HPE buys Simplivity – winners, losers and implications

Last week HP announced that it is acquiring Simplivity – a leading independent supplier of HyperConverged Infrastructure (HCI) appliances and software for $650m. In this post I look at the winners and losers and implications for server users.

The winners and losers in HP’s acquisition of Simplivity

As in all acquisitions there will be winners and losers in this proposed deal to be completed in the second quarter 2017. In particular:

• Winners
  • HPE which will add Simplivity’s software and development expertise to its HC380 and future integrated systems
  • HPE’s customers who will enjoy more efficient integration
  • Simplivity’s investors (Accel, Charles River, DFI and KPCB) which will take the $650m HP is paying
  • Nutanix, which has consolidated its position as the leading independent HCI supplier with Simplivity’s withdrawal
• Losers
  • Other enterprise server vendors, including Dell, Cisco, Lenovo and Huawei which currently partner with Simplivity
  • Many of Simplivity’s 1,300 software customers whose choice of hardware supplier is being restricted
  • Supermicro which has an OEM deal to supply servers for Simplivity’s appliances
  • Resellers and distributors who currently sell Simplivity software to non-HPE server customers, or don’t want to supply another HP offering
  • Simplivity’s non-engineering staff, many of whom will probably leave the company

HPE has already said that it will continue to move Simplivity’s solutions towards a software-only model and away from its use of hardware acceleration cards, which it has modified for each of the server hardware platforms it supports. Clearly it has a much wider supply chain to offer this software to many more customers in many more countries than before. Unlike Dell which chose to let Pivotal, VMware, SonicWorks and Virtustream operate as semi-independent companies, HPE is putting Simplivity straight into its new Software Defined and Cloud Group (managed by Ric Lewis), which will be great for building the software into its own products (HC380 immediately with versions on other Proliant machines to come later), but not for other suppliers and their users.

All systems are integrated, but by whom and how

All computer systems (if they work) are integrated – it’s just a question of how and by whom; over the last few years major vendors have added the words ‘converged’, ‘hyperconverged’ added to ‘infrastructure’ to describe solutions aimed for medium-sized companies and/or for branch operations offering increasing levels of standardisation, making deployment and management easier than the build-your-own components they continue to sell. We don’t need fancy integration words for PCs or tablets, which are delivered ready to use to millions of customers – so why do we need it in the enterprise computing market? Traditionally server, storage and networking have had different connection and management protocols and even technical language, with their respective suppliers fighting for a share of the same IT budget. Large users have to employ specialists – not just to manage the 3 areas, but often to manage individual vendor equipment within them. The widespread use of server virtualisation makes management even harder because it adds hypervisors (VMware VSX, Microsoft Hyper-V, Linux KVM, etc) and now containers (Docker) on top of the physical hardware (‘infrastructure’) and the need to employ new specialists for the software.

In my experience complexity increases exponentially with system and organisational size, but not their IT budgets, which tend to be more linear from small to large organisations (see the top Figure). For years medium-sized users have struggled to handle the increasing disaggregation of system components, unlike larger ones have been able to take advantage to make their hardware estates more efficient. The largest cloud services vendors (Amazon, Google, Facebook, Alibaba, etc.) have built their own (ODM) systems sometimes creating interconnection and management protocols (such as Amazon S3) along the way, while other large IT users are placing a greater reliance on open source code for new analytics, databases and social business applications.

Hardware vendors themselves have been becoming converged, expanding beyond their respective niches to become full-range enterprise suppliers (see my bottom Figure where I’ve coloured the players in more than one market) some have bought smaller vendors to fill out their portfolios and cut their upstream partnerships with the leaders of other product areas. For instance:

• HP bought 3Par (storage), 3Com, Aruba (networking) and SGI (high performance computing)
• Dell bought Compellent, EqualLogic and EMC (storage hardware, software and services) and Force10 (networking)
• Nokia bought Alcatel Lucent to enhance its position in the enterprise (as opposed to service provider) network market

Cisco and IBM have behaved differently – the former acquiring suppliers mainly to consolidate its (greater than) 50% share of the enterprise network market and the latter offloading hardware businesses in order to build its position as a PaaS and IaaS cloud services supplier.

While ditching their relationships with each other, the largest vendors have encouraged the growth of start-up companies (RedHat and VMware despite EMC’s – and now Dell’s – majority shareholding) to supply users with virtualisation software to extend the utility of general-purpose systems. This demonstrates that the ‘horizontal integration’ of the IT market has continued into 2017, at least when it comes to hardware and infrastructure software; but this will decline in favour of ‘matrix integration’ as large vendors buy up the startups in order to bring more of the software in-house. It’s interesting that both Dell and HPE jettisoned much of their general software portfolios in 2016, while buying companies that make more specific interconnection offerings. Dell bought EMC, which has the riches set of storage software, HP is now buying Simplivity and Cisco is trying to buy Springpath, which it uses within its Hyperflex HX series.

For the future I expect integrated systems to continue to play a small, but important, role within the enterprise IT market – however users’ choices of solution however will continue to be limited by the acquisition of independent players like Simplivity.