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Business

Open season on cloud startups

Build, invest, partner or buy are the choices when a company needs technology to enter a new market. It appears that many companies are pushing the "buy" button in the cloud market.
Written by Dan Kusnetzky, Contributor on

I've been seeing quite a number of really interesting cloud-focused start ups acquired by larger companies recently.  Some examples are Salesforce.com acquiring Heroku (see Cloud Platforms, APM and a bit of history) and Juniper acquiring Altor (see Altor V4 - security in virtualized environments and the cloud). Why is this happening now?

Suppliers seeking to enter a new market have four choices to get into the game. They are:

  1. Build the technology themselves
  2. Invest in another company that has built the technology
  3. Partner with another company that has built the technology
  4. Acquire another company that has built the technology

Depending upon the purchasing company's needs, each approach offers benefits.

Building

Building the technology results in something that tightly integrates with the company's own products and product strategies.  It can, however, take a great deal of time and involve a signficant investment in staff, facilities and the like.

Investing

Investing in another company makes the technology available to customers quicker and with a much smaller investment in time, staff and facilities, but brings along with it difficulties in integrating the technology and synchronizing product releases with other products.

Partnering

Partnering with another company reduces the overall direct costs to make a given technology available.  It brings along with it even more issues sychronizing product releases, support and the like.  If the partner is chosen carefully, these problems can be sharply reduced.

Buying

Buying a company to acquire its technology, its management skills, its sales force and its customers may be the lowest cost option.  The technology can be integrated over time without angering or losing customers.  The acquiring company, however, has to be very careful about how it handles the staff.  I've seen acquisitions fail because the corporate cultures didn't match well at all.  Top people left to pursue other opportunities leaving the acquiring company holding a hollow bag of technology.

Snapshot analysis

It is clear that cloud computing is a hot topic. It is also clear that the largest, most successful companies from adjacent markets want to get in on the fun.  Acquiring a firm that is already successfully playing in that space could be the quickest way into a market and, in the end, be the lowest cost option.

The acquiring companies just have to be very, very careful how they treat the staff of the company they just acquired.  Losing a few key executives or key members of the technical staff could result in the death of that acquired company.  It's happened time and again in the history of the IT industry.

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