Techaisle Analyst Insights

The rise in virtualization has been driving an accompanying demand for converged infrastructure or hyperconvergence: products that combine processing, storage and networking into a robust and scalable unit that can support and respond to the options inherent in virtualization. While the migration from separate server, storage and networking products to converged infrastructure is still in its early stages, the Techaisle SMB virtualization & converged infrastructure survey shows that it is beginning to gain traction, especially within more sophisticated SMB accounts.

Scale computing, launched in 2008, based out of Indianapolis with development in San Francisco bay area and offices in London, Paris, Toronto and Dubai made its SMB focused hyperconvergence launch at VMworld in 2012. Since then Scale Computing has implemented over 6,000 systems in a little over 1,600 customers.

As per Techaisle’s SMB virtualization and converged infrastructure survey, the key barriers to adopting hyperconvergence within SMBs are high cost of implementation, infrastructure disruption during roll-out, greater-than-anticipated time and resource investment, and the complexity of integrating new infrastructure units with existing infrastructure. For example, a pet peeve of SMBs when using VMware on HP Proliant DL380 G8 is their inability to use cloud migration to upgrade or add G8 or G9. These are the issues that Scale Computing is trying to address. In defense of VMware, although the initial code base of ESX was never built to be self-aware, VMware is working on it.

Steve Daheb, Chief Marketing Officer, Citrix, says, “Citrix is a cloud solutions company that enables mobile workstyles”. This philosophy’s execution is anchored to its three product pillars:

1. XenDesktop
2. Netscaler, and
3. XenMobile

Citrix has committed itself to an ambitious definition of enterprise mobility, with a framework spanning nine components; customers can use Citrix technologies to create an integrated, single vendor solution covering all nine areas, or can opt to plug competing products into any of the nine areas – an approach that Citrix has labeled “any-ness.”

Mobile Delivery Infrastructure (MDI)

We believe that there is current demand in the market for a reasoned approach to defining enterprise mobility. The suppliers of the endpoint products aren’t in a position to define the architecture and services needed to connect their products to corporate networks, applications and data, and the suppliers of data center infrastructure lack visibility into the endpoint side of the equation. Citrix is unique in spanning both environments, and its approach to enabling customers is, in our opinion, well-aligned with the need for architectural clarity that we have observed in the market. Accordingly, using the Citrix framework as a starting point, we have created a definition of enterprise mobility that we have dubbed “Mobile Delivery Infrastructure,” or MDI. MDI is comprised of three distinct, critical solution pillars: endpoint tracking and security, collaboration and sharing, and app delivery and management.

Unsurprisingly, given our starting point, Citrix can be seen as a standard-setter for MDI. Its approach to MDI will likely attract many firms in search of a consistent approach: Citrix’s fundamental belief that work is not a place, simpler is better and any-ness wins will resonate with many customers looking for a starting point for a mobility framework.

The breadth of the Citrix portfolio will also help prospective customers to understand the requirement for the full breadth of MDI technologies. While many other cloud companies are developing either one solution or several for mobile workforce enablement, Citrix’s strategy seems akin to Microsoft’s during its formative years: it owned the platform (the operating system) for the PC, attracting an ecosystem of hardware, software and networking companies which built products and solutions extending the utility of the core product. To that extent, Citrix seems to have created a corporate mobility delivery infrastructure that can either be utilized stand alone or combined with other solutions.

SMB Market Potential

Citrix‘s main target has been the enterprise segment, which has served it well. It has yet to develop a coherent strategy for marketing and selling to the SMB segment, relying on partners to address the market. However, Techaisle research demonstrates that the SMB focused channel partners themselves want tremendous help from their vendors. For example US channel partner data clearly shows the help required on multiple fronts.

Nevertheless, the SMB market has huge potential with nearly 300 million mobile workers by 2016.The SMBs investing in mobile enablement will need MDI solutions to supporting these 300 million mobile workers – which will create demand for one or more solutions within Citrix’s MDI platform.

Techaisle outlook: We believe that mobility is transitioning from being defined by devices to being defined by management strategies – and that this will create demand for MDI. With products covering each aspect of MDI – and with an approach that supports both single-vendor and best-of-breed deployments – Citrix is extremely well positioned to benefit from this transition.

In the first part of a three-part series, this post examines the growth of BRIC SMB IT markets, and their ranking relative to other markets. Here we will discuss the Top 10 markets from an SMB IT Spending perspective, and while it is well known that emerging markets grow faster from a smaller base, the absolute rankings of large markets tend to be relatively stable except in the case of exceptional growth, making it an important milestone. This is the case for China, in this forecast as it replaces Germany in its’ longstanding position of the third largest SMB IT Market. Other changes in ranking are that Brazil replaces Italy, and India comes into the Top 10 by the end of the forecast period. Korea displaced Australia as #10 in 2011 and manages to stay within the group throughout the forecast. The primary reason for this displacement is similar to that of other economic segments: sheer volume increase based on population and higher GDP per capita.

According to this Forbes article, the equity value of the BRIC economy financial markets peaked at 18% of the global value in mid-2011, and grew four-fold in the previous ten years. As a general rule, technology adoption lags economic growth and depends on many factors. This accounts for the slower climb up the rankings when compared with the overall economy, and is exacerbated by the fact that SMB IT adoption radiates from Tier 1 Cities to Tiers 2 and 3 as infrastructure allows.

Even so, we can see the fundamental differences in the market structures between Germany and China shown in this graph, despite the huge volume increase in China. Germany demonstrates a much more mature mix of IT products and services, weighted toward value-added segments of Software and Services, while the China market remains very hardware centric; almost half the opportunity is still hardware devices by the end of the forecast period. However, China is different than many other emerging markets because it is not only strategic as an end user market, it is also critical as a supplier to the world and to its’ own domestic market. The history of the IT market in Asia Pacific, especially since introduction of the standard PC architecture, has been a race between US brands and local manufacturers whose production is adopted in the domestic market through osmosis along with cultural and distribution advantages. In the case of China, this is more serious as it becomes an increasingly important global segment; on one hand there is a push to open the market while on the other US giants like Apple, IBM, Intel and Microsoft become more reliant on the Chinese Consumer and Enterprise IT markets.

There will be increasing international pressure to make sure there is a “level playing field” in China, as we have seen from initial forays like the Huawei controversy earlier this year. PC maker Lenovo is going very strong in the global market, having reached the #1 vendor in unit shipments worldwide in a relatively short period of time, and snatching three times more domestic market share than the nearest competitor. Lenovo and Huawei have also pushed Apple to sixth place in the Chinese mobile handset market, despite Apple manufacturing tens of millions of handsets and tablets in China. Welcome to the global economy.

We have covered Marketing Automation as a major topic, especially through the Techaisle SMB Marketing Automation Study conducted in US, UK, Germany and several blog posts, commenting on the rapid growth and consolidation in the market. In one fell swoop Oracle is now addressing a US$3.5 billion opportunity in the US by 2015 and US$6.0 billion opportunity globally.

Oracle’s announcement that it would acquire Eloqua for $871M, a leading Marketing Automation vendor, seems a little odd at first, mainly because majority of Eloqua’s customers are said to be using Salesforce.com as their CRM platform, and because Oracle competes with Siebel-on-Demand and recently released its’ own Fusion CRM product.

In the typical Oracle fashion of acquiring existing market leaders, i.e. Siebel Systems, PeopleSoft and JDE, Oracle snatched up another jewel for the Ellison crown, apparently valuing B2B and Enterprise-level functionality over SMB and Social Media Marketing automation that have been the focus of arch-rival Salesforce.com. It also sends a message to Redmond, whose recent acquisition of MarketingPilot seems to offer a substantial list of features and functions, but does not carry the weight of Eloqua’s brand. In the short term, it kind of looks like a mixed bag; the repercussions of the purchase seem to revolve along these areas:

SMB Customers:

1)     Oracle says they will continue to support third party applications, but they have a huge vested interest in on-premise CRM in Siebel and other solutions that will compete for resources,

2)     Enterprise customers who still have a staff to manage applications may be open to another level of integration with a combined Fusion/Eloqua/Siebel offer, but for those SMBs already on SFDC, it is very unlikely that there would be a compelling reason to move from SaaS to an on-premise model; getting away from capital purchases, IT headcount, maintenance fees and software upgrades was the main reason for going with Salesforce.com from the beginning. Same for those who are already managing their marketing campaigns and customer communication programs using Eloqua; it is hard to take that away without some revenue risk and employee dissatisfaction.

3)      In a recent Techaisle survey, 77% of SMBs interviewed stated they were looking for vendors to reduce complexity. The type and level of integration of Eloqua into the larger Siebel suite will either make things more or less complicated depending on the approach taken by product managers to create a seamless experience.

Competitors:

4)     Oracle denies access to Eloqua’s technology to Salesforce.com, which would have been a very good fit both in terms of customer acquisition/migration and start up culture. This may well be the most important (short-term) advantage gained by Oracle. This moves Marketo, SliverPop and others up the ladder as the large independents in the space, with Hubspot and Marketo obvious next-in-line M&A targets, in a market that has seen scores of start-ups, mergers and acquisitions over the past few years.

5)     Despite a 30% premium paid by Oracle for Eloqua ($23/share over the market $17), there is already a class action suit alleging that the board should have shopped a buyer more aggressively, suggesting a $27 price as more reasonable. No comment.

6)     Over the longer term the implications are larger in a market that is moving fast, which will be influenced increasingly by Big Data, Automation and Optimization -  Enterprise capabilities to compete with the big players like IBM,  Salesforce.com and  SAP, who will be bringing competition and automation to a new level in the next few years. A recent Wikibon Post is a good example of how hardware and software are evolving to meet these emerging real time challenges. The post describes how fast the bar is rising in optimization in general and online advertising in particular:

“Many commercial Web publishers make space available on their Web pages for banner and display advertisements. Typically, when a user opens such a Web page, the browser reaches out to an online ad exchange network and requests an ad unit to serve to that user. The ad exchange broadcasts this information, often enriched with behavior data specific to the user in question, to multiple advertisers. Each advertiser compares the information against its internal ad inventory and existing ad campaigns to determine what that ad impression is "worth" to them. It then decides whether to place a bid and at what amount. Bids are returned to the ad exchange, which determines who the highest bidder is and delivers the winning advertisement.”
- Wikibon

All without noticeable lag to the user. These are the kind of industrial strength capabilities that are on the way as the market compounds at almost 130%, dominated by Mobile spending as devices grow by the hundreds of millions, as shown in this Kleiner-Perkins forecast.

Who’s Next?

So in our opinion this is a significant acquisition for Oracle, mainly because Eloqua has a strong base of satisfied users and a strong brand, and strong technology that can be applied to Oracle’s stack in the long run. The $871M price tag was not enough to prevent a lawsuit for some shareholders, but represents a sizable investment for Oracle as they strive to define the ultimate Customer-Centric, Multi-Channel Relationship Management platform in their race against the large horizontal vendors in the space (IBM, SAP, SAS, Google, Teradata).  To this end Oracle has acquired eight companies in the last two years (ATG, FatWire. Endeca, RightNow, Inquira, Vitrue, Collective Intellect, and finally with this announcement, Eloqua). The scope of what used to be called the “360ᴼ customer perspective” has evolved to include pre-sales, sales, post-sales, customer service and lifetime customer value application components, with a relentless push to automate and integrate each piece of the puzzle.

In the wake of this acquisition, an obvious question is who's next? As mentioned earlier, Marketo is an obvious choice, as are Silverpop Hubspot, Responsys, and others.  Will SFDC respond in kind or continue to focus on the lower end of the market and Social Media acquisitions? Regardless, we think 2013 will continue to see a rich market for Marketing Automation M&A activity, following two years that have seen scores of transactions in the space.