The Service Management Soapbox

DISCLAIMER: First, let me make one thing clear … despite my prior position with EMC, I do not have any insider information on what I am about to write below. I am merely observing and analyzing what is obvious to me or to anyone else who has enjoyed long-term, broad market exposure the way I have. Everything below is public knowledge and opinion.

One of the great rumors in the management software business for nearly a decade (maybe longer) is that EMC Corporation and BMC Software would join forces via a “merger.” In almost all cases, what people were actually referring to was an acquisition of BMC by EMC. I steadfastly posit that true mergers are rare and almost all attempts are failures (e.g., Daimler-Chrysler and Bay Networks, both huge disappointments). As the bigger fish, EMC would have taken over BMC, period.

Anyone who knows EMC, knows this was unlikly, as EMC’s acquisitions have all been small, with a few exceptions (e.g., RSA for US$2.1B in 2006, Documentum for US$1.7B in 2003). Many forget that the now super-valuable VMware was a relatively small purchase at US$635M in 2004. At today’s price, BMC sits at a US$6.1B market cap, so EMC would have to shell out about US$7-10B for a buyout. That’s far above the median value of an EMC acquisition. Still, many of us who watch the markets hoped it would happen, as it would have been exciting for us to watch it play out.

Two very recent events now make an EMC-BMC union an extremely low probability and put this question to rest once and for all. A week ago today, EMC announced its acquisition of Infra for an undisclosed price and this morning, BMC announced its acquisition of BladeLogic for approximately US$800M. For a long time, EMC and BMC maintained a largely amiable partnership. Most notably, EMC’s wonderful Smarts software (acquired in 2005 for US$260M) integrates very nicely with BMC’s seemingly ubiquitous Remedy software for smooth incident management automation.

These two acquisitions will now impose strain on the relationship, but nobody should be dismayed. Such a scenario was inevitable once EMC first began considering its necessary entry into the management business. The Smarts acquisition set this evolution into motion and it has accelerated ever since. Now that EMC is encroaching upon the “Big Four” club (BMC, CA, HP, and IBM), EMC will have more competitive friction with each.

With its acquisition of Infra, EMC is now directly competitive to BMC’s Remedy. EMC’s Remedy integration must, and will, continue. Remedy is so pervasive that integrating well with it is imperative for anyone in the management software business. Despite this, however, Infra launches EMC on a new trajectory for ITIL process automation. This is a domain that has been one of BMC’s strongest messages and value propositions. It goes far beyond the help desk automation offered by both Remedy and Infra, as well as a host of others (e.g., HP/Peregrine/Mercury, Axios Systems, CA, and IBM). Infra will be a key linchpin in EMC’s drive to become a stronger IT service management vendor. Expect some integration challenges, as EMC will probably find Infra’s software-as-a-service (SaaS) model to conflict with its other more traditional software components. This mismatch will eventually be overcome, but not quickly.

BMC’s BladeLogic purchase is notable for many reasons. BladeLogic’s configuration, change, and release management automation technology has been a favorite of IT Operations organizations since its launch in 2001 and the company, a sweetheart of Wall Street since it’s 2007 IPO. It was one of the most highly sought prizes by larger management vendors, including IBM and yes, EMC and BMC. When HP acquired Opsware in 2007, preceded in 2006 by its acquisition of Mercury Interactive, it laid the gauntlet for major warfare in the IT operational automation market. The logical response was to match their moves with equally bold steps. One of the most anticipated of these steps was, “Who will buy BladeLogic?”

That question has now been answered, leaving IBM, EMC, and others to decide how they will compete with HP and BMC. All have been acquiring and all are well positioned in various areas, but HP, and now BMC, have shown they are firmly committed to become strong leaders. The HP combination is truly formidable. By most measures, HP paid too much for both Mercury and Opsware, but the momentum they gained from each is significant. The premium is still a good investment because the result is a powerful market force and more importantly, a software vendor that customers can trust to supply a broad family of products well into the future. Of course, integration challenges remain in any assimilation this substantial (culture clashes alone have taken a toll), and there remain many struggling and overlapping products in the new HP portfolio. Still, HP has collected a lot of the right parts with the bravado necessary to declare its confidence as a market leader.

Until recently, BMC seemed to be a “one man band” with Remedy. Outside of Remedy, many of its products lines appeared orphaned or at best, neglected. These “forgotten” lines include its event management products from its original Patrol line and its more recently acquired IT Masters products (purchased in 2003 and now under the Service Impact Manager branding), as well as a lot of its performance technologies and bread-and-butter mainframe tools. I am bullish on BMC, especially around ITSM, but it must still give some attention to these “forgotten products” if it wants to conquer the likes of HP. It’s not overly sexy stuff these days, but it is essential to broad-based customer value.

BladeLogic is the latest (and certainly not the last) of a rapid succession of acquisitions by BMC that include Proactivenet, RealOps, and Emprisa Networks in 2007. Some armchair market watchers may question the wisdom of such aggressive business development and maybe some of the choices, but each marks a step in the right direction for ITSM. Configuration and change management are critical as the core of everything in IT Operations, so BladeLogic is a terrific asset for BMC, along with the RealOps run-book automation, the Emprisa technology for network change automation, and the Marimba technology BMC acquired in 2004.

I credit a good team of leaders at BMC with this progress, including my old friend and META Group boss Herb VanHook, who is now BMC’s VP of Strategy. BMC’s renewed focus over the past few years is paying off, as its stock is up a little over 50% in two years, as is shown here. By comparison, CA, a good direct comparison to BMC, is down 20% and Compuware (CPWR), another similar vendor, is down slightly. HP, IBM, and EMC all have their management software businesses hidden inside their overall results, so it is difficult to confirm their numbers, and unethical to disclose them, but it is clear that BMC has been one of the better growth businesses in the management software space.

I once considered BMC to be a laggard among the Big Four. I now appreciate their strategy as one of the best and their execution has improved markedly. Their momentum, combined with a relatively low market capitalization, still make it vulnerable to an acquisition itself. Potential suitors may include Oracle or Microsoft, but it is becoming ever more doubtful that EMC is part of the courtship.

This entry was posted on Monday, March 17th, 2008 at 13:19 and is filed under Vendors, General ITSM, Management Tools. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.