In the era of big data, “big computing” is a must. Cycle Computing was a small company you never heard about, until now, when Microsoft announced that it will acquire it for an undisclosed amount. But it’s the possible tsunami effect on the cloud computing market, and specifically Google and Amazon, that would make waves as a result.
“Cycle Computing software leverages cloud resources to make computation in the cloud productive at any scale, by orchestrating workflows, managing data, balancing cloud options, and enabling users in a secure, controlled way,” the company described on its website. Its customers at the time of the acquisition included arch-rivals Google Cloud Platform, Amazon Web Services (AWS), and Microsoft Azure.
Other customers included the Aerospace Corporation, Lockheed Martin, Pursue University, JP Morgan Chase, Pfizer, and NASA. Application include genomics, machine learning, simulation, and scientific computation workflows, to name a few.
In a blog post on their website, CEO and founder Jason Stowe described starting the company in 2005 with a $8,000 credit card bill. Unlike most startups, Cycle Computing bootstrapped itself into success. It received no investor or venture capital money. As a result, this would be an exit purely for the founders and employees, who own 100% of the company.
Microsoft hasn’t disclosed the amount it would pay for Cycle Computing. Public companies have to disclose the acquisition amount only if “the magnitude of the item [here, the acquisition] is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced [by it],” according to FASB Statement of Concepts #2. In my experience, acquisitions valued at less than 5% of the market cap of the acquiring company are not considered material. This might follow the rule that 5% stock ownership has to be reported. Given that Microsoft’s market cap at the time of writing this article is over half trillion dollars, 5% would represent $28 billion. It’s probably safe to say that the acquisition price was below that, and it is at Microsoft’s discretion whether they would disclose the amount or not.
Cycle Computing is the founding member of CNCF (Cloud Native Computing Foundation), which both Microsoft and Amazon joined last week. Google has joined before them. Other notable members include Cisco, Dell, Fujitsu, Intel, Huawei, Samsung, RedHat, ATT, Goldman Sachs, ebay, and many more.
To me, this bring back flashes of memories from the founding of the Wi-Fi Alliance, and many of the IEEE standards. Often, a founding company (such as Cycle Computing here) creates an industry trade organization around its own, proprietary core technology, turning it into an industry standard (or specification), while controlling everything around it (compatibility, interoperability, certification, etc.). Great examples include Intel with USB, and Silicon Image with DVI and later HDMI. This made Cycle Computing all the more powerful in the area of cloud computing.
In the same blog post, CEO Stowe describes the acquisition: “Now, we see amazing opportunities in joining forces with Microsoft. Its global cloud footprint and unique hybrid offering is built with enterprises in mind, and its Big Compute/HPC team has already delivered pivotal technologies such as InfiniBand and next generation GPUs. The Cycle team can’t wait to combine CycleCloud’s technology for managing Linux and Windows compute data workloads, with Microsoft Azure’s Big Compute infrastructure roadmap and global market reach.”
However, the big question is how will the acquisition affect Amazon and Google. Microsoft has several options. It is safe to assume that the Microsoft Azure platform will continue to use the Cycle Computing software. It is reasonable to assume that it will turn most of the other Cycle Computing’s customers into Microsoft customers and increase revenue. However, will it allow Microsoft’s biggest competitors, Google Cloud Platform and Amazon Web Services, to continue and have access to this software? And if not–would that result in an FTC intervention?
I guess time will tell.
Article source: https://www.inc.com/yoram-solomon/microsoft-acquires-a-cloud-technology-company-from.html