Acquisitions in the cloud computing space have been picking up recently as technology companies look to offer end-to-end solutions. It also shows that for large companies, innovation through acquisition is becoming more popular as a way to adapt to changing technology trends. Cloud acquisitions typically fall into the Software as a Service (SaaS) and Infrastructure as a Service (IaaS) category.

Oracle has been a voracious cloud acquirer with a number of SaaS acquisitions like RightNow, Taleo and Vitrue. SAP has also been adding to their SaaS portfolio with purchases of Ariba and SuccessFactors. IBM, which typically claims that it is not in the “application” space, has been adding to its SaaS portfolio with business analytics solutions like DemandTec and Emptoris. SaaS solutions are a great way to open cloud markets to large technology companies as the subscription model allows a low entry point for new customers.

In the IaaS category, there has been more effort put into completing infrastructure portfolios by large technology vendors. Most recently VMware bought Nicira mainly for its capability to enable software defined networks (SDN). Last week Oracle announced the purchase of Xsigo whose primary product is the Data Center Fabric Solution that enables customers to flexibly connect their cloud infrastructure. Xsigo fills in a gap in Oracle’s networking portfolio to add value to the cloud computing space.

Networking is important to cloud computing initiatives both for network optimization and improved high availability in being able to distribute workloads to multiple locations. With traditional networking technology, network management is limited making dynamic changes difficult to accomplish.
IaaS, public or private, is all about optimization of IT resources like compute and storage. Spreading the use of these resources based on needs by various users currently can sometimes be time consuming and often a manual process. SDN has the capability to take control of datacenter resources through software without any manual intervention.

While Xsigo is not part of consortiums like the Open Network Foundation, its products work well in a private cloud space giving Oracle an opportunity to improve outcomes provided by their products like Exadata , Exalogic and Exalytics. However, since Oracle is a member of Open Network Foundation, once the deal closes Xsigo could become a contributor and enhance Oracle’s new public cloud offerings by adding SDN capabilities.

Overall Oracle’s acquisition of Xsigo is good for the following reasons:

• It offers benefits to Oracle’s integrated hardware/software offerings in the private cloud infrastructure space.
• It completes Oracle’s end-to-end cloud infrastructure stack that currently is strong in compute and storage only
• It gives Oracle a talent pool from Xsigo to help strengthen its position as a cloud vendor

 The challenges to Oracle’s Xsigo deal are:

• Software products based on OpenFlow & SDN could be easily replicated by other vendors
• There could be fear among Xsigo customers about Oracle’s pricing methodologies and whether that would increase their costs
• Oracle’s sales organizations which are typically organized in product silos could make it a challenge to sell cloud products as integrated solutions

The industry will continue to see acquisitions such as VMware’s Nicira deal and Oracle’s purchase of Xsigo, since growing cloud computing share is essential to the future of legacy technology providers. Time will tell whether these acquisitions will pay off based on dynamics of the market and varying customer needs.