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IBM Announces PwC Consulting Acquisition
By Charles King
IBM and PricewaterhouseCoopers (PwC) announced this
week that IBM will acquire PwC Consulting, the company’s global business and
technology services unit, for an estimated purchase price of $3.5 billion in
cash and stock. PwC Consulting has nearly 30,000 employees, and the company’s
estimated 2002 consulting revenues will be approximately $4.9 billion. IBM
and PwC have signed a definitive agreement regarding the acquisition that has
been approved by IBM’s board of directors and PwC’s leadership board. The
transaction is subject to regulatory approvals and the approval of local PwC
firms through votes of their partners, and is expected to be concluded around
the end of the third quarter. PwC will no longer pursue a planned initial
public offering. After the deal is completed, PwC Consulting will be combined
with the Business Innovation Services unit of IBM Global Services to create a
new global unit.
The IBM/PwC deal is interesting both from the
strategic value the acquisition should add to IBM Global Services and as a barometric
reading on the greater health of the IT market. From a strategic standpoint,
it is hard to see how the deal could be considered anything but a victory. In
a single move, IBM acquires a respected moneymaking entity for a fraction of
its 2000 asking price, notably strengthens the business strategy consulting
capabilities of its Global Services group (which should cheer IBM customers
and discomfit HP), and tweaks the noses of serious rivals (Sun and EMC, for
two) who once had close ties with PwC Consulting. Beyond its obvious
ramifications for IBM’s Global Services division, the deal should also pay
dividends to the company’s server, storage, and software groups for years to
come. Does that mean these potential opportunities will translate naturally to
a slam dunk win? Hardly. While much about the two companies is complementary,
the base differences between IBM’s corporate structure and PwC’s partnership
model could cause considerable friction, especially given IBM’s decision from
the get-go to integrate PwC into Global Services. Depending on how IBM
handles these delicate maneuvers, PwC employees might either jump ship on
their own or be enticed over the side by IBM’s myriad competitors.
However, we believe the potential of that exodus
will likely be mitigated by the ongoing coolness besetting the market for IT
spending. The fact is that when markets go south, pricy intangibles like
expertise become a tougher sell than products you can hold in your hand or
install on your datacenter floor. The $3.5 billion cost of PwC Consulting is
a case in point, as it is a mere fifth of the $18 billion asking price the
company placed on itself in 2000, when HP was a serious suitor. While the
company stated that it was planning a public offering PwC Consulting, the rocky
ride most recent IPOs have received offered an obvious source of concern. In
the end, PwC’s leadership board evidently decided that $3.5 billion in the
hand was worth more than uncounted dreams and lost opportunities. Given
current market conditions, we expect a vast majority of PwC employees will
follow suit, deciding that while life aboard the S.S. IBM may suffer some
limitations, it is far more comfortable than and preferable to the dark, cold,
and uncertain waters below.
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Veritas Elevates Commitment to Linux
By Joyce Tompsett Becknell
Veritas has outlined plans to expand its presence in
the Linux market. In January Veritas announced a Linux version of its
NetBackup and Foundation Suite products for storage management; now it has
announced Linux clustering server software and a Linux version of ServPoint
NAS, its network-attached storage appliance software to be available on IBM
and Dell Intel-based servers. Additionally, Veritas announced plans for
Linux-based clustering software for Oracle 9i in the second quarter of 2003,
and for file system and volume management software for IBM’s zSeries running
Linux in the 2003 to 2004 timeframe.
Sageza believes this announcement is interesting,
but not particularly from a tactical viewpoint. Pretty much everyone — including
most European governments — has announced a sudden fondness for Linux. Veritas’
announcement is not surprising by itself, as they have been supporting Linux
all year. However, what is interesting about this announcement is that
Veritas has raised Linux from a tactical play to a strategic one. While Linux
is not a significant revenue earner today, it has become an icon for an open
source mindset that many technology vendors believe will only grow in
importance over the next few years. Veritas has aligned itself with the
vendors driving the Linux adoption movement similarly to IBM which has been a
significant supporter of Linux for years. With IBM’s
backing, Linux can go places that smaller vendors couldn’t take it — such as
the mainframe — and Veritas is clearly positioning itself to be one of those
players. Dell is the volume driver in the market and when it made the
strategic choice to go with Microsoft Windows in 1995, they and most other
vendors were still shipping the majority of systems with Novell NetWare. Dell’s
support for Linux indicates that they believe it will become a volume play at
some point, and if anyone can lead Linux to the masses, it is Dell. With the combination of IBM and Dell as partners,
Veritas has positioned itself for maximum exposure to potential customers as
well as establishing partnerships with the two system vendors who are best
positioned to drive Linux-based solutions.
This announcement is interesting from another angle
as well. Veritas is the one storage company that can credibly claim to be a
software company today. Up to now, they have played the role of Switzerland,
maintaining neutrality with respect to all hardware platforms. This strategy
has allowed them to build solid market share and relationships with most of
the major storage hardware vendors. However, as the margins for hardware
continue to drop along with the list price of storage hardware devices,
hardware vendors have begun to look to services and software to supplant
their product revenue streams. The result has been a blizzard of
announcements touting that the major players are expanding into storage
software with a particular focus on management. This places Veritas in an
interesting position. As much as Veritas is a partner today, it could easily
become a competitor tomorrow. This means that Veritas must leverage its
capabilities and grab the mantle of storage software leadership while it is
available for the taking.
Realistically, we believe hardware vendors will develop
software for their own products before making them compatible with those of
competitors, but the three de facto platforms for development today are
Windows, UNIX, and Linux. Thus, Veritas cannot credibly claim to be a thought
leader in the marketplace without having a strong offering for Linux. By strategically embracing Linux now,
Veritas is positioning itself to get a leg up on learning the ins and outs of
Linux compatibility to become masters while competitors are still sorting out
their first generation solutions.
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Light at the End of the Tunnel?
By Jim Balderston
Pressplay, a joint online music venture of Sony
Music Entertainment and Vivendi’s Universal Music Group, has announced that
it is not only expanding its catalog of available songs, but is also allowing
users to burn music to CDs and download files for use in MP3 players or
similar devices. The new offering, called pressplay 2.0, will be available with
a variety of payment options, including an option for a single annual payment
of $179.40, which would allow users to download as many as 120 songs
immediately and give users access to more than 100,000 tracks. The company
will also sell “portable download” packs, allowing users to burn or transfer
songs to devices. Pricing on these packs starts at $5.95 for a 5-pack. In a
separate announcement, the Online Publisher’s Association released a study
that indicates that more online consumers are willing to pay for certain
kinds of content, noting that consumers paid nearly twice the amount in 2001
for digital content that they paid a year earlier and that some 12.4 million
Americans paid for content in the first quarter of this year, up from 7
million a year earlier. The study noted that business and financial sites
were leading the pack in selling content and that sites offering other once
free content such as online greeting cards, sports sites, news sites, and
personal ads and dating services are now growing paid subscription services.
It has been said that a good compromise between two
opposing points of view would leave neither side totally satisfied, and this
is what we believe we are seeing in the world of online content. Users will
have to give up the idea that the Internet is a place where everything is
free and — according to the OPA report — this attitude is gaining momentum.
Meanwhile, online content providers are going to have to learn that they
cannot hold onto a broadcast, “consume what we feed you” model of
distribution in the face of changing consumer behavior and personal media
options. Both sides, providers and consumers, are going to have to move to a
more equitable middle ground and the OPA study gives impetus to the idea that
such a move is underway, on the consumer side at least.
The entertainment industry — as evidenced by the
pressplay announcement — is beginning to see the light, and if the trends
outlined in the OPA report are accurate, should begin reaping real benefits
from opening up not only its library of content but the options for consumers
and what they can do with that content. While pressplay reserved the right to
alter and change its subscription models and pricing in the future, hopefully
it will garner enough data and insight into consumer demand that it can
devise new and more profitable opportunities that give consumers more of what
they want while allowing the entertainment companies the ability to monetize
their offerings online. We envision pricing schemata that may rely on user
demand, i.e., the more popular a track is, the higher the premium a user
would pay for it. For the music industry, such a plan would offer the
opportunity to recapture promotional costs, while offering users the
opportunity to get the latest and greatest if they were willing to pay a
premium for that content. Such schemata would require much more complex IT
infrastructure, something that large systems vendors can — and should —
investigate as a meaningful revenue opportunity going forward. The
multi-billion dollar entertainment industry has been slow to move on the
Internet, it appears, to awakening to the opportunities ahead. The question
now is: will the big IT vendors jump on this opportunity as well?
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IT Vendors Launch Architecture
Guides for Windows-Based Datacenters
By Charles King
Avenade, Brocade, Dell, EMC, Emulex, Nortel, and
Unisys have announced the Internet Blueprint for the Microsoft Systems
Architecture and the Internet Blueprint Plus for the Microsoft Systems
Architecture, the first of a series of Microsoft Systems Architecture-qualified
Prescriptive Architecture Guides (PAGs) designed to support the deployment of
datacenter solutions based on the Windows 2000 Server platform. According to
the vendors involved, the new PAGs are designed to speed time to service,
lower operational expenses, and better utilize resources of businesses
migrating to these technologies. The Internet Blueprint for the Microsoft
Systems Architecture features Dell PowerEdge servers and EMC CLARiiON
enterprise storage systems, while the Internet Blueprint Plus for the
Microsoft Systems Architecture features Unisys ES7000 servers and EMC’s
Symmetrix enterprise storage systems. In addition, Microsoft announced the
Microsoft Systems Architecture program, with the goal of simplifying the
deployment and management of data storage to support Microsoft-based
applications. According to Microsoft and the other vendors, these
Microsoft-qualified architectures are designed to deliver complete
Web-enabled infrastructures to support ebusiness applications with high
degrees of availability, reliability, scalability, and manageability.
After winnowing through verbiage, one can best
compare this announcement to those do-it-yourself magazine advertisements offering
pre-drawn plans for your dream home, though in this case maybe ‘dream W2K
datacenter’ would be more accurate. The essential points to this announcement
can be illuminated by better understanding how datacenters are typically
deployed. In most cases, an interested customer will call on enterprise
vendors with datacenter credentials (i.e. IBM, HP, Sun, etc.) for assistance,
or contact a business integrator (EDS, PWC, Accenture, etc.) with similar
expertise. The finished datacenter will be specifically designed and deployed
to fit the client’s existing needs, a process that is analogous to hiring a
celebrated architect to design and build that home addition you’ve always
wanted. While the result is likely to be breathtaking it is usually also
wallet-breaking. How do the new Microsoft-based PAGs fit into this? In
developing pre-qualified plans for complete datacenter solutions, the vendors
involved in the program are offering potentially effective ways of for
enterprises to side-step traditional and far more expensive big iron vendor
and business integrator methodologies. By acting in concert, the PAGs vendors
obviously hope to make a bigger footprint than they would individually,
leading to potentially higher product sales and market penetration. Along the
way, their evangelism of datacenter products from Microsoft could help Redmond
become the major beneficiary of this effort.
But given the traditional insularity and technical
demands of the datacenter market, does this program really have a chance? To
our way of thinking, a pair of issues could tip the scales toward the new PAGs.
First, given the continuing slow economy, enterprises are demanding bargains
before they deploy new business solutions. The price/performance of PAG-based
datacenters will likely be their biggest selling point, and to that end, we
believe that the architecture featuring Dell PowerEdge servers and EMC
CLARiiON systems could be especially attractive for SMBs that wish to gain
datacenter advantages but lack the funds for traditional solutions.
Additionally, while traditionalists will likely claim that pre-fab designs
are hopelessly inadequate for delivering comprehensive datacenter solutions,
we wonder whether the new PAGs might suggest that a new era for Windows-based
solutions is at hand. While Microsoft’s cookie cutter approach to business
computing has its limitations, the company has proved time and again that it
is capable of baking some pretty interesting goodies, especially given the
continuing evolution of Intel-based enterprise products. These new
partner-led PAGs may signal that while pre-fab plans might not be appropriate
for every dream home, they could provide adequate solutions for many or even
most businesses’ datacenter needs.
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HP Threatens Hacker Group
By Jim Balderston
HP has sent a letter to a loose consortium of
hackers warning that its members could face a $500,000 fine and five years in
prison, according to published news reports. The letter was sent in response
to a posting of a piece of computer code that would allow people to
circumvent security measures in HP’s Tru64 UNIX operating system. According
to the report, a member of the hacker collective SnoSoft released the code in
July on the security web site Bugtraq, with a link to the code that would allow
a hacker to gain administrator privileges on the server. In response, HP sent
a letter threatening the SnoSoft group and argued that under the Digital
Millennium Copyright Act the perpetrators could face significant fines and
jail time. Bugtraq removed the code, and SnoSoft representatives said that
the individual who released the code did so without the approval of the
SnoSoft group at large. SnoSoft has apparently been in conversations with HP
concerning security issues surrounding the Tru64 OS for some time, and
according to news reports, SnoSoft had informed HP of this particular
vulnerability. It is unclear if HP has released a patch for this
vulnerability.
While HP may have the right to be annoyed that a
hacker released a security exploit to the general public, it may well have
less of case if in fact it was aware of the vulnerability and did nothing
about it. One of the primary tenets of security is the open and ongoing
vetting of products in a fashion that allows for true tempering of security-related
offerings. Such is the case with cryptosystems; other security offerings need
similar vetting as an ongoing process. In many — if not most — cases, such
vetting comes from sources other than the vendor itself, who has significant
disincentives to find and announce vulnerabilities in its products. Yet while
IT vendors like HP may find the independent hacker and security vetting
community an annoyance, its role as an independent watchdog offers real value
to the vendors themselves, who could, in the long run, face significant legal
liabilities if they offer products with security vulnerabilities or fail to
act on those vulnerabilities once discovered. The tension between the two
sides is not likely to abate any time soon; hackers don’t trust the vendors,
and vice versa. Yet both need each other, and one suspects that once a major
lawsuit comes down against an IT vendor that failed to properly secure its
products — with substantial losses for a customer as a result — the IT vendor
community will see past the occasional annoyances of the vetting process and
remember its ongoing value as a legal prophylactic.
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