An acquired taste

With SimpliVity the latest start-up to be swallowed by a hungry vendor giant, Tom Wright asks what impact these acquisitions have on the channel

While start-up vendors will often boast of their partner recruitment drives and their 100 per cent channel commitments, it is very unlikely they'll offer much tangible information on where they expect to be in five years' time.

Since the launch of the Emerging Technologies Hub in January, CRN has spoken to a number of vendors entering the UK channel, the majority of which say they have "no plans to be acquired".

History, however, would show that this is not the case, with start-up vendors seemingly available on a plate for the larger vendors to gobble up. Others disappear off the face of the earth, while a very limited few reach the promised land of the IPO.

2017 has already seen one example of such an acquisition. Hewlett Packard Enterprises' (HPE) $650m move for hyper-converged vendor SimpliVity was met with universal acclaim from the tech industry for validating the hyper-converged market.

As the dust settles, however, there will undoubtedly be unrest in the channel.

Knock-on effect

Lenovo, Dell, Cisco and Huawei all had deals in place that saw the SimpliVity software available to buy on their own hardware in 'meet-in-the-channel' deals. One of the early, and as yet unanswered, questions raised by the announcement is whether or not these alliances will be allowed to continue. Whatever the outcome, there will be an effect for the channel.

Will HPE make SimpliVity available solely on its own hardware? Will SimpliVity resellers that work exclusively with another infrastructure vendor have to become HPE partners and compete against HPE Platinum partners?

UK IT Corp, for example, does a large chunk of its business with Lenovo and recently became a SimpliVity partner. Sales director Neil Jelley was understandably delighted when he spoke to CRN in December after SimpliVity announced its meet-in-the-channel deal with Lenovo.

So the news of the acquisition has created a degree of uncertainty - particularly with HPE already saying that SimpliVity's software will be available on HPE servers for the first time within 60 days of the deal's completion.

"We'd like to think that they're going to support partners," Jelley said. "We're an HP partner - we don't do huge amounts but we can - but it's interesting that they were the only real vendor SimpliVity didn't work with previously [in a meet-in-the-channel arrangement].

"Time will tell what it means for the long haul, particularly for the other vendors, but ultimately the interesting bit is the software bit and the hardware element is probably the least important bit."

New partnerships

While SimpliVity partners will have to wait to see how their new relationship with HPE will unfold, HPE partners will also see themselves become SimpliVity partners by default - potentially seeing their hyper-converged offering bolstered overnight.

But the addition could throw up some internal political problems - particularly if the reseller is a big HPE and Nutanix partner.

One such reseller is UK giant Softcat, which is an HPE Platinum Partner and a Nutanix Premier Solution Provider.

Sam Routledge, CTO at Softcat, said there will be no problems integrating SimpliVity into Softcat's vendor portfolio and that the more established vendors largely have a more suitable partner programme for larger resellers such as Softcat.

"If you look at SimpliVity it's a funny one because we weren't actually doing loads with them but as part of HPE we probably will do quite a bit more because it just smoothes out some of the awkwardness," he said.

"It doesn't mean we'll switch from selling Nutanix - we'll continue to put the right system in the right scenario - but it probably makes it a little easier because, while I love disruptive technology, it's a lot of hassle to deal with lots of small vendors, [but with SimpliVity] we can just roll it up into one of the big ones.

"The channel programmes of HPE, VMware and so on are all pretty robust and mature. They have rebates and targets and so on and you often don't get that with the little guys."

The little guy

While resellers with the might and power of Softcat will be licking their lips at the prospect of new business, smaller SimpliVity partners may feel aggrieved that they are now forced to compete with the big guns, particularly if they were one of the first partners to invest in SimpliVity.

When this was put to Routledge he said there will always be a place for smaller partners, particularly if they have built up a comprehensive services offering.

"If you are a partner of a small organisation such as SimpiVity and they're bought by an HPE, HPE are not going to turn off support for you immediately," he said. "In fact, you'll have an advantage in that new world because you've got the knowledge and experience that maybe the [larger resellers] don't have.

"A lot of those smaller organisations are more interested perhaps in the services revenue so you could partner with one of the bigger players or even provide services back into HPE or whoever the equivalent is.

"In that scenario if you're a SimpliVity specialist and you're doing really well, you're probably still small enough that HPE aren't going to pay you that much attention, whereas now they are going to pay you attention because they've got to make that acquisition work."

Growth potential

There is then an opportunity to take advantage of new relationships that may not otherwise have formed if an acquisition hadn't happened.

Mike Hockey, business development director at Roc Technologies, recalled a similar acquisition during his time at Prime Business Solutions which led to the company becoming an accidental Cisco partner.

Prime was an early partner of US VoIP vendor Selsius which was founded in 1997 and acquired by Cisco in 1998.

Hockey explained that because Prime had invested in Selsius early and become a leading UK partner, they were able to leverage the new Cisco partnership for growth.

"[Selsius] were an emerging IP telephony company and one of the first companies to develop it," he said. "We were working for them on a few customers and then they were acquired by Cisco and the product ended up being Cisco CallManager.

"We were only a tiny little company but because we had been doing some of the early work on it we were one of the first launch partners to take that out to market; and because Cisco had acquired them we then got a relationship with Cisco that we probably wouldn't have had before.

"That was what fuelled our growth and we ended up becoming one of the top five Cisco partners in the UK so in some instances it can be good, if you've got a real specialism in that product, but equally in another situation if part of your competitive advantage is your capability and the channel market goes from 20 partners to 2,000 then it can be a really bad thing."

Distribution changes

Changes to SimpliVity's distribution strategy are also thought to be on the cards as HPE looks to integrate it into its wider business.

Alex Tatham, managing director at HPE distributor Westcoast, explained that when a vendor makes an acquisition they will more often than not incorporate that vendor into the distributors in their existing stable, which can leave some disties high and dry.

"The first thing that happens is that somewhere there is a distributor that has SimpliVity in the UK, but HP will buy them, they'll be relatively quickly integrated in our understanding, and then they'll add it to the current HPE distributors' portfolio."

While that is the standard approach taken by larger vendors when they make an acquisition, Tatham cited the HP acquisition of Aruba in 2015 as an example of an existing distributor being kept on because of their successful track record with the vendor.

"So HP don't always do a standard splurge to say 'we've bought it; everyone gets it' [and] Aruba would be a good example," he said.

"Aruba had Mayflex as a distributor and they kept Mayflex on and only appointed Tech Data and Westcoast, but not Ingram and Avnet - so there's an example of a big acquisition that wasn't what I would describe as standard.

"HPE may look at the existing distributors and say 'those guys are not appropriate', but they may keep one of two of them on. We'll just have to pitch to HPE to make sure we'll do a good job there."

Tatham said that Westcoast would have had a problem, however, if it had been a distributor of a vendor like Nutanix that directly competes with SimpliVity.

"[We have to ask ourselves] 'can we sell this vendor and will it compromise an existing relationship?'" he said.

"Imagine if we'd been a Nutanix distributor and all of sudden HP buys SimpliVity. That poses a problem for Nutanix, SimpliVity, HPE and us.

"Clearly that is part of whether we would sign this vendor with a distribution contract or not and whether they would sign us too because they'd look at it and say 'you're going to do a hopeless job because you're going to push the other guy' and I think that's a fair point."

Nutanix plays down competition

While it seems clear that HPE will integrate SimpliVity and its partners into its own ecosystem, the impact on other vendors in the hyper-converged space is harder to predict.

Nutanix's EMEA channel director Jan Ursi played down any negative impact of the takeover, claiming HPE partners had actually looked to increase their Nutanix business since the acquisition as a show of loyalty.

He said that the root of his partners' loyalty lies in the vendor's IPO last year, which gave them long-term understanding of where the business is going and eradicated fears of disruption caused by a potential acquisition.

"They want to [work] with a vendor where they know that they have a long-term road map," he said.

"We did not make it a secret that we had offers to be part of one or another global, big IT vendor, but we said our strength and value is in providing openness and long-term benefit to our channel partners.

"In our recent partner landscape the largest HP partners have been our most successful Nutanix channel partners.

"All that is not going to change and since the acquisition it was the other way around and people doing business with HPE wanted to strengthen their relationship with Nutanix because they wanted to make sure that we got the signal from them that they're more committed than ever."

What to look out for

While there are pros and cons to an emerging vendor being acquired, a reseller can do their homework beforehand to see if the benefits of signing a vendor outweigh the potential disruption.

Ignition Technology is a distributor focused on bringing new vendors to the UK and carries out a rigorous due diligence process to ensure the vendor is worth the risk.

The distributor recently brought the likes of Cylance and Cato Networks to the UK and Sean Remnant, CSO at Ignition, explained that for resellers and distributors it is important to establish whether the vendor is offering a full product, or merely a feature.

Vendors offering features, he explained, are more likely to be acquired and bolted on to a larger vendor's wider product portfolio.

"A lot of the time start-ups will often be what we think are features and we try to avoid those because often those relationships are short lived - they'll get acquired and bolted on to someone else," he said.

"The other thing we want to make sure when we are choosing technology is that it's not a 'nice-to-have' technology and that it's actually adding value. There are too many vendors out there where you look at it and think 'actually I think enterprises are going to prioritise technology way above that'."

A reseller should also assess whether a new technology is likely to be wanted by its current customer base or whether it would require work to drum up interest.

Dale Vile, research director at Freeform Dynamics, said that smaller resellers in particular should expect a vendor to be partnered with a couple of large resellers in Europe before considering them viable, and should also want evidence of high-profile clients.

"Most reseller can't really afford to invest in evangelical sales," he said. "It might be new and it might be different but can it be back-sold or cross-sold into an existing base? It's much easier to go to an existing customer and say 'I've got this new technology' [than find new customers].

"If it's something which is a totally different sale, that means developing new contacts in your existing accounts, or the cross-sale isn't really there, then it is quite difficult to justify."

Vile added that a reseller can research the investors at the vendor, which could give an indication as to where its future lies.

"If you've got a vendor who is on their third round of VC funding and they're obviously heading for being sold, that's an unpredictable future that's obviously going to affect you, especially if they're sold to a big guy," he said. "But sometimes as a reseller you can get stuck in your old ways and your comfort zone.

"Let's say at the moment your current offerings are all on-premise but we know the cloud is making an impact. If someone comes along and allows you to credibly enter a new market and take your business forward, you're probably looking for a vehicle to do that anyway so you might live with the fact that there is some uncertainty on the basis that it gives you something tangible to build that market initiative around."