Working in the Cloud

Cloud computing allows users to perform computer tasks entirely over the Internet. Most people have been using the cloud for years through services such as Google Apps, GoDaddy.com, and Salesforce.com. A cloud service is typically sold by the minute, the hour or by the seat (i.e. person) and can provide as much or as little service as required (significantly reducing the requirements for acquiring and maintaining IT infrastructure), managed by the provider. Cloud access can be public (Amazon.com) or private (proprietary network accessible to a limited number of users). Working in the cloud provides secure, real time services, allowing a user to:

  • Sync your PC and all of your mobile devices
  • Access your personal data from any device
  • Organize and mine data from any online source
  • Share contacts, emails, documents in an instant

What Makes it So Attractive

Gartner reports worldwide cloud computing services is the fastest growing segment in IT outsourcing which is expected to grow 48.7% to $5 billion in the current year, up from $3.4 billion last year. Analysts suggest that cloud computing services are currently only reaching the tip of the iceberg, providing automation of basic functions. The introduction of ever advancing business applications to automate operations and monitoring highlights the value proposition in terms of service consistency, agility and personnel reduction. The proliferation of corporate mobile devices and tablets leads to increased demand in secure accessibility to corporate data. Salesforce.com suggests that demand for cloud services will expand 20% to 25% annually through 2016, highlighting the potential attractiveness of this market.

Cloud M&A Activity

The rampant acquisitions in the technology sector can be attributed to the reduced expense for large technology companies to simply acquire cloud start-ups relative to the cost to develop the technology in house. In the last 6 months the average value per deal (with a disclosed value) was in excess of $200m. Deals were often driven by large Communication and Information Technology companies looking to round out their service offerings.

In the last 12 months the market saw a total of 17 transactions close, 11 in North America, 4 in Asia/Pacific, 1 in both the European market and the Africa/Middle East market.

The landscape is competitive with the large players such as Microsoft introducing SkyDrive and Apple's iCloud, creating a buying frenzy in the cloud based software market.

The list of 2012 Acquisitions alone paints a very clear picture of the level of activity in the market:

Akamai acquired Cotendo for $279 million, Apigee acquired Usergrid for an undisclosed amount, AMD acquired Seamicro for $331 million; Best Buy acquired mindSHIFT for $175 million; BMC acquired Numara for $306 million; Dell acquired AppAssure & Wyse, both for undisclosed amounts; IBM acquired DemandTec for $486 million; Emptoris, GreenHat & Worklight all for an undisclosed amount; Oracle acquired Taleo for $1,921 million; SAP acquired SuccessFactors for $3,764 million; Virtustream acquired Enomaly for an undisclosed amount; and Wyse bought Trellia for an undisclosed amount.

The market has seen acquisitions of cloud companies by other cloud companies as well as large software companies buying up start up companies to capitalize on software that links mobile tablets and Smartphones to remote servers. Some of the larger application software players have made a move towards PaaS (platform as a service) applications, which provide a computing platform and a solution stack as a web based service. Gartner suggests, "PaaS products are likely to evolve into a major component of the overall cloud computing market, just as the middleware products — including application servers, database management systems (DBMSs), integration middleware and portal platforms — are the core foundation of the traditional software industry."

Conclusion

The wave of M&A activity in the cloud won't stop anytime soon. Traditional hosting businesses continue to acquire much smaller software companies to upgrade their cloud services. Small and medium businesses (SMB) are beginning to exchange large data storage and data centre needs for an entirely outsourced cloud platform. Smaller cloud services providers continue to present attractive acquisition opportunities for large IT companies and larger cloud service providers looking to round out their service offerings.

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