Who’s next? Oracle buy could set off spending avalanche

Oracle Corp.’s purchase bid for Virtual Iron Software Inc. could set off a string of new acquisitions in the coming months as major IT vendors look to stay ahead in the hotly contested virtualization market.

Although it appeared to many industry watchers that CEO Larry Ellison and company had already acquired all the virtualization pieces it needed, Oracle’s Virtual Iron bid highlights the business software giant’s intention to truly dominate the space. Richard Jones, vice-president and service director for data centre strategies at Burton Group Inc., pointed to Virtual Iron’s superior management tools and the inroads it has made among SMB virtualization customers as key factors in the deal.

With Oracle putting the pieces together to be a true leader in the virtualization space, other hardware and software providers will be looking to keep pace. And in an economy causing significantly slowed IT spending, some vendors might decide now is the time to play catch-up, according to John Sloan, a research analyst with Info-Tech Research Group Ltd.

“If we were in a hot economy with a lot of servers going out the door and a lot of infrastructure being built-up, a company like VMware would have a real advantage because they have all of the pieces together,” he said. “But because of the slowdown, we’re seeing a lot of consolidation and competitors having the time to make a push to become a credible alternative.”

Here’s what could happen:

1. Cisco buys EMC

One such rumour floating around would have Cisco Inc. buying up EMC Corp. and a major share of VMware Inc. along with it.

According to Gordon Haff, principal IT advisor for Nashua, N.H.-based research firm Illuminata, Inc., Cisco has a lot of work to do before it can become a “soup-to-nuts” system vendor. The company’s strategy, he added, seems to be to have a close working relationship with EMC, which is how Cisco’s filled some technology gaps to this point.

But with Cisco’s recent big move into the blade server space — and all of the feather-ruffling it did in the process — others have pointed to EMC as a good fit.

“It’s certainly possible, but it would be a huge merger,” said Chris Wolf, a senior analyst who also covers virtualization for the Burton Group. “Of course, it remains to be seen if EMC wants to let go of VMware or if it wants to be part of Cisco. It would have to be an incredible offer in order to happen.”

Cisco had $29.5 billion in the bank at the end of the first quarter of this year, which it topped up with a $4-billion bond issue in February, according to Bloomberg.com.

A major strike against this deal could be the fact that EMC has shown little interest in spinning off VMware, Haff added. “And that’s one of the reasons that (former VMware CEO) Diane Green was ousted,” he said.

Another attractive company for Cisco, according to Wolf, could be BMC Software Inc., which would fill Cisco’s need for an enterprise management platform.

2. Oracle buys Red Hat

Somewhere behind the down-market channel angle and the need to shore up its virtualization management suite, another potential motivating factor for Oracle pulling the trigger on Virtual Iron could be to keep the company out of the hands of competitors such as Red Hat Inc. and Novell Inc.

“In fact, Oracle may view Virtual Iron as another item on their grocery list of companies to acquire that includes Red Hat,” Drue Reeves, a research director in the Burton Group’s data centre strategy division, wrote on his blog. “By purchasing Virtual Iron, Oracle prevents Red Hat from acquiring additional virtualization technology, perhaps in an attempt to keep Red Hat’s price low for a future acquisition.”

It also prevents Novell from buying Virtual Iron’s technology, which uses Novell’s SUSE Linux for its services partition, he added.

But many industry observers disagree about Red Hat’s supposed interest in Virtual Iron because of the company’s commitment to kernel-based virtual machines.

“Virtual Iron is in the Xen camp, and while it’s arguable that their management tools are hypervisor-neutral to some degree, it didn’t appear to be a great fit with Red Hat,” Haff said.

Red Hat’s interest in Virtual Iron aside, however, the fact that Oracle is already using Red Hat Enterprise Linux as part of Oracle Enterprise Linux could make this a possible acquisition candidate, Wolf said.

Yet another scenario could have Oracle continue to entice key engineers at Red Hat to make the switch and simply build up their own services and support organization for Linux, according to Jones.

3. IBM buys Novell

Of course, if Oracle did decide to buy Red Hat, then the obvious situation would be for IBM Corp. to answer back and purchase Novell, Jones said.

“A larger competitor would be managing one of the major distributions (for Linux) and have full control over that, so obviously a move toward Novell would be something to expect,” he added.

And with Novell’s executive board full of former IBMers, this is a scenario to watch out for even without a Red Hat purchase. “This really isn’t a new idea, as it seems IBM has thought about this every year during the last decade,” Jones added.

With last year’s purchase of Toronto-based PlateSpin Ltd. and its aggressive licencing for the Solaris OS in virtual environments, Novell is positioned as a strong, mid-sized virtualization player that might be attractive to other major vendors as well, Wolf said.

4. IBM buys CiRBA

In wake of the Virtual Iron deal, other smaller virtualization and capacity management players should get some attention from major vendors.

Richmond Hill, Ont.-based CiRBA Inc. is a data centre analysis software provider that brings together configuration information, business attributes and utilization data of servers, representing them as a three-dimensional cube and finding opportunities to optimize their use through virtualization or consolidation.

“The depth of CiRBA’s analytics is very unique and the fact that they’re not just a VMware-only solution makes them attractive,” Wolf said, adding that he is surprised the company hasn’t been snatched up yet.

“They address Solaris containers, mainframes and traditional servers running non-virtualized workloads,” Wolf said. Most of the capacity planning tools out there are looking purely at performance metrics, while the CiRBA solutions lets you do a variety of things on the non-technical side, even factoring in compliance, security and departmental zoning restrictions, he added.

IBM would be the best home for CiRBA, Wolf said, because the companies have shared a close working relationship. <

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