What’s going on?
Hewlett Packard Enterprise Co. (HPE) has been forming a new identity after breaking away from HP. They have been divesting from their existing software and services, and invest in new growth areas. HPE has targeted the Software Defined Data Center (SDDC). To that end they’ve just acquired one of the emerging leaders in SDDC.
In case you haven’t heard, there is a disruption underway. SDDC has been projected to be a $77 billion market in five years. This is promising to be rip and replace for the enterprise (that might sound bad, but it’s a good thing). Customers have grown overly frustrated by the vendor lock-in that makes them pay more and more each year. For example, customers have expressed their frustration with VMware by coining a term vTax.
The main battle ground within the datacenter market has been ownership of the technology stack, from the bottom starting with the hardware to the top at the application layer. A few years ago startups, such as SimpliVity, adopted the emerging technology of hyper-converged infrastructure. They then built software to displace VMware, EMC and others.
SimpliVity started out in 2009 and by 2015 was valued at more than $1 billion. With talk of HPE acquiring the company late last year, their value was rumored to be an astronomical $3.9 billion. HPE is actually paying $650 million for SimpliVity. Sounds like a bargain, right?
What does HPE get?
Most importantly, the main asset HPE has bought is customers. Next HPE will support SimpliVity Omni Stack software on their own line of hyper-converged ProLiant DL380 servers. Soon we should expect the SimpliVity line of hardware to be given end-of-life status, and be replaced with HPE’s servers.
Other than the new customers, HPE paid $650 million for software features such as:
- Enterprise storage utilization and virtual machine efficiency
- Built-in enterprise data protection and resiliency
- Always-on compression and de-duplication
- Policy-based VM-centric management
- Support for all flash and hybrid storage
- APIs for third parties
The market is moving to a software defined infrastructure, built with hyper-converged and commodity hardware. The business value is simply economics. The price for enterprise class performance, data protection, and on-demand resources is dropping and fast. This is the classic tale that has made silicon valley legendary, twice the performance at half the price.
Unfortunately for many this is a story marked by a trail of tombstones. This is what happens with disruptive innovation. A common misconception is that it is based on new technology. It’s disruptive because it provides equal or better performance at a much lower cost. Disruptive innovations are a threat to the incumbents, because of the lower margins and increased competition. This is the lesson told by The Innovator’s Dilemma.
Take another look at that $650 million feature set above. This is what Microsoft has built into Windows Server 2016. Most customers will already have a Microsoft license. Why would a customer want to pay twice for the same thing? That sounds like twice the performance for twice the price!
If you combine the new features of Microsoft’s Windows Server 2016 with much lower costing hyper-converged hardware, then you get twice the performance at half the price.
As an aside, there’s an interesting twist to this tale. Some of HPE’s competitors are also customers of their newly acquired software. We’ll have to wait and see how this affects those competitor/customer relationships. I’m stating the obvious when I suggest as a competitor, I wouldn’t want to also reward them with my business.
How legends are made
This is a classic market tale of disruption in the making. Microsoft’s Windows Server 2016 combined with commodity based hyper-converged infrastructure is a disruptive innovation – a game changer. Datacenters have a new offer on the table, the holy grail, to rip and replace.
Windows Server 2016 increases efficiency while at the same time lowers costs. This offer comes from Microsoft, the vendor who is ubiquitous within the enterprise.
Windows Server 2016 will run legacy Windows services, and even Linux-based services. IT can manage the their datacenter with a single hypervisor. Datacenters can consolidate on a single software vendor, simplifying while saving money. A technology stack supported by a single vendor, imagine that.
To encourage the rip and replace offer, Microsoft has done something brilliant. They have a VMware migration offer for Windows Server 2016. I love to watch markets being disrupted.
Questions for you
- If you have Windows Server 2016, are you essentially paying twice for the features from HPE or VMware?
- If you have Windows Server 2016 on next generation hyper-converged infrastructure, isn’t that essentially twice as much at half the price?
- What do you think will happen next?