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Big technology buyouts smell of ‘cloudy’ future

Whether recessions are good or not depends on whom you are talking to. I got that feeling in the past few days as news poured in of various high-priced corporate buyouts in the information technology industry, writes N Madhavan.

india Updated: Oct 04, 2009 21:18 IST
N Madhavan

Whether recessions are good or not depends on whom you are talking to. I got that feeling in the past few days as news poured in of various high-priced corporate buyouts in the information technology industry. I am talking about computer maker Dell bidding $3.9 billion (Rs 18,600 crore) for IT service provider Perot Systems, document management company Xerox Corp bidding $6.4 billion for IT service firm Affiliated Computer Services and network equipment maker Cisco bidding $3.0 billion for Norwegian video-conferencing firm Tandberg.

Now, I think a downturn is a good time to be a shopper, because sellers are more willing to accept reasonable prices, while companies that have strategic vision tend to use the opportunity to buy companies that make long-term sense to them. Dell, Xerox and Cisco fall in that category. They are taking bets, of course, with the attendant risks, but then big business is about big risks.

I can also add that computer and printer maker Hewlett Packard already has in its fold Electronic Data Systems and the former Bangalore-based Digital GlobalSoft — both which provide IT services and IBM has a long history of combining computers with services.

So what’s going on? In most instances, IT service companies are being bought by big brands. In Tandberg’s case, it is somewhat different, but that also fits into a pattern in which some big companies become one-stop shops, with services bundled in a big way with touch-and-feel products.

The game is increasingly going towards a framework where the end customer (be it a corporate customer or a home user), is seeking computing as a billed service, much like electricity or water. This is a bit like in a hotel where you ask for a “Thali” or go for a buffett meal than order meals a-la-carte. I have already spoken in the past about “bhelpuri” computing – where sellers mix and match software or hardware as needed. With the rise of high Internet bandwidth, a simple sale of various kinds of complex services is where the game is at.

This is broadly what we call “cloud computing”. With computers networked all across the planet, with various kinds of software applications stored here and there, the other side involves people who sit anywhere on the planet providing services, support or customisation as needed.

This convergence of networks, computers, applications and services is where the amorphous “cloud” lies. Most of the big boys are betting on buyouts based on their existing specialisation or existing sales networks .

As the advantage of sales engines and brands combine with strong service back-ends, we will see the Wal-Marts of computing or “cloud” services emerge. Buyouts tend to happen when the worst is over and the best can be imagined.