With Virtustream, EMC moves beyond enabling the cloud on the back end to developing more of an as-a-service strategy.
EMC said Tuesday it will buy Virtustream for $1.2 billon in a move that will allow the company to offer hybrid cloud managed services.
The storage giant said in a statement that the privately-held Virtustream will form a new managed cloud services unit.
In the enterprise cloud game, you're going to begin to hear a lot more about managed services. In a nutshell, managed services are a blend of hybrid and public cloud deployments. For instance, a company would use IBM's public cloud as a service, blend it with private resources and have Big Blue manage it.
For EMC, most of the parts for a managed services offering were there. After all, EMC has VMware, converged infrastructure and various other foundational elements. What EMC was sorely lacking was an as-a-service and management plane.
In fact, few enterprise vendors have a managed services menu beyond IBM, Rackspace, HP, Dell and a few others. Cisco has also put together its as-a-service effort. In the Amazon Web Services ecosystem, you're starting to see more managed services players because customers don't want to be in the business of optimizing cloud resources on an ongoing basis.
Simply put, all that vendor chatter about hybrid cloud is about to switch over to managed services marketing.
When you break out EMC's position in the enterprise cloud, there was an obvious hole in managed services. Simply put, you'd be hard pressed to outline EMC-as-a-service. Virtustream changes that equation for EMC and as a result makes the company a more well rounded hybrid cloud vendor. What SoftLayer was to IBM, Virtustream can be to EMC.
Virtustream was venture backed and plotting an initial public offering. The company has a $100 million annual revenue run rate and 60 percent of that is cloud infrastructure as a service. The remainder is cloud software that is licensed to other service providers. Virtustream operates two of its own data centers in the U.S. and two third party cloud nodes.
Now Virtustream is part of EMC's ever-growing federation that includes VMware, Pivotal and VCE. Virtustream CEO Rodney Rogers will report to EMC CEO Joe Tucci. On a conference call, Rogers said Virtustream has focused primarily on large enterprises.
Tucci said that EMC's customers prefer a hybrid cloud approach and the deal will bolster the company's partnership with SAP, which was an investor in Virtustream. Virtustream will also offer managed services for Oracle applications in the fourth quarter, said Rogers.
In Gartner's infrastructure as a service Magic Quadrant, Virtustream is seen as a niche player that could challenge. Amazon Web Services and Microsoft's Azure take the top spots. However, Virtustream is rated one of the top hosted private cloud vendors along with Datapipe, according to Forrester Research.
The end game here is that enterprise tech giants are trying to get customers buy into a cloud and services stack. Virtustream has large customers such as Coca-Cola, Heinz, Hess and others. Virtustream is used to host SAP applications in many cases.
EMC's weak spot was that it provided on-ramps to public cloud services, but didn't offer much of a menu by itself.
Howard Elias, chief operating officer of EMC's global enterprise services unit, said in a blog post:
To date we've been able to provide a robust range of hybrid cloud offerings via EMC's Federation of businesses, but increasingly we're hearing from customers that they want the option to confidently move all workloads to an off prem managed cloud model, including their most mission-critical applications like SAP.
That reality put EMC in a bind. Enterprise customers may want to buy hardware and software from a vendor, but they're not keen on actually managing it. After all, these folks have their own businesses to run.
Here's EMC's cloud stack. Virtustream fills in the managed stack block in the middle.
What remains to be seen is whether enterprise customers will buy into allowing EMC to run their various flavors of clouds and on-premises gear. Elias noted:
This set of offerings will be unique to the industry and will enable our customers to purchase their entire cloud infrastructure from one vendor, making their transformational initiatives as seamless as possible across any app, any workload, and any cloud model. Customers will also have the choice to purchase these solutions directly from EMC or via our global partner ecosystem.
EMC has a knack for integrating its various federation technologies, but at some point it begins to look like lock-in. That perception is one reason that EMC has stepped up its open source game.
Virtustream is a nice addition to EMC. Whether it turns into a VMware-ish game changer remains to be seen.