Cloud computing is the most important secular transformation to hit computing since the Internet in the mid-1990s. It will create winners, but it will also create losers.
The losers will be those companies most closely tied to the older paradigm of enterprise computing, all those islands of corporate technology that can now, in essence, be outsourced so Software as a Service (SaaS).
These companies may work hard to get out of the way of the cloud, and they all have cloud strategies, but their room to maneuver is limited. Generally the more money you're making from pure hardware, the more you're relying on enterprise software contracts, the more of your business is vulnerable, and the more vulnerable you are, to the cloud.
Who are some of these losers?
Computer Associates (NASDAQ:CA) – Computer Associates is one of these companies dancing as fast as it can, making acquisitions, claiming a long-strategy, telling customers it's their best “guide” to the cloud.
But nearly all of CA's revenue comes from enterprise software products and from corporate installations, just the kind of thing that's most vulnerable to the cloud. Which means its base of financial support will be shrinking continuously as it tries to make the transition. Regardless of how well it does, it will be a different, and smaller, company at the end of the process than it is today.
Dell Inc. (NASDAQ:DELL) – Dell is vulnerable because it makes PCs and servers. The PC replacement cycle slows as more of a company's computing load moves online. The cloud is designed to economize on server resources, which is Dell's bread-and-butter.
Dell's efforts to get out from under, like the acquisition of Perot Systems and (more recently) Force10, may seem admirable, but again the boat has sprung a big leak and this is bailing. Dell still has room to make a big game-changing acquisition [like Rackspace (NYSE:RAX), still one-sixth its size and located just down I-35 in San Antonio] but time is getting short. And you're better off owning the acquired company in that case anyway.
Oracle (NYSE:ORCL) – Oracle, despite all its talk, really lacks an effective cloud strategy. The acquisition of Sun Microsystems was supposed to fix this, but it is more of an anchor thrown a drowning man.
Brett Korsgaard calls Oracle a “titan of the enterprise” and that's the problem. Oracle's numbers are based on recurring software licenses that are the target of every CIO looking at a cloud solution. It still has the market cap to adapt, to buy-out even large competitors like Salesforce.com (NYSE:CRM), but again you want to be on the selling side of that transaction, not the buy side.
Will Oracle survive the cloud? Yes. But it's going to be a bumpy trip.
Hewlett Packard (NYSE:HPQ) – I called HP “dead money” last month and my view has not changed. Like Dell, HP makes its money from PCs, clients and servers, both of which are deeply threatened by a cloud that puts a premium on user interfaces on the client side and limits server sales.
HP does own EDS, a trusted partner to many enterprises, and it is engaged in cloud research, but again the ship has sprung a leak and it's not bailing very fast. It could try to regain relevance in the cloud space by making a run at Red Hat (NYSE:RHT) but, again, which side of that transaction do you want to be on?
Many people are going to say I missed two big losers here in Microsoft (NASDAQ:MSFT) and IBM (NYSE:IBM). Both are in trouble from the cloud, but both have already put in cloud strategies that will limit the damage, something the companies mentioned above have yet to demonstrate.
Disclosure: I am long IBM.