The Impact Of CA’s Acquisition Of 3Tera

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Yesterday CA Inc., the enterprise IT company formerly known as Computer Associates, announced its intent to acquire the cloud computing provider 3Tera. Even though the details of the deal are not available, there are some unconfirmed reports going around the blogosphere and twitterverse saying it could be 30x the current 3Tera revenue. This acquisition follows CA’s other acquisitions relevant to cloud space like Cassatt, NetQoS and Oblicore. This news has the potential to shake up the enterprise cloud computing market.

Traditionally, CA is a leading player in Enterprise IT Management software for mainframes and distributed systems. After the controversy surrounding the indictment of their then CEO, Sanjay Kumar, in the mid part of last decade, they put their house in order and started pushing products around “Lean IT” campaign. As cloud computing gained steam towards the end of the last decade and the recession forced the enterprises to take a second look at the cloud for adoption, CA was busy acquiring companies like NetQOS, Oblicore and Cassatt. But there were no telltale signs of any immediate cloud play. It appears, with all these acquisitions, CA was putting the necessary pieces of puzzle in place to take off as a strong and credible IaaS player. 3Tera’s acquisition gives us some hints about what is going to come out of CA in the coming years. It also sends a unambiguous signal that they are in for a long haul.

CA’s path to cloud nirvana through acquisitions is hardly surprising because CA is, in fact, built by a series of acquisitions from 1977 onwards. Already the blogosphere was buzzing around with the news that CA plans to spend $300 million buying cloud startups. So, their strategy to buy 3Tera is not at all surprising. I will briefly analyze the impact of this acquisition.

• First and foremost, this deal firmly puts an end to the spin that cloud computing is all hype and a marketing term. This move by a traditional IT vendor is a clear message that cloud computing is the future for the enterprises. We are soon going to see more and more enterprise customers jumping into the cloud bandwagon.
• This could also be considered as a beginning of consolidation in the infrastructure space. Even though I don’t believe in the idea of monopoly of handful of infrastructure players, a shakeup through consolidation will always be there in a maturing market. This just shows the maturation of the cloud computing market leading to more and more enterprise adoption.
• This also puts CA as one of stronger contenders in the Cloud infrastructure marketplace. It is like a parachute for CA to jump right into the middle of this competitive marketplace without any hard work. Well, we cannot consider CA to be an innovator like other cloud startups in the market and the only way for a titan from the old world to get into the mix of the new generation is by acquiring a hot company like 3Tera.
• This is also a good news to other small players in the industry. It legitimizes their approach and offers them hope that someone else might come knocking on their door pretty soon. Overall such a consolidation advances the cloud marketplace to the next level.

Even though it is exciting from many angles, I do have some concerns about this merger.

• When I think of this acquisition of 3tera, the first thing that comes to my mind is “why CA?”. Personally, I strongly believe that a titan from a previous generation cannot innovate in the next generation like some of their newer counterparts. I am sure some of the fellow members of Clouderati will vehemently criticize this belief but I think of it as IBM in the desktop world dominated by Microsoft. They can do some interesting things but the innovation vigor will be lacking. Frankly, I just don’t like a old world enterprise guy messing around with clouds.
• Another important concern is what will happen to Applogic? Will it continue to be an independent product? From all the indications in the press, I get a feeling that it is going to be tightly integrated with CA’s existing product lines. If it happens, some of the existing 3Tera customers, especially the small and medium sized ones, will be left in a lurch. A move away from the current standalone version of Applogic software could be disastrous for these 3Tera’s clients. I spoke with one of their clients today and asked them about their strategy in the aftermath of this news. They told me that they are cautiously optimistic and their sources in 3tera has given them assurances about long term support for Applogic. Realizing this predicament of 3Tera’s customers, their competitors have already started to fish in the troubled waters.

It will be interesting to see how it plays out in the long term. It will also be interesting to see who is the next target for CA with the rest of $300 Million they have have in the pockets.