We'll see more acquisitions that meld telcos with IT vendors

News from London that Deutsche Telekom may make a bid to buy IT services giant EDS. This is only the opening volley in a forthcoming period of acquisitions that meld telcos with IT vendors.

I recently suggested that BEA Systems, as it spurns Oracle's initial bid, may also be a good fit for a large teleco such as AT&T. Much of the same logic I applied to a BEA-telco mashup works for a Deutsche Telekom and EDS marriage.

The fact is that IT vendors -- be they code/systems providers or systems integrators (or both) -- are becoming more like service providers. We see evidence of this with IBM's recent Blue Cloud announcement, the go-to-market match-up between Red Hat and Amazon, and also the way that many new startups are entering the field -- as services -- such as Paglo this week. (Look for a separate blog on Paglo soon.)

The fact also remains that telcos and mobile services providers are increasingly becoming IT providers, either directly or as integrators or aggregators of IT functions that they then deliver to their customers -- both B2B and B2C. Enterprises will enjoy efficiencies in buying business services from a single entity when that organization can combine the IT, network, integration, communications services, outsourcing and software. Who or what best combines these features for the best business-cost benefit, is the $100 billion question.

The value-add to enterprises on IT increasingly comes from the integration, services provisioning and services ecology partnerships, not from the code base or hardware differentiation. Virtualization, open source, and SaaS will hasten this irreversible course. And when everything is a TCP/IP-driven function or asset, why not merge, mash, and package it all up with bright red bow and lock it into a big multi-year services contract?

And, of course, we're now also on the downward slope of a massive IT supplier consolidation era (most notably among software vendors). Some even call it the end of best-of-breed. I'm not sure it's the end of best-of-breed, there will always be standalone functions and/or applications and services that come to markets to meet new needs.

As Peter Zotto, CEO of IONA Technologies, recently told me:

As 'middleware' vendor consolidation continues, big propriety stacks will get bigger, more expensive and more complex-and the speed of innovation will decline. This is the exact opposite of the potential of SOA. "Anti-stack" vendors, like IONA, that deliver industry-standard middleware technology for performance-demanding SOA environments are
already benefiting customers looking for lower-cost and easier-to-deploy software. This is just the beginning of a new innovation cycle kick-started by industry consolidation. (Disclosure, IONA has been a sponsor of my BriefingsDirect podcasts.)

But clearly the larger vendors -- Oracle, IBM, SAP, HP, Microsoft, et al -- have gotten even larger via consolidation, and are closer to providing a full set of IT offerings, with varying degrees of actual deep and meaningful integration. As they become more like service providers these bulked-up vendors actually drive ecologies of ISVs and providers, and -- just like a telco -- manage the customers on one end, and the supply chain participants on the other.

So when you associate and explore the consequences of these trends, it points to more types of mergers along the lines of Deutsche Telekom and EDS, or even BEA and AT&T.

The telcos had better not wait too long as the are buying or being bought. They will eventually be competing with a class of consolidated vendor/suppliers that have traditionally moved more quickly and better than the telcos in their best days. There will only be a handful of these behemoths bestriding the globe (until and if decentralization again appears?).

Indeed, if the telecos wait too long, or make the wrong acquisitions, they might lose that customer relationship altogether. And where would they be then, especially as new networks based on new wireless technologies appear?

One aside: Watch how Cisco Systems moves on this. I predict some interesting mergers involving Cisco and large network/services providers in 2008.

Enterprise mobile remains up for grabs despite Google, Android and OHA

What do the major players missing from the Google Android and Open Handset Alliance (OHA) have in common? An abiding interest in enterprise mobile, and effectively integrating IT back-end resources for delivery to mobile B2E, B2B and B2C endpoints.

So-far, the non-OHA-committed players include Apple, Microsoft, Sybase, Adobe, Oracle, BEA Systems, Red Hat, Sun Microsystems, IBM, Verizon Wireless, AT&T, SAP, and HP. When viewed through this prominent global crowd, the OHA roster seems a bit flimsy for satisfying the major business activities/corporate opportunity.

Many questions arise on what will happen in an OHA world on the business side of the aisle. For example, should Google and the OHA members be satisfied with the B2C play? Will the current B2C OHA, if successful, play a coalescing role for B2B and B2E architectures? Could a separate business-oriented OHA or equivalent be in the offing?

For mobile especially, why have separate architectures for B2C and B2B? Why should enterprise mobile SaaS be constructed any differently from mobile Web SaaS? Fragmentation is the problem, not the solution.

If Android is to progress as an open environment into PC-like devices, then the architectural approach should be common. Respondents to my ZDNet blog poll say 58% to 42% that open mobile devices threaten closed PC models.

Well, of course, many things need to happen for an "open" business-ready mobile architecture: security, control, management, governance and mission critical reliability come to mind. The level for such risk-avoidance measures would be lower for a B2C and mobile commerce approach, at least at the outset.

So perhaps what is needed is a two-tiered approach to Android/OHA. One level, for Web-facing and consumer-type activities (supported increasingly by ad and mobile commerce revenues), will arrive Nov. 12. But how about a second level for a more enterprise-calibre stack, one with the concerns of CIOs addressed (supported more by a licensed, royalty, maintenance/support or subscription revenue model). Come on, guys, let's see the business version!

In fact, this could well mirror what has happened with free open source and so-called commercial open source. You take the same code base, the same adherence to openness, standards and interoperability -- yet take it to market on two levels. Android may very well need an more mature brother: Robot.

Android can be the mobile consumer-facing approach. Robot can be the workhorse for the business-class needs. This makes a great deal of sense and would allow for the common community of development while satisfying two quite different architectural integrity needs. It also allows for more traditional business monetization for Robot, one that would jibe with enterprise licensed and commercial open source selling. The Apache license could work for both, another essential commonality.

I think that Sybase, IBM, Oracle, Apple, Sun, Red Hat and the business revenue-hungry networks might go for it. Only Microsoft might be left trying to figure what in heaven's name to do about this whole thing. (What? Windows Mobile Open Live Software and Services .NET?)

Make no mistake. There is growing demand for enterprises to get mobile to their employees, partners, and customers. Sybase is betting the company on it. Based on a poll I presented in a recent ZDNet blog here, a whopping 78% of respondents think that IBM and Apple should work together to bring a Lotus Notes client to the iPhone.

I say three cheers for Notes on iPhone! It would be a great solution and drive Apple deeper into enterprises, while extending the shelf life of Notes/Domino. But why not build it via a Robot architecture, with Android at the core, and allow these mobile devices to be common endpoints for corporate and consumer activities, such as Notes/Domino, based on a common -- yet two-tired -- open/commercial middleware stack?

Windows Mobile didn't get the job done. Java ME did not get the job done. Embedded Linux did not get the job done. How about a Robot brother to Android?

Another option for BEA: Sell yourselves to a big, honking telco

While the potboiler of the Oracle-solicits-BEA story simmers on the front burner, there could be another option for BEA's board. Rather than BEA -- which states it will be happily acquired for $21 per share -- awaiting another software vendor to rescue it from the flinty grips of Oracle, why not seek out an entirely different sort of buyer?

A handful of the world's largest telecommunications carriers, I should think, ought to give serious consideration to BEA's plight. BEA would would do well to become the R&D arm, underlying infrastructure differentiator, integration hub, and sales/marketing channel lead into leading enterprise accounts for any carrier that needs to jump-start its business services offerings.

Now, I have suggested Microsoft might broaden its appeal to datacenter architects the world over by buying BEA, but Microsoft remains drunk on its growth potential as a Windows Everywhere vendor. And Microsoft would, seemingly, rather be late to the Web 2.0 bubble with a Facebook stake than late to the heterogeneous enterprise IT environment with a BEA-enabled segue to full IT and SOA solutions offerings.

Be that as it may, consider how a BEA would fit into a full-service telecommunications carrier's dominion in this pending new world of services, SaaS, subscriptions and the need for technology differentiation as carriers increasingly find themselves competing against Google, Apple, Microsoft, Salesforce.com.Yahoo!, Amazon and eBay.

Right. So if a Verizon, at&t, Sprint, Deutsche Telekom, Orange (France Telecom), or other large carriers were to consider having BEA as part of their organization, what would they get? First, consider that carriers were behind a lot of purely technical advances in computing, with Unix, networks, patents, and R&D emanating from such places as older AT&T, Bell Labs, Westinghouse, and even General Electric. So the precedent of carrier conglomerates being in the IT supplier and R&D business is fairly well established, and the recent history of these global giants outsourcing their IT is the exception over the past 50 years. IBM and Microsoft would not be where they are otherwise.

We also hear the lament that carriers are bit pipes that perform the commodity work of building the networks and engaging and servicing the end users while the content, infrastructure and software developers earn the higher margins and jump first on the new opportunities. There is truth there.

Nowadays carriers are shouldering the mammoth costs of making the world ready for TCP/IP everything while trying to integrate for a triple and quad play offering of Internet, phone/voice, entertainment, and mobile. And for what? So others like Google or Disney can monetize the new advertising models, Apple can sell the music and (maybe) video/TV, and Amazon can sell the rest. And so Microsoft can follow their lead and carve out the industry?

Well, what if the carriers returned to their technical roots, and began the IT pioneering work again that would allow them to keep (and sell) faster, better, cheaper underlying technology (like Google and Amazon have done so well) while leveraging standards and open source as appropriate, and while also providing strong software infrastructure products (and increasingly services) to the large enterprise BEA-type, leading adopter accounts. I think many large businesses would welcome buying software, services and support from their largest networks, telecom, and mobile providers. There's one throat to choke, and the efficiencies and discounts of volume, global purchasing. Of course, they would have to execute very well, which means they need excellent technology and technologists -- and BEA has certainly been that.

A savvy carrier that executes well -- and exploits IT rather than be disintermiated by it -- could offer some fascinating bundles of BEA-type solutions (on premises, off premises, hybrids, lo-cations, grid, virtualized) with their other business-class offerings. They could build BEA middleware-empowered appliances or platforms that could drop into these accounts and tie-in back to the optimized networks and datacenter services.

These carriers could race to SOA and SaaS benefits quickly and directly, in ways that benefit their futures -- rather than be held in the waiting as Microsoft figures out the Live world and IBM deliver business services via SOA that further disintermediates the carriers and networks providers.

I know it's a stretch, and it bucks current thinking. But something like a BEA-at&t mashup -- as long as BEA stands alone inside the maw to well-service its current and new direct software customers -- has some very interesting synergies. Remember that at&t owns Sterling Commerce, which has been doing quite well at a higher level of SOA and supply chain efficiency work.

A BEA-at&t-Sterling mashup -- an integrated and optimized hub of business ecologies and commerce -- is rather attractive on many levels. Meanwhile, the BEA software intellectual property remains to be harvested, and could be quickly expanded upon with a flush R&D budget. An acquired BEA could be the tail that wags the at&t (or other carrier) dog.

Yes, Oracle's synergies with BEA are formidable and may be worth $17 per BEA share. But an innovative, imaginative telco with a 20-year business and consumer services development horizon (with both built on a common yet differentiated technical foundation), may enjoy synergies that do place BEA at $21 per share, comfortably. It's time for telcos to master the entire IT spectrum (again) and provide full solutions, at aggressive prices. It is, after all, about the ability to deliver the goods through the pipe that counts.