EMC Eyes Hybrid Cloud Market With $1.2B Acquisition Of Virtustream

In a move EMC Corp. Chairman and CEO Joe Tucci is calling "a game changer," the company has decided to plunk down $1.2 billion in cash for cloud software and Infrastructure-as-a-Service firm Virtustream.

The move is intended to strengthen EMC's presence in the hybrid cloud market. With Virtustream, EMC can move customers' entire application portfolios to the cloud.

Virtustream also gives EMC access to a network of data centers in the U.S. and Europe and a roster of blue-chip enterprise customers like Coca-Cola Co., Domino Sugar, Heinz, Hess Corp., Kawasaki, Lexmark and Scotts Miracle-Gro.
Virtustream was recently listed in Gartner's 2015 cloud and IaaS magic quadrant.

[Related: Here's Who Made Gartner's 2015 Cloud IaaS Magic Quadrant ]

The Virtustream portfolio will be sold directly, and through partners, EMC said. EMC Federation service provider partners will get access to Virtustream's xStream cloud management software platform and will be enabled to adopt and deliver their own branded services based around the xStream platform.

"A big part of our decision was how EMC approached the partner community," Virtustream founder and CEO Rodney Rogers said during an EMC conference call Tuesday. "Virtually all of our software revenue has been directed through solution provider channels. We want to preserve that focus."

As EMC brings in more products and services, it makes life easier for partners, said Jamie Shepard, senior vice president at Dallas-based consulting firm and EMC partner Lumenate Technologies. Adding that Virtustream means EMC has "a deeper vision than other partners," Shepard said, "this is why you don't go with NetApp. [EMC is] aligning best-of-breed technology with these use cases."

"They're trying to bring the whole service provisioning and service management for hybrid cloud together," Shepard said. "A big competitor told me, 'Why are you putting all your eggs in one basket?' And I said EMC is a big basket with a lot of different-colored eggs. They're taking out a lot of the mystery, and it extends your discussions when you're talking to customers, when [customers] say, 'What would you recommend?' "

Acquiring privately held Bethesda, Md.-based cloud vendor Virtustream gives EMC another opportunity to evolve from its roots as a traditional data storage hardware company to a digital hybrid cloud and services firm.

Virtustream developed its own platform technology to facilitate the hosting of production applications from both traditional enterprise workloads and cloud-native applications. It is especially keen on enterprise workloads, and has close ties to SAP, which is one of its investors.

Virtustream will join the other members of EMC's "federation" of companies: EMC Infrastructure, VMware, VCE, Pivotal and RSA. Under the EMC umbrella, Virtustream will become EMC's managed cloud services business. Rogers will report directly to EMC CEO Tucci.

During an EMC conference call Tuesday, Rogers said he was exploring taking Virtustream public for about a year when suitors began to gather for an outright acquisition.

"I had a number of conversations with a number of entities that had interest in us," Rogers said. "We chose EMC," he said, for its "extraordinary vision for what it intends to accomplish in this space. We are a firm believer that you can run any application in the cloud. … Customers ultimately benefit by us finding the right home for this asset with people we genuinely like and want to work with."

’With Virtustream in place, EMC will be uniquely positioned as a single source for our customers’ entire hybrid cloud infrastructure and services needs," Tucci said in a statement. "We could not be more delighted that Virtustream will be joining the EMC Federation family. It’s a game changer.’

EMC's current Federation Enterprise Hybrid Cloud Solution is an on-premise private cloud that provides on-ramps to public cloud services like VMware vCloud Air. EMC said it intends to incorporate Virtustream's on-premise and off-premise managed cloud services capabilities to the Federation Enterprise Hybrid Cloud Solution.

Founded in 2009 by Rogers and President and Chief Technology Officer Kevin Reid, Virtustream delivers application life cycle automation and orchestration with a particular focus on I/O-intensive, mission-critical enterprise applications such as SAP S/4HANA. Virtustream’s xStream platform is tightly integrated with VMware vSphere and architected to deliver service level agreements (SLAs) for not only infrastructure availability, but also application performance and transaction latency.

In a report issued Tuesday, Raymond James Equity Research analysts said there's a chance that Virtustream could overlap with VMware's vCloud Air "to some degree."

"An independent Virtustream EMC federation offering would likely be commercially competitive to vCloud Air in our view unless there is full product, brand, and go-to-market integration between the two federation services down the line," the Raymond James analysts wrote. "Virtustream, therefore, could add to confusion VMware customers already may face regarding storage offerings from VMware and EMC, in our view."

"We've commercialized this business quite well," Rogers said during an EMC conference call Tuesday. "We've always had to punch above our weight and our reach to have the success that we've had."

The deal has been approved by the boards of both EMC and Virtustream and is expected to close in the third quarter. EMC says the buy will have no material impact on 2015 financial results and will boost revenues and earnings next year.

PUBLISHED MAY 26, 2015