It was the day Sun Microsystems was supposed to rise again. On March 18th the Silicon Valley computer-maker had planned to unveil a new online service to allow start-ups to manage with much less hardware, by buying computing capacity from a “cloud,” rather like electricity from the grid. But the event was overshadowed by the news, hours earlier, that IBM was in talks to buy Sun for at least $6.5 billion in cash, which would translate into a near-100-percent premium over the firm’s depressed share price in recent weeks.
As The Economist went to press, a deal had yet to be confirmed. But it is no surprise that the two firms are talking. The economic crisis has pummelled Sun, which never really recovered from the dotcom bust. As its share price plumbed new lows, IBM’s remained relatively unscathed (see chart) — a reflection of its business, which has been protected by the computer giant’s global scope and the fact that it makes most of its money from software and services.
In the months to come, more big fish will seek to swallow smaller fry. That is because something deeper is going on in the computer industry. Thanks to ever more powerful chips and new software, servers and other hardware can now be “virtualized,” meaning physically separate systems can act as one. This enables computing power to become a utility: it is generated somewhere on the network (“in the cloud”) and supplied as a service. To simplify their complex data centres and cut costs, more and more companies are thinking about building in-house computing utilities, called “private clouds”, or outsourcing computing to “public clouds” of the kind Sun launched this week.
What is more, as computing becomes a utility, the borders between different systems are starting to blur. A server, for instance, can easily function as a router (a box that directs data around networks). And this convergence means that companies that used to be allies, or in totally different markets, are now starting to compete with each other, argues James Staten, an analyst at Forrester Research.
As a result the industry’s landscape is shifting. Last year Hewlett-Packard (HP), the world’s biggest computer-maker, bought Electronic Data Systems, a big provider of computer services, giving HP more manpower to help its customers build more advanced data centres. HP has also acquired software to manage data centres and put a greater emphasis on networking gear, an important component in the computer centres that have become the heart of many businesses.
Cisco, the world’s biggest maker of routers, has responded by moving into a new area: it will soon start selling servers. Together with other firms, including BMC and VMware, it has developed what it calls a “Unified Computing System”, which was unveiled on March 16th. This is essentially a private cloud in a box. Instead of having to wire up servers, storage devices and networking gear, companies can build and reconfigure virtual computer systems with a few mouse clicks.
For IBM, the third big contender in this emerging field, part of the attraction of Sun is that it has some assets, such as networking gear and data-centre software, which would beef up IBM’s ability to build private clouds. Industry observers think IBM would probably sell many of Sun’s other businesses, however, such as its line of high-end servers. A counter-bid for Sun from HP or Cisco is also possible.
HP, Cisco and IBM (and perhaps Dell, another troubled computer-maker) are gearing up to fight what has come to be called the “war for the data centre”. Much is at stake: this year alone, companies will spend about $100 billion on data centres, according to IDC, a market-research firm. As computing moves online, however, these companies will increasingly have to compete with operators of “public clouds”. Microsoft plans to enter this field, in effect offering to run companies’ computer systems for them inside its own giant data centres. Google is gradually expanding its suite of cloud-based offerings. And Amazon, the world’s biggest online retailer, is also a pioneer in the field of cloud-computing services, which it has been offering for some time.
In a way, all this is a throwback to the era of “time-sharing” on mainframe computers. In the early days of computing, companies either had to buy a mainframe, which cost millions, or share one with someone else. Now firms will once again be confronted with this choice. Contrary to what some argue, however, big companies are unlikely to go fully either way. In fact, the computing sky will probably always be cloudy, meaning that there will be many private and public clouds, and they will come in all shapes and sizes. And most of them will be interconnected. Cisco already has a name for this computing climate: the “Inter-Cloud.”