HP buys Eucalyptus

In an interesting move that seems to be predominantly an acquihire, HP has bought Eucalyptus for an undisclosed sum, though speculation is that the deal’s under $100m, less than a 2x multiple on what Eucalyptus has raised in funding (although that would still be a huge multiple on revenue).

Out of this, HP gets Eucalyptus’s CEO, Marten Mickos, who will be installed as the head of HP’s cloud business, reporting to Meg Whitman. It also gets Eucalyptus’s people, including its engineering staff, whom they believe to really have expertise in what HP termed (in a discussion with myself and a number of other Gartner colleagues) the “Amazon architectural pattern”. Finally, it gets Eucalyptus’s software, although this seems to have been very secondary to the people and their know-how — unsurprising given HP’s commitment to OpenStack at the core of HP Helion.

Eucalyptus will apparently be continuing onward within HP. Mickos had indicated something of a change in direction previously, when he explained in a blog post why he would be keynoting an OpenStack conference. It seems like Eucalyptus had been headed in the direction of being an open-source cloud management platform (CMP) that provides an AWS API-compatible framework over a choice of underlying components, including OpenStack component options. In this context, it makes sense to have a standalone Eucalyptus product / add-on, providing an AWS-compatible private cloud software option to customers for whom this is important — and it sidesteps the OpenStack community debate on whether or not AWS compatibility should be important within OpenStack itself.

HP did not answer my direct question if Eucalyptus’s agreement with Amazon includes a change-of-control clause, but they did say that partnerships require ongoing collaboration between the two parties. I interpreted that to mean that AWS has some latitude to determine what they do here. The existing partnership has been an API licensing deal — specifically, AWS has provided Eucalyptus with engineering communications around their API specifications, without any technology transfer or documentation. The partnership been important to ensuring that Eucalyptus replicates AWS behavior as closely as possible, so the question of whether AWS continues to partner going forward is likely important to the fidelity of future Eucalyptus work.

It’s important to note that Eucalyptus is by no means a full AWS clone. It offers the EC2, S3, and IAM APIs, including relatively full support for EC2 features such as EBS. However, it does not support the VPC networking features. And of course, it’s missing the huge array of value-added capabilities that surround the basic compute and storage resources. It’s not as if HP or anyone else is going to take Eucalyptus and build a service that is seriously competitive to AWS. Eucalyptus had mostly found its niche serving SMBs who wanted to run a CMP that would support the most common AWS compute capabilities, either in a hybrid cloud mode (i.e., for organizations still doing substantial things in AWS) or as an on-prem alternative to public cloud IaaS.

Probably importantly to the future success of HP Helion and OpenStack, though, Mickos’s management tenure at Eucalyptus included turning the product from its roots as a research project, into much slicker commercial software that was relatively easy to install and run, without requiring professional services for implementation. He also turned its sales efforts to focus on SMBs with a genuine cloud agility desire, rather than chasing IT operations organizations looking for a better virtualization mousetrap (another example of bimodal IT thinking). Eucalyptus met with limited commercial success — but thus far, CloudStack and OpenStack haven’t fared much better. This has been, at least in part, a broader issue with the private cloud market and the scope of capabilities of the open-source products.

Of the many leaders that HP could have chosen for its cloud division, the choice of Mickos is an interesting one; he’s best known for being CEO of MySQL and eventually selling it to Sun, and thus he makes most sense as a leader in the context of open-source-oriented thinking. I’m not inclined to call the HP-Eucalyptus acquisition a game-changer, but I do think it’s an interesting indicator of HP’s thinking — although it perhaps further muddies waters that are already pretty muddy. The cloud strategies of IBM, Microsoft, Oracle, and VMware, for instance, are all very clear to me. HP hasn’t reached that level of crispness, even if they insist that they’ve got a plan and are executing on it.

Edit: Marten Mickos contacted in me in email to clarify the Amazon/Eucalyptus partnership, and to remind me that MySQL was sold to Sun, not Oracle. I’ve made the corrections.

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Posted on September 12, 2014, in Industry and tagged , , , . Bookmark the permalink. 5 Comments.

  1. Another perspective on this deal. It’s not uncommon for big enterprise technology vendors to have different product lines for different markets, for example Windows and Linux OSes. This deal allows HP to have a solution for AWS centric shops that want hybrid clouds as well as Openstack based shops that want hybrid. That pretty much covers 98% of the IaaS market.

    Additionally, now Marten has a billion HP bucks to flesh oit the Eucalyptus AWS APIs to cover a higher percentage of AWS functionality (something he couldn’t do with start up level funding. He also has HPs gold platted sales force, customer base and extensive and complimentary product lines of networking, security, hardware and applications.

    Eucalyptus will continue, in my view, and flourish at HP. The intriging question is how will Marten jump start the Openstack business? Looking across the Openstack vendor landscape I would peg Nebula as the obvious next acquisition. It’s hardware centric (runs on HP hardware), solves the biggest Openstack problem of cumbersome installations and doesn’t have too much VC money yet and could be bought for 3-5x.

    Lastly, while Marten exited Sun quickly HP is a different place with different stability profile than Sun of 2008. Marten arguably has more cloud experience than any other HP exec and he’s a tenacious competitor.

    I like this deal and think Marten and Eucalyptus will thrive in HP.

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  2. The term “Amazon architectural pattern” is interesting. API is not architecture. Euca mimics AWS APIs, but its internal architecture is completely different from AWS internals. None of the core AWS architects worked for Euca. If HP thought that they were going to get a AWS clone with similar scale-out capabilities, they will be sorely disappointed.

    That being said, I think that Euca is HP’s best shot of winning in the private cloud market. Euca has the AWS API compatibility brand. Customers that might want to be ready for a longer term move to AWS, but not yet ready to go to public clouds yet, will give Euca an edge over other private cloud solutions. I think HP is aware by now that they will not win Open Stack vs Red Hat, and also will have a tough battle for private clouds with the likes of VM Ware and Microsoft. To save some face, they will probably slap in some Open Stack APIs to Euca, but at the core the value prop and differentiator of Euca is AWS compatibility.

    The fact that Meg has given Marten a much bigger role than his current (he goes from managing ~70 folks to many many more, and directly reports to her) might be because she wants to seriously consider Euca for their private clouds. She knows very well that Marten will try to see if Euca can be their go-forward product. And if she had made Marten report lower down in the org, Euca would likely have been squashed in favor of their existing Open Stack based private cloud, which is not doing well in the market. I doubt that they acquired Euca simply to get Marten. They could have just offered him 10% of what they paid for Euca, and gotten him :-).

    Lydia – regarding your comment about their cloud strategy – I think they are still trying to figure out one that works. They are needing to change, and not have a clear and consistent strategy, as their current approaches thus far have not yielded commercial successes. I’d suspect Oracle too is in the same boat, and rethinking its cloud strategy. Yep, Oracle, the folks who rent hardware for 3 year terms and categorize it as “IaaS” revenue (memba Larry’s comment in the last earnings call about how their Iaas business is larger than Rackspace’s? :-)).

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  3. @Cloud Insider – Marten has a personal brand that he needs to cultivate. He would have lost that had he jumped ships as soon as he was offered better compensation. He’s also wealthy thanks to the MySQL exit, so I’d like to believe the mission is more important to him.

    You can’t just slap on an AWS API compatibility layer on top of OpenStack, and thinking so might be a little naive, which leads me to believe that the primary reason for the acquisition was to get Marten and some expertise around the so-called “AWS design pattern”.

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  4. Sebastian – Marten had been with Euca long enough. I don’t think it would have been perceived very negatively if he had taken up a new job. There are CEOs who leave, not all change jobs just via acquisition :-).

    I do agree that mission is important for someone like Marten who is already independently wealthy. But that is all the more reason why I think that he would not just agree to kill Euca. That has been his baby for a while now.

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