EMC and the VMware question

Pity poor EMC. With $11bn (£5.5bn) turnover and an average 10 to 11 percent profit margin it's perhaps not so poor, but you have to pity any company that's trying to get important messages out at an important time in its history (its annual conference runs in Orlando, Florida, this week), but finds its best efforts shanghaied by another company.

It is ironic that the company doing the shanghaiing is VMware. VMware, the virtualisation company of just about everybody's choice (apart from Microsoft and Xen), is going public soon. Not very much — EMC is selling off a lousy 10 percent — but VMware is one of the hottest companies in today's technology market. And it's getting all the attention.

It is a canny move by EMC. That 10 percent will be oversubscribed, thus inflating the market capitalisation of VMware. EMC gets the cash, the kudos and, as massive majority shareholder, its own substantial market cap fillip. VMware gets a kind of virtual independence to build its staff and strategy, while EMC keeps ultimate control. Not a bad return on 10 percent.

This is a good story. It's not the biggest. The biggest is whether EMC can, or should, hang on to VMware at all. On paper, there are still many reasons why it should: VMware is growing outrageously, and EMC has many assets that should benefit from a very close relationship with VMware and its technological prowess.

Consider the core storage products. EMC is far and away the market leader in enterprise storage, dwarfing its near competitors. It is moving with mixed success into the mid-range of NetApps territory and last year even underwent that classic enterprise rite of passage when it launched its first consumer products.

Then, after a long campaign of trying to head into new areas by a combination of organic growth and buying small outfits, the company went on the opposite tack and bought much more substantial companies, including Documentum, for document management, RSA, for security management, and, of course, VMware, not to mention other companies, like Avamar and Akimbi Systems, ProActivity Software Solutions, nLayers, Kashya and Interlink Group.

The results of this kind of acquisition spree can be good or bad: more frequently, it's both. When it comes to the purchase of VMware, that's how the analysts see it, especially when it comes to the question of VMware's independence from EMC. The company is keen to stress the fact that, unlike Documentum and RSA, VMware is a completely separate entity — apart from the small fact that EMC owns it. The companies have different marketing strategies, corporate structures and management, says EMC.

As EMC has to say. VMware has many partners, such as IBM and HP, for instance, who compete head-on with EMC in the storage market. They had to be convinced of VMware's independence before continuing as customers, but for how long will that last? Only for as long as it takes for a convincing, competitive, alternative technology to VMware's to emerge, one suspects, or for the virtualisation market to pass its peak. "People do question whether it is a good thing [for EMC to own VMware]," Gartner's Andy Butler said on the subject, and he is not alone.

On the other hand, it is always difficult to work out what EMC thinks about things. EMC is a clever company, in ways that so many companies are not. And chief executive Joe Tucci is the right man for leading that company. I once suggested that he comes across like a cast member of The Sopranos and it is a comparison I would stick by. Tucci is big and serious, not a man to make a decision too quickly and not a man to change the decision once he has made it.

Since the retirement into "special advisor" status of Mike Ruettgers, the man who ran the company so successfully before Tucci, the company has carried on as if nothing had happened. It grows and becomes more successful. It dispatches competitors, one by one, then makes alliances which it keeps until, for inscrutable reasons, it drops them, and continues on its implacable way.

The fact is that VMware is hugely successful. It is not broken, and doesn't need fixing. We know that EMC is capable of making hard decisions if required: at the moment, they are not. That time may come — and, if that nice Mr Tucci decides that is what he wants to do, I, for one, am not going to stand in his way. I would like to keep hold of my fingers.