Canonical doubles down on multicloud in defense of its strategic position against Red Hat and VMware

TBR perspective

At Canonical’s 2019 Analyst Day, the company displayed a compelling business model and a clear road map toward achieving its desired business outcomes. However, TBR believes the long strategic strides Canonical has taken over the past year have only propelled the company so far due to the increasingly competitive field that Red Hat and VMware (NYSE: VMware) are creating. It has been just over two months since IBM (NYSE: IBM) completed its purchase of Red Hat, so it was not a surprise that Canonical emphasized the competitive landscape IBM has shifted with its $34 billion purchase. Even less surprising was Canonical’s dive into specific areas, including public cloud and data center, where it expects to sidestep its two biggest competitors, Red Hat and VMware, both of which Canonical is also most often compared to within the market.  

Navigating a competitive landscape

While Canonical boasts that its multicloud strategy is unique, the vendor’s approach to multicloud aligns with that of major public cloud providers as Canonical aims to run Kubernetes on its Linux-based operating system (OS), Ubuntu, to solidify its place at the interoperability layer. In his opening remarks, Shuttleworth alluded to the fact that open infrastructure is just beginning and that the pending explosion of open source will occur at the applications layer; on top of that, Canonical claims PaaS will not account for more than 10% of applications. TBR believes Shuttleworth’s comments take direct aim at VMware Cloud Foundry and the fact that VMware does not own any applications. However, while Canonical boasts that its approach goes beyond infrastructure with its Linux app store, VMware is close behind given its recent acquisition of Bitnami, which specializes in application packaging, supporting VMware’s application ecosystem strategy.

As one of the few remaining OpenStack providers, Canonical has positioned its proprietary OpenStack offering, BootStack, to still be very much part of the company’s value proposition while other vendors like IBM, Rackspace and Mirantis are de-emphasizing the technology. As part of its private cloud strategy, Canonical maintains support for OpenStack private clouds on Ubuntu, whereas in public cloud Canonical places Ubuntu on the platforms of partners, such as Amazon Web Services (AWS; Nasdaq: AMZN), Microsoft (Nasdaq: MSFT), Google (Nasdaq: GOOGL), Oracle (NYSE: ORCL), Rackspace and IBM. TBR expects IBM will shift its current Ubuntu-based workloads to Red Hat Enterprise Linux (RHEL) now that its purchase of Red Hat is finalized, resulting in the loss of business for Canonical. Presentation materials also highlighted opportunity around fully managed infrastructure services. TBR notes the managed services opportunity around OpenStack was far more prominent 10 years ago, whereas now the opportunity is around creating a managed services portfolio that emphasizes higher-complexity workloads as well as IoT. Canonical noted it is not attempting to build a managed services empire, yet further development in this area presents an uphill battle for the company, especially as IaaS leaders AWS, Microsoft and Google make it easier for enterprises to navigate the challenges of a hybrid environment, which in many cases OpenStack cannot serve.

At Canonical’s 2019 Analyst Day, CEO Mark Shuttleworth and other company executives got together with industry analysts to highlight the company’s revamped business strategy, one that emphasizes four competitive battlegrounds including public cloud, data center, edge cluster and IoT. The event featured presentations from Shuttleworth, Finance Director Seb Butter and VP of Public Cloud Christian Reis, among others. The event also incorporated presentations from key partners, including from Atos VP of Cloud Engineering Bob Seddigh and BT Group Chief Architect Neil McRae.

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