Greed or good business?

Published: Mar 19, 2009

Topics: Consulting       

Or are those one and the same?

This week has demonstrated a shifting trend among tech firms, which has the potential to alter the landscape for the long term. Whereas in the past we've seen companies specialize in certain areas and partner up on projects to complement each other's offerings, we're now seeing them look inward, trying to cover all the bases themselves. (Has that approach ever worked well?)

I'll give you one guess as to the cause of this shift, and it rhymes with shmeshmeshin. Maybe it's the recession pushing people to watch the DIY channel with increased vigor, or maybe people are trying to hoard as much money as they can possibly get their hands on, not wanting to share the pot with anyone else. But with the tech spending set to decline in 2009 (by as much as 3%, according to Forrester Research), big players are venturing out on their own and starting to compete with their former allies in areas in which they haven't historically competed.

We learned this week that Cisco has decided to build its own servers for corporate data centers, shifting its focus away from its original core business of selling routers and switches to businesses and, more recently, home cable wiring. Its new positioning will make it compete more directly with HP and IBM. In a previous life (which ended with Cisco's server announcement), the firm would often partner with HP and IBM to offer a client complementary services—partnerships that helped generate billions for Cisco. Some thanks! Is this a smart move on Cisco's part? Many analysts are saying it's the riskiest thing the company could have done.

As Cisco's CTO, Padmasree Warrior, put it, "We're going to compete with H-P. I don't want to sugarcoat that. There is bound to be change in the landscape of who you compete with and who you partner with." Nope. There's nothing subtle about this move. Money is certainly the bottom line here: As Cisco CEO John Chambers said, "We would not have entered this if we did not think it was a multibillion-dollar marketplace," adding that this is an "almost unlimited opportunity" for the company.

IBM is considering an equally bold move in the potential purchase of Sun Microsystems. Sun, a maker of high-end server systems, would boost IBM's capabilities in the internet networking and telecom spheres. While company spokesmen are quick to comment that the deal is certainly not final and could fall apart at any moment, the idea of it shows IBM's shift in thinking. For over 10 years, IBM CEO Sam Palmisano has turned Big Blue's focus to software and services, while the Sun purchase—which would be the largest in IBM's history, and which would add about $13 billion in sales—is clearly a move to gain some traction in the hardware market. The deal would also pit IBM more directly against rivals HP and Oracle, who historically have more footing in the hardware market.

"Tech companies can't continue to satisfy Wall Street's requirements for growth without encroaching into the markets of their long-time partners," says Joe Skorupa, a Gartner analyst. "All of these guys are banging into one another trying to figure out where they are going to grow, and at whose expense." The expense may actually be their own, however, as they continue to spread themselves to thin, thinking they can be all things to all people.