In the past few months, as I’ve been helping with CA’s recent set of M&A activity around cloud computing and beyond (Cassatt, Oblicore, 3Tera, and Nimsoft), I’ve come face-to-face with an assumption about innovation that I’ve held onto for a while: large IT vendors are lethargic laggards that aren’t very good at coming up with technological leaps on their own. IT innovation in cloud computing and other cutting-edge areas, I’ve thought, is the realm of start-ups and entrepreneurs out there doing there own thing.
I’m not alone in these assumptions, especially among those watching cloud computing these days. Krishnan Subrmanian wrote on the Cloud Avenue blog after we announced the 3Tera acquisition that “we cannot consider CA to be an innovator like other cloud startups in the market.” The only way for a “titan from the old world to get into the mix of the new generation is by acquiring a hot company like 3Tera,” he said.
However, I’m starting to see how I (and the others) might be wrong. Or at least need to consider that there are some other options.
Too Big to Innovate?
When I joined CA last summer as part of the Cassatt acquisition, I was skeptical that I’d stick around the organization very long. I didn’t know much about CA except its checkered past that included jail time for their CEO and a history of being the industry’s bottom-feeders – looking for revenue streams to milk, not markets to build.
Added to that, I’m a start-up guy at heart. I had just come off three start-up experiences that made me believe that technology change is pushed by the small guys.
· It started with EcoSystems Software, a client/server systems management innovator the competed head-to-head with pre-BMC Patrol. Datamation (remember them?) put us on their cover in 1992, saying “Client/Server Systems Management Arrives.” We were snapped up by Compuware in ’93 to add these new capabilities.
· Then, I was in very early at BEA, and rode that company’s “Better Engineering through Acquisition” wave for 10 years, from zero to a billion dollars in annual revenue. OK, that wasn’t *really* what the letters in the logo stood for, but much of the industry thought so. The success we had following the acquisition of WebLogic changed the way middleware (and even our older TUXEDO product) was thought of; application servers went from interesting to must-haves as the Web and e-commerce took off.
· Finally, I helped Cassatt push the boundaries of how data centers themselves should be run, taking a proto-cloud computing idea to the cover of Forbes and as far as the VC money would allow.
In all cases, it was the small, nimble company that came up with the ideas, was able to get the attention of customers and industry watchers, and suggest a new way to do things. The big companies with the cash were the ones that found things that looked interesting – things that someone else had spent time creating.
Since joining CA, however, I think I’m seeing another way this story can unfold.
After participating in a thorough strategy process last summer to find ways to shift CA from a value company to a growth company, I heard rumblings that the strategic suggestions were actually getting an enthusiastic reception from the board and senior management. I thought that was pretty surprising, considering the aggressive suggestions that I knew were being made.
You’ve seen the early results already: Bill McCracken’s first quotes after becoming CEO were to talk about the war chest CA had to make moves in the cloud computing space. Not surprisingly, we followed that up with a series of acquisitions, taking CA into areas it hadn’t entered before.
Good things about being large
Having been on both sides of the fence (start-up and large vendor), I’ve gotten a good view of the pros/cons of each. On the plus side, a company the size of CA has the resources to do a patient, thoughtful analysis of what customers want now, what customers will likely want in the future, and to sketch out a map to get from here to there.
In other words...
· Big companies have good sources to discover customer needs/wants.
· They have resources and assets to build upon
· They have the resources to invest
· They have revenue streams to support new ideas. Even ideas that will take a while. (And many of the cloud computing ideas, I might add, have been a long time in the making.)
Of course, big can be bad
Downsides? Oh, there are plenty. Some that I’ve run across in my career include:
· The market research treasure trove I mentioned above (a large supplier’s customer base) comes with a downside: big companies’ customers skew the information they provide by looking at everything through the lens of what they already have done with that vendor
· The new ideas may undercut or threaten some of the internal, existing ideas. Including ones that are pretty important from a revenue standpoint to the large vendor
· A truly new idea is hard to come by. While the big companies have the resources to be patient and analyze the market, they may lack expertise & vision in the space that matters. They may not know what they are looking for
· The sense of urgency to deliver may not be there
· When you do bring a new asset/company into the organization, integrating that to make it useful can be pretty tricky.
From CA, I’m seeing an interesting model for a hybrid: an innovative/big vendor (if all goes well)
My main point of this post is not what my current company is up to, but rather its implications for how the market evolves. Having said that, though, many of the points above are valid pros & cons to CA’s current approach.
The difference that has been interesting to me is the rate and pace of CA’s moves – and the magnitude of those moves. Start-ups certainly couldn’t do it. From my own past, BEA pulled off some similar things, but was a much smaller company and the magnitude of acquisition and investments – and the effort needed to turn the ship – were much narrower.
It's even difficult for larger companies, too. VMware/EMC may have shown itself to be an exception, both in the original VMware purchase and in some of VMware/SpringSource’s recent buys. They are certainly looking forward. Cisco, IBM, HP, Oracle, and others have all done their share of acquisitions, including several this year. Rarely, however, are they focused exclusively on the cutting edge of the market, in an attempt to deliver innovation.
Now, I certainly won't deny that start-ups remain a primary source of IT innovation -- maybe even the primary source. In fact, I still get surprised almost daily by the raft of interesting ideas and approaches that people build companies around, especially in the cloud computing space. I mention them here and on Twitter quite a lot.
Nor am I going to guarantee that CA is going to be successful in all that we’re trying to do. We’ve found some intriguing technologies and businesses to bring into the CA fold over the past year, and we’re building some pretty cool stuff in-house. We’ve built a start-up-inspired organization inside the company called the Cloud Products and Solutions Business Line. But lots of work remains in order for us to deliver on everything we’re hoping to do. Of course, that’s part of the fun in my book. Watch the news coming out of next week's CA World for more details on all of this.
The dilemma of innovators
Back when Oracle received approval to acquire Sun, they spent a full day going through their plans. James Watters of VMware (@wattersjames) wondered via Twitter if their move now turned Oracle from a cloud computing skeptic to a cloud computing innovator. Some pundits fired back that Oracle was now too big to innovate. But when asked, Larry handled the question like this, according to tweets from Chris Preimesberger (@editingwhiz from eWeek): "AT&T was supposedly too big to innovate. They came up with the transistor. Not bad."
So what is an entrepreneur to do, then? I’m not sure AT&T is the model I’m looking for, but it makes the point that there’s more than one way to innovate; there is more than one way to move technology forward. Start-ups are one, but certainly aren’t the only. Big companies trying to fit new technology and businesses into existing approaches is another, but this approach is faced with difficult hurdles, often of its own making.
But, if you can split the difference, marrying a start-up-style approach with the resources of a big company, you open up some cool, new opportunities.
For CA, we'll all have to wait and see what we can pull off. I'll keep you posted. Of course, the results will always speak for themselves.