Now that EMC is acquiring VCE it’s clear that this was yet another Cisco-style spin-out/spin-in the same as MDS, UCS and Insieme. EMC got to partner with Cisco for compute and networking expertise, which gave credibility to its private cloud story and Cisco got to sell a lot more UCS systems to pay for continued R&D (as well as surfing on EMC’s private cloud hype). VCE was invented to light the fuse on a technology integration effort that neither Cisco or EMC could do on their own. Now that it’s complete and the CI (converged infrastructure) industry is in full swing, its time for these partners to divorce and come out kicking. VMware’s aquisition of Nicira was far too unfair of a menage a trois for Cisco to rationalize. This morning’s announcement is just the finalization of the paperwork. The two companies have been figuring out new sugar daddy angles for future CI arrangements and while they don’t want to sell the home they built together, EMC gets custody of the kids and Cisco has some visitation rights.
Its been a good run for both. Private cloud is not complete hype any more. The vision of private cloud may be totally confusing and inconsistent across vendors but that hasn’t stopped industries from forming before. EMC’s megaphone has driven a lot of attention to private cloud this-and-that over the last 5 years and everybody selling private cloud anything owes something to EMC for the awareness creation it’s done.
So we have two emerging industries that were jump-started by VCE – private cloud and CI. Both are huge opportunities and the industry has EMC and Cisco to thank for it. If you work in technology, you should remember them both at Thanksgiving dinner this year.
Now for the fun part, here’s how I see the winners and losers lines forming.
The biggest winner: Joe Tucci and EMC
They saw what Cisco was doing there, got them to go halvsies on one and then broke up amicably. This might have been EMC at it’s very best because it was not mostly luck, like the VMware acquisition was. VCE was excellent planning. The downside for them is that they have this big business with a lot of costs and overlap.
The biggest losers: VCE employees
Unfortunately for the employees of VCE who left EMC and Cisco to go with the VCE joint venture, they are going to EMC, which just announced an earnings miss and is under big pressure from Activist investor Paul Singer (of Elliot Management) to do something about it. As they say, there will be blood.
The next biggest winner: Cisco
Cisco got UCS footprints in a lot of places where it never could have without EMC’s help. Lets face it, they were in a lot of trouble finding markets that were big enough to expand into. They trashed the Flip camera (I’ll always hate them for that) because it was too small a business that wasn’t going to expand enough. Now they are front and center with CI and private cloud with UCS. If there was a sugar baby in this deal, it was Cisco and they definitely got what they were looking for – new status in new places. The downside for them is that they actually have to do something on their own in the CI space, which probably means an acquisition. I’d place a small bet on Simplivity just because they have a deal with Cisco already.
The next biggest loser: HP
The company that coined the term “converged infrastructure” and tried to create the market for it, is now just an afterthought in the CI space. They had this in their sights and let it slip away.
Biggest winner #3: Paul Singer
The activist investor who has been pressuring EMC to unload VMware is going to have a field day with this. EMC is going to have to consolidate its workforce and he will argue more forcefully than ever that they also need to capitalize on the value of VMware by spinning it off. His arguments will make more sense than they ever have before.
Biggest loser #3: Shared between Dell and Microsoft
This week Microsoft announced its CI private cloud in a box, the Cloud Platform System (CPS). The thing that matters most is how few people cared about it. There was no buzz and the industry is not eagerly awaiting what will happen there, like they are with both EMC and Cisco. Microsoft badly needs to be a private cloud player because its their main advantage against public cloud giants Amazon and Google. Microsoft seems to underestimate what it will take to compete for CI/private cloud business and that their homegrown technologies in CPS such as System Center and Storage Spaces are more like science projects than solutions. Dell was supposedly a partner in this announcement, but came across more as an afterthought of Microsoft’s. In fact, the EMC/Cisco divorce appears more friendly than the Microsoft partnership. With friends like these…….