Monday, June 24, 2024

Michael Capellas and EMC/Cisco/VMware’s Ambitious Partnership

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There are two models that continue to fight it out in the technology space.

The original model had each vendor heavily vertically integrated; this model was initially championed by IBM (initially the most powerful vendor in the segment) and is currently championed by Apple, the most profitable hardware vendor.

The other model is specialization, and this model was originally championed by Microsoft, the most powerful software vendor in the segment, Intel, the most powerful chip vendor (who sells to both IBM and Apple) and most recently by this partnership between EMC/Cisco/VMware.

In theory, specialization should be the most efficient and profitable approach but Apple has clearly showcased that, at least for their segment, that isn’t necessarily true. I think that execution is the big variable. For while specialization is all it should be, if you get a company like Apple that executes at an extremely high level and selectively picks those things it can profitably virtually integrate (chip design but not fabrication for instance) you overcome this apparent disadvantage. That is why the selection of Michael Capellas to lead this effort is so interesting. He was seen as the guy that did more to assure the success of the Compaq/HP merger than HP’s then-CIO Fiorina, and he clearly successfully turned WorldCom from a company about to fail into one that could be successfully sold.

Computing/Consumer Electronics Revolution

Looking back over the last 5 or so decades we have been in the midst of something similar to the Industrial Revolution but with information management and computing. Initially companies – well IBM, anyway – owned the vast majority of the market at their peak, did virtually everything themselves from software through services and even, retained ownership of the hardware.

From a manufacturing perspective IBM was a computing specialist, but from a computing perspective they were a generalist with everything under one umbrella. As a result of 1956’s IBM Consent Decree and a series of short-sighted mistakes(like selling the leased hardware to customers) IBM lost its original hold on the computing industry and the beginning of Computing/Consumer Electronics Revolution began.

Specializations shifted and changed with vendors like Compaq, HP, Dell, Lenovo, Toshiba, and Sun breaking out into specialty areas. Some firms, like HP and IBM, continued to aggregate large groups of specialties under one roof, while others like Microsoft and Novell had a tighter focus, in this case, on software.

As time went on Microsoft grew to replace IBM as the most powerful vendor in the segment by being a software specialist and increasingly started drifting into hardware efforts with the Xbox, Zune, and, most recently, Kin Phones, with mixed success.

Apple, in the meantime, went from failure in the 90s, which favored this new specialty model to — through tight focus, sharp execution and the strongest marketing — to create a counter argument against the Microsoft driven separation of responsibilities. HP, driven by dissatisfaction with the Microsoft model and embarrassed by Apple’s success, recently bought Palmand now appears to be supporting a shift to another model, one that appears to be more driven by Apple than any other vendor.

EMC/Cisco/VMware Beg To Differ

However, while there is clearly a lot of pressure on the Microsoft model, the idea of tight specialization still goes to the heart of what made the Industrial Revolution work. And EMC/Cisco/VMware, at least when it comes to the merging area of Cloud computing, appear to believe that they can make tight specialization work better. They partnered to form Acadia, which will sell pre-configured equipment to data centers, focusing on cloud computing.

The problem with an effort like this between two peers like EMC and Cisco (VMware is a subsidiary of EMC) is leadership. Two near-equal partners often have different agendas and, as we saw with the recent apparent HP/Microsoft break up, near equal partners can be a problem because both want to lead. And that is one too many leaders.

This is where Michael Capellas comes in.

Michael Capellas: The Magic Sauce

I had to chance to get to know Michael Capellasduring the HP/Compaq merger last decade and often followed him, Carly Fiorina, and Walter Hewlett after each pitched financial analysts during the huge proxy fight that followed.

Of the three, Capellas was the one that actually seemed to be able to convey a strategy and he was the operations expert that balanced Fiorina’s vision at HP. In looking back to why Fiorina was fired a lot of it went back to her inability to manage operations. And Capellas’ departure, largely because he was having trouble working with her, was a major part of the decision to let her go.

At WorldCom he entered an environment that had been badly mismanaged for a long period of time and a company that was failing. In record time he trimmed the company down and packaged it for sale (to Verizon) saving an impressive number of jobs and the majority of the existing investment.

While there were complaints, particularly in HP which seemed to be dealing with conflicting leaders while he was there, he executed sharply and he was clearly one of the major reasons the jobs got done. In effect he has proven to be, while not perfect, someone who can take a difficult task, like keeping too companies in sync, and execute it admirably.

Wrapping Up: A New Way to Partner

Across the computing landscape this is a market undergoing a massive amount of change. From HP emulating Apple and going vertical, to this mega partnership that places Cisco and EMC at the center — which could easily disrupt dominant positions by Apple Microsoft and HP — the market is in massive flux. This partnership, because it includes a distinct and separate (from the major players) leader, may be a template of things to come as folks go back and analyze why other major partnerships like the one between Microsoft and IBM failed.

I should note that there were two similar attempts like this I recall, Talligent and Kaleida Labs, which were efforts between Apple and IBM using a similar model. But the leadership of those efforts wasn’t strong enough to keep either Apple or IBM in line and they failed.

In fact, with this partnership, we may have a template that identifies what has been missing between other efforts and directly identifies why most never really meet expectations. Up until now they lacked the strong leadership that can assure the partners step up and stay in line.

If Capellas is successful, he may represent the new best example as to how these things should be done. That new way of doing things could have broad implications with regard to what the future of the computing industry looks like. And trust me, the future of this industry won’t look anything like it does today.

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