I've been following the so-called "Stack Wars" in the Internet-enabled enterprise for quite some time.
When we talk about the enterprise stack, we're specifically referencing the intellectual property (IP) owned by a particular enterprise vendor. That is to say, the combination of hardware, software, and services within a company's portfolio.
Oracle Corp. (Nasdaq: ORCL), for example, with the acquisition of Sun has one of the richest stacks in the industry. IBM Corp. (NYSE: IBM) has always invested in various segments of technology and owns lots of IP (e.g., semiconductors, servers, storage, software, services). Hewlett-Packard Co. (NYSE: HPQ) also has been aggressively acquiring IP and expanding beyond printers for the better part of a decade.
These large enterprise players, all $100 billion-plus when measured in terms of market valuation, are posturing for competitive advantage in the enterprise. Witnessing an onslaught from Google (Nasdaq: GOOG) and the cloud computing trend, these firms are gobbling up as much IP as they can in an effort to "own" the enterprise client footprint.
Different competitors are taking different approaches to the stack. Each has a choice to vertically integrate throughout the stack or virtually integrate through partnerships.
Specifically, HP, IBM, and Oracle have the "tallest" vertically integrated stacks, which include all types of hardware, a variety of software, and a wide array of professional services. Between the three companies, they have IP that touches virtually every piece of the IT value chain. Of the three, only HP, however, has seriously invested in networking in an effort to compete with Cisco Systems Inc. (Nasdaq: CSCO)
The alternative approach is to focus primarily on a particular segment and partner to complete the enterprise stack. Microsoft Corp. (Nasdaq: MSFT), for example, has primarily stayed focused on its software stack for the enterprise, choosing to partner with hardware companies such as Intel Corp. (Nasdaq: INTC) and HP. Intel for its part is focused on hardware generally and semiconductors in particular, attempting to be the microprocessor "arms dealers" for enterprise and consumer markets.
One of the most intriguing developments in the stack wars is the virtual integration that's occurring with some vendors. EMC Corp. (NYSE: EMC)'s acquisition of VMware Inc. (NYSE: VMW), for example, has put the company in the center of the stack wars conflict. This is because virtualization is the next big battleground within the data center and VMware is the most dominant virtualization platform at this point in time. VMware is closely partnering with Cisco and choosing to have relationships with services firms such as Accenture in order to compete with IBM and HP, the industry's leading services companies.
SAP AG (NYSE/Frankfurt: SAP) has recently thrown its hat into the ring, acquiring Sybase Inc. and partnering with VMware, Cisco, and EMC -- thereby creating a more complete enterprise stack in an effort to remain competitive with Oracle.
Do CIOs care about the stack wars? You bet. I strongly believe because CIOs have so much invested in technology that the moves of the suppliers who sell products and services are closely watched by their customers. Recently I had the opportunity to interview Tom Peck, senior vice president and CIO of Levi Strauss. Here's what he said about the stack wars:
The stack war battles pit highly vertically integrated companies, such as HP and IBM, against companies focused on a virtually integrated whole via partnerships, such as SAP and EMC.
In theory, the vertical approach can be more easily managed because it's owned by a single company. However, on paper, the virtual approach is more open and potentially has more industry reach. Peck told me that he leans toward a partnership model but needs to make sure he's managing all of his vendors -- even if they're more prone to vertically integrating IP.
Consolidation in the enterprise IT business will continue, and I believe both vertical and virtual integration models will survive. My personal bet is, like "Wintel" before it, the virtual approach will lead to more growth, while the vertical approach will effectively maintain its presence due to the strategic nature of the suppliers that are taking this route.
Yeah, it's a good bit like in the consumer space. Companies like HP try doing software, hardware, services, etc and wind up with completely separate businesses, very few of which are actually achieving the customer's goal, but hey, they were in the right place at the right time and just because we buy their hardware we should buy their software, right? Lucky for HP, some (large) customers don't have time to think things through and lock-in early.
If enterprise "stacks" are anything like consumer ones, I'm not a fan. My Verizon triple-play service is still tantamount to having three vendors, particularly when it comes to the TV portion. There is no coordination offered by Verizon.
That said, there are no doubt more advantages in the enterprise realm, and IBM and HP have decades of experience in this field. It's their example that EMC and others have followed for the last 10 years, as specialization in one area -- in EMC's case, storage -- grew so rapidly and became so big that it necessitated diversification of IT offerings.
There's also a lot that goes into managing Web-enabled IT these days, so it's to the big vendors' advantage to partner or grow their own in many areas.
I'd love to hear how customers are really faring given the trend.
I wonder if the promise of the stack in terms of integration are as wonderful as the vendors might have you believe.
As an example, I remember when Cisco was aquiring a lot of new IP through aquisitions they were not doing a good job of integrating the new companies' technologies into their network management platform.
I have no experience in this area, but does getting a full stack from a vendor - while it may be convenient - really eliminate the integration issues? Or does it just place the responsibility for managing those issues onto the vendor?
A very interesting topic that I have little experience with other than as a concerned user. My example would be Adobe, they have several proprietary technologies that I use. If the company went away or did not support them any longer, I would be in trouble.
I agree. Too many analysts think battles have to be won by one side or another. While that's occasionally true, such as in Betamax vs. VHS and Blueray vs. whatever the other DVD format was, those examples are famous precisely because they're rare. The real deciding factors, IMHO, are the switching cost and the stage of market growth. While in the Betamax vs. VHS example there were serious switching costs, the market was so small at the time that VHS could just outgrow Sony by orders of magnitude. Coke vs. Pepsi, the switching costs are low, but the market is well-developed, so switching takes place in both directions, reducing the market share shifts to fractions of a point.
In the case of IT in the enterprise, the switching costs are huge, and the market is well-defined and already fairly well developed, so the current territories held by each faction are again likely to shift only slightly.
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