SaaS cannot put a stop to the cloud computing mergers and acquisitions (M&A) in the cloud services sector of the business, in fact, it is expected to balloon in the coming months. First on the line is Intermap’s move to acquire Voxel for $30 million, which was announced earlier last week. This first is the mark that says companies are moving beyond SaaS and towards control for cloud services.
The trend is for legacy IT entrepreneurs to target on smaller business startups and cloud providers like Cloud Sigma, Virtustream and Bluelock. These small and medium businesses (SMB) become attractive acquisitions as giant companies try to extend their range of cloud services in the battle for cloud control.
Nasumi CEO, Andres Rodriguez said, “There’s tons of consolidation coming because this is a big boy’s game. Look at the storage piece, it’s like the hard drive business. How many hard drive makers are there? Not many. For the same reason, those [few companies] with economies of scale survive.”
Traditional hosting businesses like that of Intermap and Rackspace may have the huge server capacity, but lacks the software intelligence found in small players. So, their strategy is to acquire as much small scale software companies to bring in their expertise to upgrade their cloud services. This has been the move from traditional IT players like Oracle, IBM, Hewlett-Packard and many others are still following.
The prediction made by Marty Wolf, President and founder of M&A Advisors was that companies like CDW will engage in the bidding war for software providers.
Wolf said, cloud services embody “the ultimate game of scale “where more and more traditional IT businesses will spend huge amounts of money to make their products and services at par with other cloud players.
Another trend that is happening is that SMBs now see they have no need for huge data storage and data centers because everything can be outsourced through the cloud platform.
Wolf said, “It’s one thing for EDS to outsource stuff for Kraft. They get that. But these big [IT] service companies aren’t good dealing with smaller businesses. That means that the tech resellers — or anyone with customer relationships with these SMBs — will buy up cloud services so they can keep those customers in the fold.”
According to Rodriguez, there is a downside to all these especially for cloud companies that do not get a merger & acquisition; this may mean a death spiral for them.
Wolf said, “We’ll see confluence here like we haven’t seen since 1999.”