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EMC's Virtustream acquisition fills managed cloud void

EMC just laid down some serious cash to acquire a cloud software company that has some technology overlap with VMware but also fills an important gap.

EMC's latest software vendor acquisition represents another step toward expanding the Federation's hybrid cloud portfolio and brings management capabilities for critical applications.

EMC has entered into an agreement to purchase privately held Virtustream for $1.2 billion. Virtustream, based in Bethesda, Md., focuses on cloud software and services, in particular mission-critical applications for the enterprise, including SAP business applications.

The deal, which is expected to be finalized this quarter, would see Virtustream serve as the managed cloud service business for the EMC Federation.

Virtustream has several big-name customers, including The Coca-Cola Company, Domino Sugar, Heinz, Hess Corporation, Kawasaki and Scotts Miracle-Gro, and has data centers in the U.S. and abroad. Revenue is roughly split into 60% infrastructure as a service (IaaS) and 40% software sales, mostly to service providers and system integrators, according to Rodney Rogers, Virtustream CEO.

Virtustream has developed a solid reputation in recent years. Along with Datapipe, it's one of two "leaders" in the latest Forrester Wave report on hosted private cloud services that was released last November. The strengths of its platform for dedicated cloud and cloud management include permissions, service level agreements, certifications, reporting, monitoring and low pricing, according to the report.

EMC's move represents an interesting strategy that, in some ways, goes against its legacy, especially when coupled with the acquisition last fall of OpenStack cloud vendor Cloudscaling, said Lauren Nelson, an analyst for Cambridge, Mass.-based Forrester Research Inc. and lead author of the Wave report.

While EMC and VMware have focused on proprietary technologies, Virtustream and Cloudscaling both utilize commodity infrastructure as a means to save money and provide value for its customers.

"They both profile as small, privately owned companies that essentially are looking at cloud as this way of net new," Nelson said. "It's a very cloud-forward play by EMC."

This gets them a lot closer to where they want to be.
David Linthicumsenior vice president of Cloud Technology Partners

Virtustream's IaaS offering and software services will be sold directly to customers and through channel partners. EMC Federation service provider partners will have access to, and be able to build their own, branded services based on Virtustream's xStream cloud management software.

Rogers will continue to run Virtustream and will report to Joe Tucci, EMC chairman and CEO.

David Linthicum, senior vice president of Cloud Technology Partners, a cloud consulting firm in Boston, said he was at EMC World in May and, while there was plenty of focus on the enterprise, there was nothing around on-demand cloud services. This deal gives EMC that presence.

"As far as on-demand hosted environments, they really didn't have an offering, so now they do and it's something with a good traction and good market presence," Linthicum said. "This gets them a lot closer to where they want to be."

Managed service providers are an underrated market, Linthicum said. While some people look down on them for lacking auto-provisioning and other public cloud features, they are in many ways a stepping stone to the cloud.

EMC acknowledged there is some overlap between Virtustream and VMware, which offers public cloud with vCloud Air and cloud management services with the vRealize Suite, but that it would be very minimal and the services would be complimentary.

EMC is trying to change its image to be seen as more of a neutral player, so this deal continues that trend, while also giving it a huge application play that it previously didn't possess, said Robert Mahowald, vice president at research firm IDC, based in Framingham, Mass. It also shouldn't have too much of an impact on VMware since it represents a different offering within the Federation, he added.

"VMware's challenge is how they manage the transformation and migration to public cloud and hosted private cloud," Mahowald said. "Virtustream is already there, so they should complement each other pretty well."

The move could be construed as a dig against the struggles of VMware in the cloud space, but that's probably not what's going on here, Nelson said.

"They realize customers are not going to believe one vendor fits all [their] needs," Nelson said. "What you look for in a vCloud Air is very different from a Virtustream, so this gives Federation customers multiple options."

Trevor Jones is the news writer for SearchCloudComputing. You can reach him at [email protected].

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