NTT and DiData: Harbinger Of Things To Come?

Scanning the feeds this morning, I came across this surprising-but-not-totally-unexpected item: NTT is shelling out big money to acquire Dimension Data.

Now, in the world of tech M&A, the importance of this acquisition may escape many, but I see it as an early signpost in the restructuring of the IT industry: from IT as a product, to IT as a service.

And if you're in the service provider industry, this one deserves some attention by your management team.

To Begin With

I have worked with both NTT and DiData on and off for many years.  I consider both companies very smart, and very successful in their own right.  In the classical IT world, either one could have gone it alone, and continued on their successful path.

What could cause two ostensibly successful companies to join forces?

Simply put -- cloud changes everything.

Quotes from the Register piece stand out.

"The two companies believe they can better exploit the move to cloud computing by working together. Telcos have effectively become resellers with service revenues in recent years.

The two companies said the IT industry was entering a period of revolutionary change with more and more firms moving to cloud computing."

That ain't just marketing hype, folks.  Where is the synergy?

What NTT and DiData Bring To The Table

NTT is a very progressive telco-style service provider.  They know how to stand up services in large data centers, for example.  They know how to price and bill for those services.  And they're very proficient at mobile wireless service delivery.

And, yes, they've got some very deep pockets.

Dimension Data is more than just a reseller, they're really a full-spectrum system integrator with a strong infrastructure focus.  They're a good partner with EMC, VMware and Cisco -- among others.

They're at their best when they're close to their customers.  They get as intimate with their customers' IT infrastructure as, say, EMC.

There's more to the story (e.g. geographical diversity, cultural fit, etc.) but you get the picture.

Monetizing The Cloud Transition

Historically, there's been money to be made the DiData way: by providing value-added services and expertise for IT infrastructure.  Going forward, many people believe there's money to be made the NTT way: by providing high-quality services over the network, presumably IT-related services.

My bet is that -- going forward -- there's going to be an even *bigger* pile of money to be made by combining both models.

Not everything IT does is going to the cloud next week, folks.  Instead, there's like to be a slow and gradual transition of function from provided internally (via classic data centers) to a more progressively external mix of IT services.

Some of the winners here will likely be organizations that are (a) close to their customers' existing environments and processes, (b) can position capabilities as both internal and external options side-by-side, and ultimately (c) help the customer figure out what makes sense to do internally, and what makes sense to do externally.

That's not a one-time discussion with the customer -- it's a continuing engagement as external services mature, and as IT organizations get more comfortable in consuming external services.

To say I'm enamored by the combination is an understatement :-)

But Acquisition Isn't The Only Way Forward

Will we see more acquisitions like this going forward?  Where a large and proficient telco-style service provider acquires a system integrator with customer-facing skills?  Undoubtedly.  I've even got a private list of who I think is going to want to buy who.

But, with a little elbow grease, there are all sorts of non-acquisition models that will be able to effectively compete.  A strong reseller or system integrator is in a favorable position to recruit service providers and resell their portfolio of capabilities, for example.

Similarly, a service provider with a broad set of IT offerings might find it in their best interests to create programs for resellers and system integrators.

And I'm sure that there will be entities in both classes that continue to go it alone for one reason or another.

But One Thing Is Clear

The IT industry is changing -- it's getting "cloudified".  Going forward, IT is going to be built differently, operated differently and consumed differently.  And it's already begun.

Part of this re-making of the IT industry will be around the creation of entirely new value chains that deliver the technology to the consumer.

And one way of interpreting the NTT / DiData combination is clear: this is emblematic of the new face of how IT services will get to market going forward.

Congratulations to both companies!

Comments

[Walter Adamson]

No doubt we're on the verge of one the most interesting new industry transitions and there are going to be lots of new players, business models and partnerships. On this one, I'd certainly say "congrats" to DiData's shareholders, they've always done well because DiData is astutely managed.

On the other hand I can't think of an NTT acquisition that has returned any money to its shareholders, if not lost $billions. They've always overpaid and not delivered. It's disguised by the tremendous performance of NTT DoCoMo, which has managed itself to lose $billions in investments and totally bombed it's international strategy but is a highly successful telco in its home market. After all these are the guys who commercialised the "app store" more than a decade ago and have made $billions from it. One of the models Apple copied.

DiData certainly has the international and management smarts. But what Japanese integrator or would-be integrator has ever made the grade. None, although you might give Fujitsu the benefit of the doubt these days. Something happened in Fujitsu about 4 years ago and they cleared out the deadwood globally and locally and now they are doing well by all accounts. But bear in mind that they started this journey more than 20 years ago when they bought technical integration skills with the acquisition of ICL and more than 15 years ago the consulting skills with DMR. It's been a 20 year journey. Their brethren in NEC and Hitachi have failed at their attempts to become integrators outside of their "family" groups in Japan.

Regarding telcos becoming integrators, this is also a back to the future. It was a trend in the mid-80s, and failed totally with only two possible exceptions, the DT + Systemshaus effort, and BT. Both of those are history now but they did manage to survive a while whereas all the multitude of others around the globe failed.

Personally I don't think that it is any different this time, even though the mantra is that telcos are a "great partner" for selling cloud services. The reality in most marketplaces is that they are not able to sell these services to even their most unsophisticated clients, and there is a lot of nashing of teeth about channels and apps portals and why it is not performing for them.

If DiData were to run this venture then different story, but that's not the way the script reads. Good planning by the DiData Board, watch for where these guys emerge when they serve out their time.

Walter Adamson @g2m
http://xeesm.com/walter

[Markus Zappolino]

Didata exfolks my congrats...as i worked for the company for 8,5 years. "The best" Cisco Partner NTT could aquire, more agile than IBM and Bigger in Cisco's perspective. The best SE crowd with a lot of knowledge combined and backed up by a SP now, very different operating models and innovative "Cloud Services" will now be seen next.
NTT is becoming now one of Cisco's top 2 Global Channel Partners.
Just as history reminder, when Cisco launched its Channel Program in 1994 with its first 6 Gold Partners Worldwide, over time 4 of them been aquired in different ways from Didata, as Didata was one of the 6.
If the R&D for Services will be shared by 50/50, i think they will become a strong competitor in different countries.
So chapeau to Brett and Jeremy and rest of the Team.