This content is part of the Essential Guide: Chronicling the Dell-EMC merger news

EMC-VMware hybrid cloud venture gets thumbs up from some

Investors may have objections to the deal, but analysts and users see a lot of upside to the EMC-VMware joint cloud venture, with the EMC-acquired Virtustream at its center.

Despite moves afoot by activist investors that threaten the EMC-VMware hybrid cloud venture, many observers believe the deal will better equip corporate users to shuttle large workloads between on-premises infrastructures and the cloud.

EMC and VMware recently formed the EMC Federation's new cloud services business by combining their wares, including vCloud Air, along with Virtustream's cloud, under the Virtustream brand -- a move that made some VMware shops wonder whether they should put Virtustream at the forefront of their hybrid clouds, too.

Until EMC's purchase of Virtustream earlier this year, the EMC Federation based its hybrid cloud strategy around VMware vCloud Air, which offers users a way to migrate their applications to and from public clouds. But adoption has failed to impress many industry observers, who believe Virtustream is a more valuable asset for larger IT shops.

"Virtustream just has better technology with which to go after the enterprise market than vCloud," said Geoff Woollacott, principal analyst and practice manager at Technology Business Research Inc. in Hampton, N.H. "Putting a more technically impressive cloud option into the hands of [EMC] sales guys, who are losing deals on disk drives because everyone is going to the cloud, is a good thing."

Another analyst believes Virtustream's managed services-oriented business model also makes it a better fit for corporate users taking their first flights up to the cloud compared to vCloud Air.

"Enterprise users still require help with managed services in order to make significant changes in their cloud direction," said Carl Brooks, analyst with The 451 Group based in New York. "Just having access to a cloud, even when it's nifty and integrated like vCloud Air, is not sufficient. Manpower is required as well and that's what Virtustream has got."

The stockholders need to go chase squirrels. They have no idea what's going on.
Carl Brooksanalyst, The 451 Group

While company executives have stated the strategic significance of Virtustream, they haven't made it abundantly clear what vCloud Air's independent role will be, other than to say it might  serve as a technology complement to Virtustream when the two are used in tandem. There is a role for the cloud platform, but one where it is more of a components provider for those looking to cobble together their own clouds, Woollacott said.

"VCloud Air can still be the 'arms dealer' in all this, meaning they can sell pieces of the solution to people who want to be cloud solution providers," he said. "For enterprises transforming existing assets into being cloud-ready so they can swap workloads between their on-premises infrastructure and the cloud, [vCloud Air] could serve a need there."

One experienced VMware IT professional in the process of evaluating vCloud Air for her company, a Mass.-based community hospital, is satisfied with its features and performance. She admits she has concerns about its handling of heavier workloads as the hospital increases the amount of data hosted in the cloud.

Though vCloud Air fits well with the VMware products her team currently uses, positive feedback about Virtustream from fellow VMware User Group members has her thinking twice.

"[Virtustream] could give us more scale in the future," she said. "It's worth a closer look."

Wall Street pressure could break the deal

While IT professionals see the EMC-VMware hybrid cloud deal as a positive, not everyone is a fan of the proposed joint venture.

Shortly after the $67 billion Dell-EMC-VMware deal came to light, EMC and VMware disclosed its plans with Virtustream. VMware investors fear the 50-50 joint venture could take a significant toll on the price of VMware's stock, which has already plummeted.

Their fears are based on what they perceive to be EMC's sagging fortunes as well as the forecast that Virtustream will run at an operating loss next year due to its plans to aggressively expand its operations globally. Stockholders are lobbying hard for the deal to be undone, although it remains unclear just how much leverage they have to do so.

Most analysts believe the intentions of these shareholders are focused on short term economic gains to be had through VMware's core products, with little consideration for the proposed joint venture's long term viability, which could prove critical to the EMC Federation's overall health and wealth.

"These activist investors are trying to analyze an industry in the midst of the most disruptive cycle in its history," Woollacott said. "It would be counterproductive for the greater good to be so obsessed with a short-term focus right now."

The 451 Group's Brooks offered a more pointed observation along with a piece of advice to these activist investors.

"My sources have told me that all the parties concerned were aware of this change [favoring Virtustream over vCloud Air] well in advance of and during the negotiations," Brooks said. "The stockholders need to go chase squirrels. They have no idea what's going on."

Ed Scannell is a senior executive editor with TechTarget. Contact him at [email protected].

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