The complexity of the corporate data centre has increased enormously over the last decade. During that time spending on hardware has remained relatively constant, while server technology has become up to 10 times cheaper. While that is, in part, explained by the increasing number of servers housed in the data centre, it also reflects rising management costs. Analyst group IDC says that in 1996 spending on hardware was three times the amount spent on related IT personnel, but in 2004 labour costs were double those of servers.
Easing that management burden is the core pitch of data centre automation company Opsware. "You get great 'dis-economies' of scale," says Opsware CEO Ben Horowitz: those that spend most on IT do not always generate the most value from it. A recent report from consultants Accenture backs him up.
Opsware began life as Loudcloud, founded by Netscape pioneer Marc Andreessen. It offered web hosting services that used its innovative automation software to provision hardware. Following a lacklustre IPO in early 2001, it sold its data centre operations to EDS for $63.5 million, retaining the management software it developed to carry out the provisioning, configuration, security patching and capacity management.
While still loss-making, its cash situation has stabilised; Horowitz predicts the company will turn a profit by its second quarter of 2006. The three months ending 31 October 2005 brought in revenues of $15.3 million and 56 new deals, with bookings up 125% on the same period last year – excluding a software licence contract with EDS, which makes up around a third of its business.
Opsware has avoided repeating Netscape's early mistake of letting a big early customer have too much control of its strategic direction. While Andreessen complained that building an ecommerce site for MCI in 1994 made Netscape "their indentured servants", EDS has not influenced the technological direction too much in its own favour – although it remains a highly significant contributor to Opsware's income.
Other high-profile customer examples include US media sites Fox News and USA Today, which stayed online during the 11 September terrorist attacks, in spite of the huge spike in traffic, by automatically provisioning more servers; elsewhere, T-Mobile has centralised the management of 15,000 devices at 1,000 of its WiFi hotspots in North American coffee shops.
Compliance is a major driver of "tactical" Opsware sales, says Horowitz, but so is complexity: "The more complex the IT environment the better." He cites retail, financial services, technology and outsourcing services as Opsware's core markets, with customers in each including the Gap, JP Morgan Chase, LogicaCMG and Microsoft.
But while the customers are big, Opsware itself is a minnow next to some of its competitors, principally Hewlett-Packard and IBM, who claim selling the software and hardware together make it easier to manage the data centre.
Forrester analyst Laura Koetzle says this is "part truth and part spin" – IBM's Tivoli software might manage a server with proprietary functions better than Opsware could but "most of the time you just want a server to be a server" – and for standard 'x86' boxes the choice of management consoles makes little difference.
Koetzle adds that Opsware is well-positioned in the market in spite of the size imbalance. But to counter the challenges from the professional services teams at IBM, HP and elsewhere, Opsware needs to continue to make its software easier to deploy and manage.
Opsware has developed some impressive higher-level functionality, says Koetzle, for instance figuring out which applications should be configured on which servers and then maintaining that gold standard automatically. But she warns of a looming commoditisation at the lower-end in areas like network automation, where less sophisticated but also less expensive systems management rivals like Altiris and LANdesk are gaining ground.