone, Android, Symbian, Windows Mobile, Linux, and other systems.

Arrayed Against Apple, Google

Fundamentally, Alcatel-Lucent’s whole application-enablement strategy is intended to put it in league with developers and service providers against the fragmented forces of independent smartphone platforms, such as Apple’s iPhone, Google’s Android, and RIM’s BlackBerry. The smartphone vendors cannot be expected to provide Alcatel-Lucent with any comfort.

Even though the application-enablement initiative is intended to be synergistic with the Alcatel-Lucent’s core business of selling telecommunications equipment, the company is committed to making the the new initiative a going concern in its own right. That will take work and perseverance, but the two acquisitions this year — with perhaps more M&A activity to follow — suggest that the company is in it for the long haul.

It’s good for Alcatel-Lucent to have something like application-enablement in its back pocket as a means of differentiating it from lower-cost telco-equipment vendors such as Huawei and ZTE. It’s also a good insurance policy against margin erosion on the hardware side of the business. On the score, Alcatel-Lucent is taking a “freemium” ad and license-based approach to sales of its application-enablement software to the developer community, and it will sell licenses to wireless operators and other carriers.

Whether Alcatel-Lucent will be successful in its application-enablement capacity remains to be seen, but the company, in making two acquisitions and allocating substantial resources to the effort, does not seem inclined to cut and run.

Virtualization Still Calls Data-Center Tune

As the latest VMworld begins its transformation from current event to memory, now probably is as good a time as any to reflect on what it all means, if anything, for the future of data centers, the IT industry, and various big-name vendors.

There has been a lot of talk about public, private, and hybrid clouds at VMworld, but I think that’s something of a side issue. Yes, certain enterprises and organizations will partake of cloud services, and, yes, many enterprises will adopt a philosophy of IT as service within their data centers. They’ll make data-center management and automation decisions accordingly.

Even so, at a practical level, it is virtualization that continues to drive meaningful change. The  robust growth of virtualization has introduced problems (optimists would call them opportunities), too. How do you automate it, how do you manage it, how do you control it so that it remains a business asset rather than a potential liability?

Reciprocal Choking

At a fundamental level, that’s the big problem that data centers, whether within enterprises or service providers, must solve. The ultimate solution might involve data- center convergence — the integration and logical unification of servers, storage, networking, and orchestration — but it’s not clear whether that is the only option, or whether the price of vendor lock-in is worth the presumed benefit. Most enterprise customers, for the time being, will resist the urge to have one throat to choke, if only because they fear the choking might be reciprocal.

Indeed, as the vendor community has reacted to the popular appeal of data-center virtualization, the spectacle has been fascinating to watch. Who will gain control?

It’s not a simple question to answer, because the vendors themselves won’t have the final say; nor will the industry’s intelligentsia and punditry, formidable as they may be. No, the final arbiters are those who own, run, and manage the data centers that are being increasingly virtualized. Will network managers, or at least those with a strong networking sensibility, reign supreme? Will the leadership emerge from the server, application, or storage side of the house? What sorts of relationships will  these customers have with the vendor community, and which companies will serve as trusted counsel?

Ownership of Key Customer Relationships

As virtualization, by necessity, breaks down walls and silos, entirely new customer relationships will develop and new conversations will occur. Which vendors will be best positioned to cultivate or further develop those relationships and lead those conversations?

Meanwhile, vendors are placing their bets on technologies, and on corporate structures and strategic priorities. HP is an interesting case. Its Enterprise Servers Storage and Networks (ESSN) seems increasingly titled toward storage and servers, with networking — though not an insignificant consideration — relegated increasingly to a commoditized, supporting role. Just look at the executive management at the top of ESSN, both at HP headquarters and worldwide. You’ll notice an increasingly pronounced storage orientation, from Dave Donatelli on down.

Cisco, meanwhile, remains a networking company. It will try to imbue as much intelligence (and account control) as possible into the network infrastructure, even though it might be packaged under the Unified Computing Systems (UCS) moniker. That might not be a bad bet, but Cisco really doesn’t have a choice. It doesn’t own storage, is a relative neophyte in servers, and doesn’t have Oracle’s database or application pedigree.

Dell’s Move

IBM and Dell will be interesting to watch. Dell clearly places a lot of emphasis on owning its own storage technology. It has its own storage offerings right up through the midrange of the market, and it tried hard to buy 3PAR before being denied by a determined HP, which had its own reasons for winning that duel.

Questions remain over the importance Dell attaches to networking. We should learn soon enough whether Dell will continue to partner, with Juniper and Brocade, or whether it will buy its way into the market. To the extent that Dell continues to maintain its networking partnerships, the company effectively will be saying that it deems networking a secondary priority in its data-center strategy. IBM already seems to have made that determination, though there’s always a possibility it will revisit its earlier decision.

This puts Juniper in an interesting position. It needs to continue to push toward its Project Stratus intelligent flat network, thereby enhancing its value to customers and its importance to Dell and IBM as a partner. Brocade faces a similar challenge in storage networking, though it still seems to have a lot of work ahead of it in repositioning the Ethernet-switching portfolio it obtained through its acquisition of Foundry Networks.

Microsoft Pays for Inattentiveness

I have not mentioned Microsoft. VMware threw down a gauntlet of sorts earlier this week when it suggested that the importance of Windows as an operating system had been undercut severely by the rise of virtualization. For the most part, I agree with that assessment. Microsoft has some big challenges ahead of it, and it has been attempting to distract us from its shortcomings by talking a lot about its cloud vision. But a vision, no matter how compelling, is thin gruel if it is not supported by follow through and execution. In virtualization, Microsoft was caught flat-footed, its gaze averted by commotion outside the data center and the enterprise, and it is paying a steep price for that inattentiveness now.

Even though marketing hype has pivoted and tilted toward the cloud, virtualization continues to recast the data center.

3PAR Battle Ends, but Drama Remains

The outcome of the tussle no longer is in doubt, but the dust has yet to settle on HP’s pending acquisition of 3PAR for $33 per share, or about $2.07 billion. In a bidding war that said as much about the fear of the buy-side principals as it did about the scarcity of high-end storage alternatives, Dell finally folded its hand and backed away from the table, unwilling to match HP’s latest escalation.

Said Dave Johnson, Dell’s senior vice president for corporate strategy: “We took a measured approach throughout the process and have decided to end these discussions.”

Measured approach? Well, I suppose it’s all relative, depending on circumstance and context, but “measured” isn’t a word that springs readily to mind to describe the 3PAR transaction.

Discombobulating Value

As Bloomberg notes, HP’s final offer values 3PAR at 325 times the company’s earnings before interest, taxes, depreciation, and amortization during the past year. In 21 computer-services deals in the past five years, acquirers paid a median 16 times trailing Ebitda, according to Bloomberg data. How’s that for context and perspective? Even the price-to-revenue multiple is discombobulating in an economic climate that is described variously as muted, torpid, and uncertain.

Yes, I understand that virtualization is remaking and reshaping the data center — wherever it might reside — and that significant scarcity value rightly adheres to 3PAR and its technology. But there are limits, and I think they were left well behind in this saga.

In the end, Dell made a belatedly prudent decision in allowing HP to triumph. Dell will receive a consolation prize in the form of a $72-million termination fee. It’s better than nothing, but it’s not the outcome Dell had in mind when it initiated this process with its original $18-a-share offer for 3PAR on August 16.

Back to the Drawing Board

Consequently, it’s back to the high-end-storage drawing board for Dell. We might consider placing bets on which of the remaining players in an admittedly small pool Dell will attempt to catch, but the implications of today’s events extend well beyond Dell and HP.

The relationship between Dell and EMC already was strained before the 3PAR episode, and you can be sure that the distrust and paranoia will not recede in its aftermath. EMC — along with VMware, of which it is the majority owner — could be driven further into the warm, suffocating embrace of Cisco Systems, which is what Dell feared all along. That’s the funny thing about self-fulfilling prophecies, isn’t it?

Theater Remains Open

And there’s Hitachi Data Systems. It’s been left with plenty to ponder, most of it dark, as HP prepares to punt it to the curb at the upper reaches of its storage portfolio. How will Hitachi respond, and how soon? The company typically doesn’t move at the speed of light, but this week’s events might lend a spring to its step.

We also ought to consider IBM and NetApp. They’re not purely disinterested observers. They will be thinking about what this means for them, not just as it applies to storage but as it applies to playing a part in delivering virtualized solutions throughout the data center. Partnerships, as well as M&A, become prominent considerations.

So, the curtain might be coming down on the drama involving HP, Dell, and 3PAR, but the opera house isn’t closed yet. It’ll be interesting to see what new names appear on the marquee.