The State of Cloud Computing Adoption
End users and IT services companies are closely aligned on what they hope to get from the cloud.
For a long time, integration and middleware have been the economic orphan of technology, at least where Wall Street is concerned. Hardware, software, consumer tech-these are the companies familiar to mainstream investors.
That's changing, according to a recent report by the 451 Group that was published in part recently on Seeking Alpha.
"Rather quietly but consistently, data integration has joined the list of richly valued markets as customers use these offering to get at the massive stores of information that run their businesses," the report notes. "The premium valuation is showing up both on Wall Street and, just recently, in M&A, too."
I also knew there were a lot of merger and acquisition activities in this space, particularly for all things pertaining to cloud-integration, but I had never really considered the numbers. The 451 Group post does, estimating that IBM paid about $200 million for Cast Iron Systems-even though its sales were running around $30 million. Dell bought Boomi "in a deal that valued the company at more than twice that multiple," the post notes. I'm not sure what multiple it meant-apparently that's explained in the full report, which you must be a subscriber to read. Fortunately, they do offer a trial subscription, if you've never used this option before-but I have, so I'm out of luck.
The piece references one other telling financial data point: Informatica shares have nearly doubled this year, bringing the stock price to its highest price in a decade:
Informatica currently trades at a $3.8bn market capitalization, a rather rich six times its projected 2010 sales of $640m. The company has always stressed that part of its value has been in its independence among the software giants, but Informatica has nonetheless attracted M&A speculation in the past.
The economics of integration seem to be changing in other intriguing and unexpected ways, too. Yesterday, I shared how several trends are converging and the end result is that some companies are turning their backs on more enterprise application integration (EAI) and enterprise service bus (ESB) investments.
Gartner research director, Debbie Wilson, wrote on her blog Thursday that she's hearing "A LOT" (caps hers) about the changing cost for multi-enterprise integration, specifically pricing for EDI (electronic data interchange), which is used in business-to-business transactions:
Traditional EDI type infrastructure providers often charged by the kilocharacter. Now we see horizontal integration vendors using other metrics such as number of trading partners and number of documents to calculate pricing. Ladies and gentlemen, shift your attention to the applications world and you often find a completely different approach to pricing. Some vendors charge a percentage uplift of PO value to suppliers (i.e. many public sector procurement programs); others embed integration charges in maintenance fees.
Not surprisingly, this makes it hard for IT shops to compare solutions, so no one is sure what's a reasonable price to pay.
Wilson also shared that she's noticed a shift in how companies are viewing projects and initiatives, which she thinks could be a sign of economic recovery.
I'm no economist, but looking at these trends, one common factor stands out: cloud computing. Despite the fact that companies have reservations about security, integration, vendor lock-in and other issues, it seems that cloud's main value propositions-its ease of use and cost savings-are too alluring. Data integration companies-particularly those mentioned by the 451 Group-have moved more capabilities to the cloud and spent more time marketing and targeting cloud business over the last year or year-and-a-half. Likewise, the cloud plays a role in the way companies are viewing EAI. And certainly, cloud solutions have started to impinge on traditional EDI.
Companies seem to view cloud as a winning proposition. You could even say they're banking on it.