Google, Amazon Price Cuts Seen Squeezing IBM and VMware in 2016

  • More companies moving to cheaper ``public cloud'' services
  • M&A may increase among security, analytics software companies

Amazon.com Inc., Google Inc. and Microsoft Corp. will intensify their competition in the cloud-computing business in the coming year, cutting prices and driving companies including International Business Machines Corp. and VMware Inc. to look for other ways to make money, according to Bloomberg Intelligence’s 2016 technology outlook.

As legacy technology companies find it harder to compete with the dominant players in data-storage services, there may be more acquisitions of security and data-analytics companies, Anurag Rana, a software and IT services analyst for Bloomberg Intelligence, said Tuesday in a presentation.

“This could be an area where we could see some pockets of increased M&A in 2016,” Rana said.

The pace of high-profile hacking incidents has accelerated and security-focused software providers such as Palo Alto Networks Inc. have performed well as companies strive to protect themselves, Rana said. Data-analytics software, which helps companies make sense of large amounts of information, will also become a way for software providers to differentiate their offerings, he said.

Amazon, Google and Microsoft, which build their own data centers with cheaper non-branded hardware and rent out space to companies through the Internet, are dropping their prices multiple times a year, increasing competition for companies like IBM and VMware that build private data centers for companies with brand-name hardware.

Many companies are switching to Amazon and Google’s “public cloud” offerings, raising the question of how much value is generated by the private data centers and tailored services offered by older companies, Anand Srinivasan, semiconductor and technology hardware analyst at Bloomberg Intelligence, said during the presentation.

“This area is going to be particularly challenged in the years to come,” Srinivasan said. “A lot of the Fortune 500 companies are moving to the public cloud for a portion of their new applications.”

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