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IBM and Cisco acquire OpenStack providers

IBM and Cisco both made acquisitions this week to shore up their cloud portfolios and consolidate the private cloud and OpenStack market.

OpenStack distribution options continue to shrink as two more small vendors have been gobbled up by bigger players looking to stake their claims in cloud.

Market consolidation around the open source cloud technology has been a familiar theme over the past year, and that continued this week as IBM and Cisco each said they plan to acquire OpenStack providers. The former plans to buy hosted private cloud provider Blue Box and the latter is set to buy private cloud platform and support services provider Piston Cloud Computing, Inc., though terms of the two separate deals were not disclosed.

"Cisco and IBM are looking to make sure they have a full suite of products and services that can help solve their on-premise, hosted or public cloud capabilities," said Al Sadowski, research director at 451 Research, LLC, based in New York. "Both can now check the box that they can support complete hybrid solutions."

For IBM, it's been a meandering road to develop a cloud strategy, but the Blue Box deal fills in some holes and gets IBM closer to its roots as a provider of higher-level services, said Allan Krans, principal analyst with Technology Business Research (TBR), Inc., in Hampton, N.H.

Though it has a solid customer base, Blue Box only has four data centers and isn't a huge business, Krans said. But IBM will be able to expand those services into the rest of its data centers and do the type of scaling and rationalization it has done with the rest of its cloud portfolio.

"When you look at what [Blue Box] delivers for clients, it speaks to where IBM has arrived at in terms of its cloud strategy," Krans said.

The Cisco-Piston Cloud Computing deal was all about getting resources and engineers, as some of its employees had been involved with OpenStack from very early on, Sadowski said.

"A lot of companies are struggling to find resources as they grow their OpenStack capabilities," Sadowski said. "Mergers and acquisitions, or poaching from one company to another" is one way to solve that problem, he said.

OpenStack market consolidation: the inevitable comes to fruition

These deals come just over a week after EMC said it planned to buy cloud software vendor Virtustream for $1.2 billion. The consolidation of the OpenStack provider ecosystem and the managed service space can be attributed to two things, said Dave Bartoletti, principal analyst for Forrester Research, Inc., based in Cambridge, Mass.

Large cloud providers need talent, customers and services -- all of which are difficult to build organically; and customers need helping figuring out which private cloud is right for them and increasingly want someone else to host and run it for them.

"All of these buys expand the buyers' range of offerings quickly, and add talent and open source cloud skills," Bartoletti said.

Other OpenStack or private cloud deals over the past year include Cisco's acquisition of Metacloud, EMC's purchase of Cloudscaling and HP's addition of Eucalyptus. Some early vendors in this space, such as Nebula, have simply closed.

Consolidation was always inevitable, as there's simply not enough revenue available in the OpenStack software market to support a bunch of startups, said Lydia Leong, vice president and distinguished analyst with Gartner, Inc., based in Stamford, Conn. It's actually somewhat surprising it's taken this long, she added.

You don't have to be too astute to notice a lot of these companies are going to get merged in or purchased. They've all got an exit plan, every single one of them.
Steven Vaughanvice president of communication-as-a-service solutions, Interactive Intelligence, Inc

"There's already been a lot of heartache in the community over the last two years on the role of the smaller OpenStack vendors versus the behemoth IT vendors," Leong said. "But this is, and arguably always has been, the inexorable press of commercial reality."

Interactive Intelligence, Inc., a communication software provider based in Indianapolis, uses Piston Cloud as the orchestration layer for its OpenStack environment. The deal with Cisco isn't surprising, said Steven Vaughan, vice president of communication as a service solutions.

"You don't have to be too astute to notice a lot of these companies are going to get merged in or purchased," Vaughan said. "They've all got an exit plan, every single one of them."

And because of that expectation, Vaughan is always looking 12 to 18 months ahead with a lab environment to test other OpenStack providers, such as Red Hat, Inc. and Mirantis, in case Piston isn't supported at some point.

"I'm hoping they protect Piston as a product going forward, but we'll see," Vaughan said.

Mirantis, which labels itself as the biggest pure-play OpenStack provider, is the largest remaining independent vendor and a logical pick to be sold next, analysts said. But with a recent $100 million funding round and hints at a possible IPO, the price tag won't be cheap, Sadowski said.

"It would be a big company that would need to take them out," Sadowski said.

OpenStack may get easier

OpenStack has garnered plenty of attention from enterprises, but its adoption is still hampered by the complexities of installing and operating its components, TBR's Krans said. These deals could be another step toward overcoming those issues.

"It's a signal that the bigger vendors, with all the consultants and management and remote monitoring capabilities, are going to provide that safety net to move to OpenStack," Krans said.

OpenStack support will start to become an expectation rather than something that has to be sought out, as more use cases develop and the technology moves from the theoretical to the practical, Krans said.

"It's going to be baked in as a flavor of a lot of the tools to build and manage clouds. And it's becoming more enterprise-ready for your environments," Krans said. "You're not going to flip a switch and start building and consuming OpenStack-based services tomorrow, but it becomes more of a real part of the roadmap for customers."

Trevor Jones is the news writer for SearchCloudComputing. You can reach him at [email protected].

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