Digital and Compaq: A cautionary tale for IBM and Red Hat

Big mergers bring big risks: Compaq and Digital Equipment Corporation, a tragicomedy

Compaq proved in the early 1980s you could buy non-IBM hardware and not get fired in the process by creating a portable PC that could be lugged around by weightlifters. Ultimately, Compaq struggled trying to move up the stack into the peer-to-peer networking space, as Dell and Gateway undercut Compaq’s undercutting of IBM PC price points, and made a big acquisition of Digital Equipment Corporation to buy enterprise server direct sales and services. But culturally, Compaq choked off the very assets the company desired by imposing volume business sales cost controls onto an enterprise-selling organization. In the end Compaq wound up being absorbed by Hewlett-Packard Co. (HP), which has acquired many hardware companies over the years.

What are the lessons learned for IBM-Red Hat?

IBM has decided to invest one-third of its market cap in acquiring Red Hat for $34 billion. Essentially IBM bought the ecosystem engine necessary to create the flywheel effect of IP services and support. There are synergies, to be sure, on the support of open foundations that have accelerated product commoditization in ways that benefit customers and pressure technology vendor business models across the entire technology spectrum. At issue will be which pieces of two different cultures and business best practices prevail, for, as Peter Drucker famously said, “Culture eats strategy for breakfast.”

What can IBM learn?

Red Hat pioneered the business model of monetizing services around free products. This stands diametrically opposed to the best-in-class blue suit selling model made famous by IBM and increasingly less relevant in the digital economy. Red Hat generates 75% of its revenue through the channel. Given that scale matters less, IBM has to improve its downmarket selling motions. Red Hat best practices should be imported into the current IBM selling motions as quickly as reasonably possible.

Red Hat also has near-zealous support among the developer community. Again, allowing Red Hat leadership to help shape new developer programs, run the Red Hat way from the wealth of IBM assets, will be critical lest those supporters migrate to another Linux distro such as Suse or Canonical.

What can Red Hat learn?

IBM has enterprise trust to solve critical technical integration problems soundly and securely. It likewise has access to more CxO decision makers in the enterprise. Success of the proposed acquisition will be as much adding more product to an existing sales channel as it will be to tailor messages to the decision makers while preserving the uniquely ardent support Red Hat has with the teams writing the code.

More to follow from TBR

A more extensive TBR Business of One special report, IBM-Red Hat economic implications: Is disruptive state the new steady state?, will be out shortly, written with Professional Services Practice Manager Patrick Heffernan. Recent commentaries are also available by Cassandra Mooshian, Big Blue opens its arms, and its wallet, to Red Hat; and Michael Soper, Red Hat can save CSPs from themselves.

Dell EMC Services enables clients’ transformation to modern IT infrastructure environments

Dell Technologies’ core competencies remain rooted in products and infrastructure

The keynote sessions began with a Dell Technologies Capital update by Scott Darling, president of the venture arm. This group manages investments for all of Dell Technologies’ strategic business units, including Boomi, VMware, RSA, Secureworks, Virtustream, Dell EMC and Dell. Dell Technologies Capital has spent over $100 million in investments to broaden the company’s innovation ecosystem, taking various levels of financial positions in over 90 companies over the past six years. We believe Dell Technologies’ strategy of using this venture capital structure to spur innovation and gain access to creative new technologies across the startup community will play a critical role in the expansion of its strong market position as a key infrastructure provider enabling IT modernization.

Chairman and CEO Michael Dell also spoke at the event, discussing the topic of unlocking the power of data. He talked about how the company stores and protects more data than any competitor, and has the market opportunities to enable clients to extract value from data, from the edge to the core to the cloud. The presentation transitioned into a keynote by CTO John Roese that outlined six key areas of innovation that Dell Technologies will focus on to capture market share: powerful accelerated compute, high-performance data storage and protection, software-defined infrastructure, multicloud operating models, compute and analytics at the edge, and data mobility. The company will continue to invest in these six areas to make data and applications agile and adaptable to the large advances made in data generation through modern technology, and we believe this aligns nicely with the company’s overall goal of being the supplier of essential infrastructure across the globe.


The two-day summit began with a full day of keynotes spanning Dell Technologies’ (NYSE: DVMT) various lines of businesses and capabilities. The second day consisted of track sessions on infrastructure, client solutions, Internet of Things (IoT) and business innovations, including one-on-one discussions and small group meetings.

2019 Data Center Predictions: The pendulum swings as customer demands reshape how infrastructure vendors do business

The cycle of complexity is back as infrastructure vendor portfolio transformations make digitization achievable

Moore’s law economics has reached a point where compute no longer constrains IT automation. Due to the miniaturization of electronics, distributed computing is taking place at the microprocessor board level, as evidenced by the rise of graphics processing units (GPUs) and the resulting hyperconverged infrastructures. As such, refresh cycles no longer consist of replacing old, standardized Intel servers with new variants. Now IT departments look at the cost economics of the traditional standardized servers against the increasing number of compute form factor variants coming to market as purpose-built edge compute instances.

As compute form factors proliferate, there has been a shift in the type of skills IT departments require. Manual taskwork becomes automated. Technical skills have to incorporate more software functionality to operate the various management control planes that can monitor, manage and dynamically provision an enterprise IT instance. Physical IT becomes less relevant based on abstraction, which allows for enterprise IT to reduce the number of primary suppliers. The margin protection for infrastructure vendors will come from the power and simplicity of the abstraction layer, be it PaaS or management, orchestration and provisioning.

The plot thickens when emerging technologies are placed on top of this evolving landscape. Cutting-edge capabilities and the growing need to secure environments are further adding to the complexity of IT infrastructure, as is necessary to achieve desired outcomes. Meanwhile, consumers want to reap the benefits of these emerging capabilities without dabbling in the complexities. Infrastructure vendors will undergo many transformations — in how they partner, in how they go to market, and in how they innovate — to maintain relevance in a rapidly evolving 2019.

2019 Predictions

  • In an increasingly open-source world, the power of partnerships grows stronger within hardware-centric vendor strategies
  • Innovation will be reimagined by infrastructure vendors, as R&D is shifted to address the overarching demand by customers to leverage their key IT vendor as a one-stop shop
  • Emerging infrastructure technologies reshape customer demands, placing increasing emphasis on new ways of computing and managing data

Register for TBR’s webinar The pendulum swings: Customer demands reshape how infrastructure vendors do business, Feb. 6, 2019.

Cognizant’s 3 new acquisitions enhance digital and global reach

Cognizant has made seven acquisitions since the beginning of 2017, adding between 2,200 and 2,300 employees and over $500 million in acquired revenue (by TBR estimates). The company’s acquisition spree continued in recent months with three additional purchases. In August Cognizant bought SaaSfocus, a Salesforce consultancy based in Noida, India, with operations in Delhi and Mumbai, India, as well as Sydney and Melbourne, Australia. SaaSfocus has completed over 1,500 Salesforce engagements in India and Australia with clients across the financial services, insurance, manufacturing and automotive sectors, including Audi, Baxter and Holcim. SaaSfocus has also forged strategic integration, application and industry-specific partnerships with companies including Informatica, Jitterbug, MuleSoft, DocuSign and Cloud Lending Solutions. TBR estimates SaaSfocus will add between $3 million and $4 million in new revenue and over 350 employees (about 280 are providing service delivery from India).

In September Cognizant announced the acquisition of Kansas-based Advanced Technology Group (ATG), further expanding its advisory capabilities on the Salesforce platform, specifically around the management and implementation of quote-to-cash (QTC) solutions: configure, price, quote (CPQ) software; multiplatform contract life cycle management and billing; and automating QTC processes. ATG operates delivery facilities in Kansas, Missouri, Ohio and Montana and has IBM, Subaru and CenturyLink on its client roster. We estimate ATG will add between $2 million and $3 million in revenue and about 280 employees to Cognizant after it is fully integrated.

Finally, in early October Cognizant announced it would acquire Austin, Texas-based Softvision. Financial terms were not disclosed, but Cognizant was expected to pay as much as $550 million to acquire Softvision’s 2,800 digital product and design engineers working in 27 studios across 11 countries (though the majority of digital product development will be in North America). TBR estimates Softvision will add between $160 million and $180 million in inorganic revenue to Cognizant beginning in 4Q18.

Cognizant’s latest purchases deepen its digital engineering capabilities, particularly around Salesforce technologies, but short-term margin erosion can be expected as Cognizant integrates its latest buys. Even as enhanced Salesforce competencies position Cognizant as a leading cloud CRM, marketing and platform vendor, integrating three additional employee bases into a workforce already beset by high turnover may exacerbate Cognizant’s struggle to control attrition. Still, Cognizant’s newest acquisitions will further enable the company to fulfill its overarching strategy of driving digital to the core of client enterprises.

TBR continues to view Cognizant as a leader among the India-centric vendors, and the company certainly separates itself from peers with its aggressive acquisitions. Executing on integration remains the key, and TBR will closely watch (and report on) progress.

North America incumbents be aware: Atos is ready to fight

The most telling quote during the two days spent with Atos and Syntel executives came from newly arrived Atos North America CEO Simon Walsh, who noted the company’s struggles with cross-selling IT services prior to the acquisition of Syntel: “We have been challenged in cross-selling based on some capability gaps in our regional services portfolio. Now we have them.” Those last four words say it all: Now Atos believes it has end-to-end IT services capabilities, from infrastructure to applications, spanning all clients’ IT services needs.

The name of the game for Atos is scale

With the acquisition of Syntel, Atos gained substantial applications capabilities in the U.S., along with new clients, new talent and new opportunities to expand. TBR has covered the acquisition in our quarterly full report on the company and a recent blog post. The Dallas event increased our understanding of the acquisition’s impact on Atos overall, including how Syntel brought a missing element to Atos’ North America offerings, allowing the company to now credibly claim end-to-end IT services capabilities at scale. This last point — scale — became a repeated theme from Atos and Syntel executives, who acknowledged that previous acquisitions, such as Xerox’s ITO practice, helped the Paris-based company expand in the U.S. but did not adequately expand its range of offerings. Prior to purchasing Syntel, according to Atos leaders, the company could do a “handful of projects in North America,” but infrequently engage in multiple large projects simultaneously. With the Syntel asset, Atos can now tell its customers it can “do small $1 million deals” and tell Syntel customers it can “go to scale” with them. Atos executives repeatedly said a more complete set of end-to-end capabilities would allow them to assist clients in transforming their IT and broader digital environments at scale. Again and again, Atos and Syntel leaders emphasized that the combination of infrastructure and applications allowed the joined companies to finally provide the needed scale that would accelerate revenue growth.


Atos hosted a dozen analysts and three clients at its Dallas-based Business Technology & Innovation Center for a wide-ranging discussion of the recently closed Syntel acquisition. Over an informal dinner, formal presentations, extensive Q&A sessions, and well-managed one-on-one sessions with various Atos and Syntel executives, Atos provided TBR multiple opportunities to ask pressing questions on various aspects of the deal, including details on the implications for current clients, expectations for Atos North America, and the Atos-Syntel strategy going into 2019.

Is 5G business growing beyond a marketing tool for telecoms?

TBR’s telecom predictions for 2019 indicate that 5G will enable Industry 4.0, which will spur revenue generation opportunities for service providers that provide the connectivity layer and value-added services to businesses — in the long run.

2019 Telecom Predictions: 5G will be an evolution, not a revolution

The first few years of the 5G era will be underwhelming, but the future looks brighter for the telecom industry, especially as Industry 4.0 gains steam

The telecom industry entered a brave new world with the inception of 5G in 2018. Stakeholders industrywide are hoping this newest network generation will provide much needed revenue growth after the prior network generation, 4G, fell short of this goal over the past decade. Stakeholders hope 5G enables Industry 4.0, which will spur revenue generation opportunities for service providers that provide the connectivity layer and value-added services to businesses.

Though TBR agrees Industry 4.0 will ultimately take hold, our research suggests the cycle will start later and take longer to play out than many expect. TBR expects 5G to drive a renaissance in new commercially viable use cases for the network between 2022 and 2025, which will be beneficial in the long run but makes the next few years a continuation of the same challenges the industry has been dealing with, namely a lack of growth prospects and additional margin pressure.

In the interim, communication service providers (CSPs) will focus on cost optimization and will allocate their initial 5G investments to enhancing their traditional connectivity businesses to more cost-effectively support the ever-increasing amount of data traffic coming onto their networks. This cost optimization mindset, coupled with digital transformation ambitions, will lead to an acceleration in spend on NFV/SDN-related initiatives as well as 5G access build-outs, particularly in lead countries.

2019 Predictions

  • CSPs justify initial 5G investments for their cost efficiency attributes
  • CSPs accelerate network transformation endeavors
  • Wireless begins to disrupt the traditional fixed access business model

Register for TBR’s webinar 5G will be an evolution, not a revolution, Feb. 13, 2019.

Red Hat can save CSPs from themselves

TBR perspective

Red Hat (NYSE: RHT) is inarguably the leading open source company, with revenues far outpacing those of open source-centric competitors, such as Canonical, which only recently began taking monetization seriously. Red Hat’s solutions are pervasive in the market, with the company counting over 90% of the Fortune 500 as customers. Red Hat executives have been assured the pending acquisition by IBM (NYSE: IBM), if approved, would not disrupt Red Hat’s ways of working and stressed to the analysts gathered that the additional large enterprise relationships IBM would bring to the table would expand Red Hat’s addressable market. Maintaining Red Hat’s open, innovative culture would be imperative for IBM, as a passive imposition of IBM’s culture on Red Hat would severely diminish the value of the acquisition.

While Red Hat Analyst Day focused on the company’s total addressable market, communication service providers (CSPs) is a key customer segment for Red Hat, particularly with respect to virtualization via the Red Hat OpenStack Platform. Red Hat can capture greater wallet share from CSP customers with its open source-centric business model and highly capable, expanding Red Hat Global Services organization as these customers embark on their digital transformation journeys.


Red Hat hosted a few dozen industry analysts at its facility in Boston, which opened in June 2017. The space houses an Open Innovation Lab and Executive Briefing Center equipped with interactive touch-screen walls, providing the company an ideal area to bring prospects to demonstrate how Red Hat harnesses the power of open source. A slate of Red Hat executives expounded on Red Hat’s position as the leading open source company globally, divulging customer wins, new products and product road maps, and growth strategies. Little new information was given on Red Hat’s looming acquisition by IBM, though that was expected. Several customer presentations rounded out the day, with each articulating how Red Hat was the ideal partner to shepherd an open source, cloud-first future.

Services Weekly Preview: November 26-30, 2018

In this magical time between Thanksgiving and Christmas, despite racing to get as much analysis and as many predictions published before the new year, we’re able to enjoy a slight pause in the usual news cycle and company activity to reflect on 2018 and predict what will be coming in 2019. In two upcoming webinars, we will be looking at many marketwide trends, starting with an assessment of management consulting in the digital transformation age.


Here’s what’s coming this week:

Thursday: Last quarter when we looked at DXC Technology, we noted the company’s spike in revenue growth following its formation last year normalized to single-digit growth in 2Q18. The underlying businesses of both legacy CSC and Hewlett Packard Enterprise’s (HPE) Enterprise Services are still experiencing pressures around commoditized legacy services. This quarter TBR will highlight and discuss DXC’s recent M&A activity and its resource management strategy, anticipating similar growth results and performance.

Monday: In our full report on T-Systems for this quarter, we will note that strict execution of efforts to become an efficient organization will sustain the company’s slightly improved performance. New offerings in cloud shift T-Systems’ portfolio away from traditional IT services and increase its opportunities in a segment with growth potential.

Coming in the next few weeks: the Management Consulting Benchmark and 2019 IT Services Predictions.

2019 Devices & Internet of Things Predictions: The mists are clearing as IoT becomes more realistic and better organized

IoT is getting a lot easier

While it is too early to say that the Internet of Things (IoT) market is fully mature, it is maturing. The first three years of the IoT era were filled with extravagant claims, inadequate products and services, and a chaotic partner ecosystem. Starting in 2018 and accelerating throughout 2019 and 2020, more customers will come to the market with an understanding of what they are looking for, offerings will be easier to implement and integrate, and the partnership ecosystem will be more navigable for both vendors and customers.

Increasingly, IoT will be delivered in complete solutions, typically including components from several vendors. As IoT matures, more specific use cases with sufficiently broad applicability will be implemented as solutions, addressing common problems both within and across verticals. Solutions will vary in customizability and integrability.

The economics of data collection, transmission, processing and storage will play an increasing role in the design of IoT solutions. Data-related costs dictate the feasibility of many IoT projects and have driven the adoption of edge solutions.

2019 predictions

  • The IoT ecosystem will sort itself out; vendors will find their niches
  • Packaged and bundled IoT solutions will proliferate
  • Not all data is valuable: Data economics will drive design


Register for TBR’s webinar IoT is getting easier, Jan. 23, 2019.