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The Hard Part About Rolling Up Clouds

The Hard Part About Rolling Up Clouds

While it might be easy for major players like Oracle to acquire a series of cloud companies and add their solutions to their corporate portfolios, truly integrating them can be problematic. The primary reason that roll-ups have not materialized is because the complexity and costs of putting them together continue to be too high, and the risk of failure is too daunting.

By Jeffrey M. Kaplan E-Commerce Times ECT News Network
11/11/11 5:00 AM PT

Oracle's recent acquisition of RightNow raises a question: Can multiple cloud companies be merged together to form a tightly coupled suite of solutions like those which were promised but never delivered during the client-server era?

On the face of things, it would appear that merging cloud companies together should be relatively easy and straightforward since many of them already interconnect with the advent of application program interfaces (APIs).

Alas, not every cloud company is built the same. Like snowflakes, cloud company architectures, programming languages and a myriad of other operational pieces and parts can differ dramatically.

Different Animals

In the same way that the rapidly growing cloud industry has spawned a new generation of cloud-oriented systems integrators (SIs) to pull together the proliferation of solutions available in the marketplace, it has also made it surprisingly difficult to combine cloud companies into bigger businesses with broader capabilities.

While it might be easy for major players like Oracle to acquire a series of cloud companies and add their solutions to their corporate portfolios, truly integrating them into their ongoing operations, corporate cultures and go-to-market strategies can be problematic. Selling subscription services is a lot different than selling packaged products. They entail differing sales tactics, channel strategies and compensation plans.

Even "net-native" cloud leaders like Salesforce.com have found that it often takes time to assimilate relatively small cloud companies before they can jointly bring them to market effectively. Differing code structures, monetization methods and value propositions can all get in the way of the integration process.

Private equity and venture capital firms have been salivating over the idea of "rolling up" multiple cloud companies for years. Many of these firms have long believed they can fuse together complementary cloud companies which have struggled to achieve successful scale on their own into a more robust business when combined with others.

Their dream has yet to become a reality on any grand scale. Part of the problem is that corporate decision-makers on the "buy side" of the market have yet to demonstrate that they are seeking a full suite of cloud solutions from a single vendor. This might be a "chicken and egg" situation in which the lack of an end-to-end cloud vendor has led customers to look elsewhere for best of breed solutions.

Acquisitions Still Happen

However, the primary reason that roll-ups have not materialized is because the complexity and costs of putting them together continue to be too high, and the risk of failure is too daunting.

This doesn't mean that we won't see more and more cloud company acquisitions in the coming months. On the contrary, you can bet on a buying spree of acquisitions at two levels. The first will be among the relatively mature cloud companies by established legacy hardware and software vendors. And the second area of acquisition will be among the leading cloud companies "cherry-picking" hot startups that are just beginning to demonstrate that they can generate sales.

But don't expect to see too many smart guys playing the roll-up game. However, I'll be happy to hear about any who are making headway in their efforts.


Jeff Kaplan is the managing director of THINKstrategies and founder of the Cloud Computing Showplace. Kaplan can be reached at jkaplan@thinkstrategies.com.


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