Thursday, HP and Eucalyptus surprised everyone in cloud as they announced that HP was acquiring Eucalyptus Systems for an undisclosed amount, rumoured to be somewhere below the 100-million-dollar mark.
Now, while that amount is nothing to be sneezed at (comparatively, Eucalyptus had raised $55 million in venture capital), it is well below the typical return of a successful startup. And for good reason: Eucalyptus wasn’t exactly a runaway success. In fact, it was definitely one of the underdogs (along with Apache CloudStack) in the open-source private cloud platform market.
Now, what makes this acquisition surprising is the fact that the leader in this market happens to be OpenStack, to which HP has so far committed significant resources, and which it supports through its HP Helion OpenStack distribution. In fact, HP was one of the most significant contributors to OpenStack’s upcoming “Juno” release (1st by commit count; other metrics likewise show HP in a solid position).
So, why would HP acquire Eucalyptus Systems, a small competitor that had so far failed to make a dent? (though it wasn’t totally unsuccessful either)
Broadly speaking, there are three main reasons why acquisitions happen:
Acquiring market share, or killing a competitor
Acquiring a product
Acquiring a team
Considering Eucalyptus’ position in the market, option 1 seems unlikely. What about the others
Did HP Acquire Eucalyptus For Its Product?
HP’s commitment to OpenStack makes it unlikely that it is acquiring Eucalyptus Systems to integrate the Eucalyptus private cloud platform into its own product portfolio.
Indeed, OpenStack is a mature and well-architected platform that not only significantly overlaps with Eucalyptus’ functionality (they are both private cloud platforms), but is also largely incompatible with it (Eucalyptus is a largely monolithic Java codebase, whereas OpenStack is a modular Python one).
So Was It For The Team?
The Eucalyptus team doesn’t seem like an obvious fit to work on HP’s product (if only because of the programming language differences), but would presumably bring significant experience in terms of AWS compatibility, which HP could use (AWS compatibility is Eucalyptus’ key differentiator in the private cloud market).
However, there are OpenStack startups that have built their business on enabling AWS compatibility for OpenStack (CloudScaling is one such example). If HP’s goal was to acquire AWS compatibility experience, one of those might have been a better buy than Eucalyptus Systems.
What About The Leadership?
With the acquisition, Eucalyptus Systems CEO Mårten Mickos goes on to head HP’s cloud business.
As a friend, I know from firsthand experience that Mårten is a world-class executive. He’s a good speaker, an inspiring leader, and a visionary. Plus, he does have a proven track record.
Considering that HP’s cloud business has been without a leader since the departure of Biri Singh, bringing Mårten on board could be just what the company needs to finally turn its cloud division around and become a solid contender in the space.
At this point, HP’s leadership hasn’t revealed its plans, but it is doubtful that those plans even exist. Indeed, in the wake of the acquisition, HP VP of product Bill Hilf stated that:
"There’s going to be a lot of strategic discussion we have to have about [the acquisition] — how and what makes the most sense over time".
So, perhaps HP’s strategy is to cross fingers and hope that Mårten will know what to do with its cloud business. Will the acquisition be worth it for HP? Surely, the price tag seems steep for a single executive, even for one of Mårten’s caliber.
Finally what will the acquisition entail for the Eucalyptus product? If the product wasn’t the motivator for the acquisition — which seems likely —, then it’s both probable and unfortunate that it might eventually be discontinued. Time will tell.