For years, successive CEOs at storage systems vendor EMC have expressed a burning ambition to radically increase the proportion of revenues the company derives from software. The long-standing target was 50%.
But throughout the 1990s and into this decade, this oft-stated goal nevertheless took second place to selling truckloads of storage hardware. That has all changed in recent months, with company head Joe Tucci finally taking some bold – and surprising – steps to make EMC a force in the software industry.
Its first big buy, in the summer of 2003, was understandable enough, even if the price was on the high side – $1.3 billion in stock for struggling storage management software maker Legato.
Next up, the $1.7 billion purchase of document management software maker Documentum had people scratching their heads, while December’s $635 million cash buy of ‘virtual machine software’ supplier VMware was even more mystifying.
Erez Ofer, executive vice president of technology strategy at EMC, argues that VMware fits perfectly into EMC’s information lifecycle management strategy and will compliment its existing expertise in storage virtualisation.
However, one clear surprise was the amount EMC was willing to pay. VMware had been growing fast since the release of its server virtualisation software in 2001. According to Ofer, revenues for 2003 weighed in at just under $100 million and were forecast to more than double over 2004.
In view of that performance, VMware has been an acquisition target for several companies, according to Ofer.
One of those interested parties had been Microsoft, but VMware CEO Diane Greene says that the two companies were simply unable to agree terms.
Given that the lack of virtualisation capabilities represents a serious deficiency of Windows Server 2003, it is surprising that Microsoft CEO Steve Ballmer did not open the company’s wallet wider in order to secure control of VMware. Instead, he will have to make do with the less-than-mature server virtualisation software he acquired from Connectix in February 2003.
While EMC’s purchase of VMware was the most eye-opening acquisition of the month, Northgate Information Solutions’ takeover of human resources (HR) software specialist Rebus HR Group will no doubt have more immediate strategic significance for many UK businesses.
Rebus HR, which is built on HR products once developed by Peterborough Software, claims 70 of Britain’s 100 biggest companies as customers for its HR, payroll and employee information systems and services.
Personnel managers at those organisations – and many in the mid-market too – will no doubt be watching closely to see whether they benefit from any of the savings Northgate CEO Chris Stone plans to generate.
Northgate, known as McDonnell Douglas Information Systems until 2000, focuses on human resources, local government and criminal justice applications. And the Rebus HR buy will dramatically increase its presence in the UK HR software market. In the year to April 2003, Northgate’s HR business posted revenues of £18.8 million, compared to Rebus’s revenues of £76 million for roughly the same period.
The acquisition follows on from two smaller HR-related purchases earlier in 2003. In June, it snapped up payroll processing company Cara Payroll Group for £13.4 million, and in November it bought PWA Group, a human resources software unit run by Microsoft for £2.5 million.