News: VMware and EMC Spin Out Virtustream into a New-ish Company

The announcements keep coming thick and fast from the behemoth that is EMC Federation, the seven-headed hydra beast. In a not too unexpected announcement, VMware is to pseudo–spin out its vCloud Air division and move it into Virtustream, the latest Federation member, which EMC bought earlier this year for $1.2 billion.

The Rebirth of a Company

I say pseudospin out, as VMware will still be reporting the earnings. This seems a little contrived. Why? This “new” company will be owned 50/50 by EMC and VMware, but all revenue will be reported as VMware earnings. Why not EMC earnings? Or more to the point, why can the company not stand on its own two feet and report its own earnings? From an operational perspective, it will be led by current Virtustream CEO Rodney Rogers, who will in turn report up to EMC Chairman Joe Tucci and VMware CEO Pat Gelsinger.

According to the press release, “the new business will incorporate and align the cloud capabilities of EMC Information Infrastructure, VCE, Virtustream and VMware to provide the complete spectrum of on- and off-premises offerings including: VMware vCloud Air, VCE Cloud Managed Services, Virtustream’s Infrastructure-as-a-Service, and EMC’s Storage Managed Services and Object Storage Services offerings”—or to be more precise, EMC and VMware are offloading non-core products into a more obvious vessel. This is not a bad thing. It allows both EMC and VMware to focus on what they are good at: building storage and creating great software, respectively. It also allows Virtustream to do what it does best: sell cloud solutions to the enterprise.

As Gelsinger stated on the earnings call, he expects Virtustream “to become one of the top five cloud providers worldwide.” This is a big call and a vast challenge for the Virtustream executive teams, especially considering that according to CRN, the current top five are AWS by a country mile, Microsoft, IBM, Google, and Salesforce. This will be a difficult nut to crack.

This all said, the movement of vCloud Air into Virtustream’s sales portfolio is a major departure in focus for Virtustream as a company. Virtustream has focused on highly compliant, highly secure, high-end SAP HANA in the cloud Infrastructure as a Service. It does this extremely well and quite securely. It does not really focus on the mid-market, yet it has plenty of mid-market customers who desire the level of expertise Virtustream provides. Into this working mix will come vCloud Air, which is used to expedite movement to a hybrid cloud—an offering that is used by the mid-market. Will Virtustream have two products or one going forward? xStream and vCloud Air? Or will Virtustream migrate everything to its already successful xStream platform?

It will also be interesting to see how the relationship between Virtustream and fellow Federation member Pivotal develops. Both on the face of it are now targeting similar markets. Another elephant in the room is that currently there been no vocalization of how this move will affect VMware’s current vCloud Air providers.

Virtustream has the skills and knowledge to pull off a major change here. However, if it has to split its development between platforms, it may be in trouble. Another concern is how EMC’s transformation story of the hybrid cloud will be transformed itself to use Virtustreams resources and technologies. One can hope it was already on that path.

Virtustreams strengths are quite different from vCloud Air’s. While vCloud Air is striving forward with its latest business continuity play, Virtustream is already an enterprise-class IaaS cloud, with all the enterprise-class features one would expect. Virtustream is constantly looking at new ways to provide even more services, all starting with the security and compliance view its existing customers require. This is a very different set of customers than those using vCloud Air and many other clouds.

Confusing financial reporting aside, Rodney Rogers, Virtustream CEO, has an interesting road ahead with  great growth potential, but only if Virtustream stays focused on their core deliverable of a highly compliant,  highly secure, and high performance cloud.

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