Premise: As the Public Cloud market continues to expand, the market is beginning to understand that different clouds have different strengths and weaknesses. EMC and VMware are bringing together Virtustream’s strength in Enterprise Cloud Applications and VMware’s existing market share in virtualizations to deliver a cloud that will attempt to cover a broad set of Enterprise requirements.
Just a week after the Dell acquisition of EMC was announced, EMC and VMware announced that they were creating a new Cloud Services business that would be owned 50:50 between the two companies. The new business will operate under the Virtustream brand. This announcement was not unexpected, as it was rumored at VMworld 2015 and inferred (see video below at 11:40) by Virtustream CEO Rodney Rogers (@rjrogers87).
Wikibon CTO David Floyer gave his guidance on the recently announced Virtustream Cloud Services business.
- Merging together Virtustream Cloud and VMware vCloud Air, under the brand “Virtustream”. Both clouds were on the 2015 Gartner MQ for Public IaaS providers – https://aws.amazon.com/resources/gartner-2015-mq-learn-more/. Virtustream showed strong capabilities as the details of that MQ were published.
- VMware will create a Cloud Provider Software business unit that will sell both vCloud Director (VMware) and xStream (Virtustream) cloud management software to 3rd-party Cloud Providers, formerly known as the “vCloud Network.” Virtustream previously had xStream software sales to 3rd-party Cloud Providers (Earthlink, Colt, Mobily, UoL).
- The new Cloud Services business also includes some service groups that remotely manage VCE Vblocks and a EMC Managed Storage service, internally known as “Project Rubicon”.
- Rodney Rogers, Virtustream CEO, will run the combined cloud organization.
- Ajay Patel, formerly VMware Cloud Services, will run the Cloud Provider Software group.
- Financial results from Virtustream will be reported on the VMware balance sheet starting in Q1 2016.
vCloud Air Leadership and Engineering Re-Organization
- VMware had already lost several top vCloud executives – Matthew Lodge (VP Marketing/Product), Riccardo Di Blasio (Sales) – and some people from the core engineering team and evangelist teams have been reassigned to work for Kit Colbert on the VMware container products (Project Photon, VMware Integrated Containers, etc.). EVP/GM of vCloud Bill Fathers is not mentioned in this press release, and VMware is reporting that he will not be involved in the leadership team at Virtustream and will be working in a more “strategic advisory role” for VMware.
The Messaging from EMC / VMware
- The combined organization will be able to sell Hybrid Cloud solutions to customers that want either [a] Mission-Critical Applications in the cloud, such as SAP, or [b] generic VMware-hosted applications in the cloud, such as Dev/Test or Content Management Systems. These public cloud offerings would be positioned along with the Federation Enterprise Hybrid Cloud (on-premises, Private Cloud) offering that is led by EMC’s Peter Cutts.
- This is being positioned as a robust Hybrid Cloud, because it can offer basic services (vCloud Air) or mission-critical services (Virtustream).
The Realities (Virtustream)
- Virtustream had approximately $100M in revenues prior to the acquisition by EMC, which was a mix of managed cloud business, consulting services and software (xStream).
- Virtustream owns data centers in the US and the UK, and had been expanding the footprint through data center partnerships.
- Virtustream specialized in migrating SAP applications to their cloud. Their target customers were in retail, consumer packaged goods and manufacturing, with long and complex supply-chain environments.
- Virtustream also specialized in hosting SAP HANA and were one of the preferred HANA providers designated by SAP.
- SAP migration deals have longer sales-cycles (6-12 months) and required CIO-level engagement. They require highly specialized and knowledgeable consulting services. Virtustream has consultants with deep SAP experience.
- Virtustream also sold their cloud management software (xStream) to several Cloud Service Providers outside the US.
- Virtustream xStream has some product overlap with VMware vCloud Director and VMware vRealize Suite.
- Virtustream had acquired Viewtrust (Feb.2014) to provide an integrated Security and Compliance package. This overlaps with the EMC/RSA Archer GRC product.
- vCloud Air was speculated to have < $25-40M in revenues and very high expense levels. They operated out of US, UK, Germany, Japan and Australia, but they were primarily leased or co-located facilities.
- vCloud Air ran on VMware vCloud Director, which had to be highly customized and automated to operate at that cloud scale.
- vCloud Director was also sold to vCloud Network service providers, although many of the customizations that VMware built for vCloud Air were specific to the hardware and operational model of VMware vCloud Air environment.
- vCloud Air gained limited traction with VMware Channel Partners because they didn’t believe they would make much money on deals and would eventually be cut out of future VMware licensing opportunities on-premises after applications moved into the vCloud Air cloud.
- vCloud Air is complicated to setup/provision. It lacks the ease-of-use and APIs that AWS/Azure have, and had a portfolio of services that aligned to AWS in 2009 or 2010.
Potential Problem Areas and Outstanding Questions
- The new Virtustream will be 50:50 owned by EMC and VMware, but the financials will be 100% on VMware balance sheet.
- The new Virtustream now has two cloud management frameworks that are mostly incompatible (except at the vCenter and ESX layers). Neither platform is designed to scale to support multiple data center availability zones.
- There is no existing integration between the [Private Cloud] Federation Enterprise Hybrid Cloud and the Virtustream cloud.
- The sales compensation model is unknown. Will Virtustream have their own salesforce? Where will it come from (VMware, EMC, other)? How will sales compensation be modeled to not be competitive with VMware/EMC for on-premises equipment/licensing, as this has been problematic for the EMC Federation in the past?
- How will Virtustream scale the high-touch sales and consulting model to migrate SAP applications to the cloud?
- Neither Virtustream or vCloud Air have a viable application development offering that will compete with AWS or Azure. Neither offer Cloud Foundry PaaS as a service to help differentiate their development offerings. Both are missing out on the developer angle that is core to AWS and Azure growth.
- What happens to the previously announced VMware + Google Cloud partnership?
- How much capital investment will be made by EMC and VMware in Virtustream to remain competitive (especially considering Dell debt financing), since AWS and Google and Azure are investing $1B+ per quarter to grow?
- Does Virtustream or EMC/VMware have any plans to integrate with the more popular clouds (AWS/Azure) for a Hybrid Cloud that isn’t restricted to just their clouds?
The Dell Angle
- In the past, Dell has avoided operating a public cloud, instead focusing on being a provider of equipment and services to multiple cloud providers.
- Dell acquired enStratius (May 2013) to provide management of multiple cloud environments, with the product being renamed Dell Multi-Cloud Manager.
- Dell continues to have a strong partnership with Microsoft and continued to announce joint solutions between the two companies.
- On the EMC acquisition call with analysts, Michael Dell reiterated his commitment to open solutions and partners by highlighting that future Dell cloud solutions would not be limited to using VMware hypervisor technology.
Prior to the acquisition by EMC, the Virtustream team had proven themselves to be outstanding at identify market needs for vertical solutions and executing on both customer success and a profitable business model. Rodney Rogers and his team bring an understanding of CIO needs that are unique from VMware and EMC. That expertise will be needed even more as EMC and VMware (and ultimately Dell) ask them to expand their market presence both geographically and across multiple vertical and horizontal markets.
Call to Action: Enterprise customers with a broad application portfolio should be watching as Virtustream evolves, as their expertise in SLAs and Security for mission-critical applications may be a crucial element of a multi-cloud strategy.