VMware buys AirWatch for $1.54 billion, acquires mobility strategy

VMware buys AirWatch for $1.54 billion, acquires mobility strategy

Summary: VMware's acquisition of AirWatch will give it a foothold in mobility as well as its end-user computing strategy.

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VMware will acquire AirWatch, a mobile device management company, in a $1.17 billion cash deal that will give the virtualization software provider a play in mobility. VMware will also pay $365 million in installment payments and unvested stock options.

Mobile device management has been a hot sector desperately in need of consolidation given there are more than 100 vendors. Large enterprises increasingly want mobile device management put together with content management and collaboration. VMware's acquisition follows IBM's purchase of FiberLink and Citrix's acquisition of Xenprise in 2013.

VMware's spin is that AirWatch will give it a foothold in mobility as well as its end-user computing strategy, which revolves around desktop virtualization and delivering enterprise apps to tablets and smartphones.

According to VMware, AirWatch will continue to be led by CEO John Marshall. AirWatch will be lumped into VMware's end-user computing group, which is led by Sanjay Poonen, general manager. AirWatch's co-founder Alan Dabbiere will be on the unit's operating board and report to VMware CEO Pat Gelsinger.

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Given those executive moves, VMware seems interested in continuity as well as keeping AirWatch's customers in the fold. On a conference call, Gelsinger said AirWatch will bring talent and mobility knowhow to VMware. Gelsinger added that VMware plans to beef up AirWatch at a global scale. 

AirWatch, based in Atlanta, was one of the more established mobile device management (MDM) companies with more than 10,000 customers and 1,600 employees. MDM has become a key piece of the enterprise given the bring-your-own-device trend and the headaches of managing corporate- and employee-owned smartphones, tablets and ultimately wearables.

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The problem for companies like AirWatch is that the big enterprise players such as Citrix, VMware, BlackBerry and IBM were all eyeing the space and surrounding MDM with other tools. AirWatch had one of the broader mobility stacks, but needed more scale to compete with giants. 

airwatch stack

 

With VMware, AirWatch has distribution and a broader stack to surround its tools. VMware said that the AirWatch deal will close in the first quarter and form an mobile product group. Poonen said AirWatch will enable VMware to grow its share in mobile work and collaboration. "Mobile is the new desktop," said Poonen. "The world needs a robust mobile platform in the post-PC era. AirWatch will become the focal point for VMware's mobile strategy."

Q4 results

Meanwhile, VMware outlined its fourth quarter results and provided its 2014 outlook. The company said it expects fourth quarter to be $1.48 billion, up 15 percent from a year ago. Wall Street was expecting $1.47 billion. License revenue is expected to also be up 15 percent in the fourth quarter compared to a year ago. Those projections exclude revenue attributed to Pivotal Software, another company owned by storage giant EMC.

VMware also said that AirWatch is expected to contribute $75 million in revenue in 2014. 

vmware q4 2014 outlook

 

The consolidation round

So what's next? VMware has a habit of kicking off consolidation trends. For instance, VMware bought Nicira, a software defined networking company, and other tech players quickly followed. Last year, it was almost as if a software defined networking company was acquired every week.

VMware's purchase of AirWatch is likely to have a similar impact. Why? There are simply too many MDM vendors. At a recent roundtable hosted by ZDNet, CIOs said that they were basically waiting for MDM 2.0 and vendors to mature before jumping on the bandwagon. These tech leaders also wanted more than MDM-only application.

Indeed, Marshall, who spoke to ZDNet at the Gartner Symposium and ITXpo last year, said Airwatch's take on MDM revolves around content and collaboration. Marshall's said MDM is a commodity and content is what matters. In that respect, Airwatch is starting to look more like Box.

Here's Gartner's Magic Quadrant on the sector.

mdm-magic-quadrant-559x593

 

Poonen said that AirWatch has little overlap with VMware's existing software. He also said VMware thought that AirWatch was well ahead of its competitors. "No other player in this category matches our breadth of solutions," said Poonen. 

Bottom line: VMware bought an MDM leader with AirWatch and acquired a mobile strategy to go along with it. 

Reaction

Analysts were mixed on the VMware purchase of AirWatch. The biggest nit was that VMware paid too much.

Forrester analyst Christian Kane said:

VMware instantly becomes relevant in the enterprise mobility/MDM market with this acquisition. Airwatch is a leader in the market right now but is a much smaller company. VMware brings a much broader reach and customer base for the Airwatch product. This is part of a greater consolidation of the market we've seen take place over the last 12 or so months with Citrix acquiriing Xenprise last January and IBM acquiring Fiberlink 2 months ago.

Oppenheimer analyst Shaul Eyal said:

We believe that AirWatch's technology will be integrated with VMware's existing end-user solutions, which should enhance the performance and utilization. More than 70% of customers deployed cloudbased software as a service (SaaS), but AirWatch also offers a complete onpremise- based solution allowing VMware to better address the BYOD trend.

But Cantor Fitzgerald analyst Brian White questioned the price tag:

We are a bit skeptical of the AirWatch transaction because we believe the price tag is too expensive, the transaction is a major drag on operating margins in 2014 (thus dilutive to EPS), and the capabilities gained do not appear to be mission critical to the battles that VMware is fighting.

Topics: Mobility, Virtualization

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9 comments
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  • That old graph is missing something

    Where is Microsoft i the scheme of things. Would be interesting how their MDM solution (intune) stacks up to the others.
    brhorv
    • Well wake me up when then can handle iOS and Android devices. Until then...

      I cannot take inTunes seriously.
      CyberGuerilla
  • the reality is vmware is playing catch up to Citrix like always

    nt
    greywolf7
    • Look out Citrix!

      Airwatch is the clear leader in this segment, and VMware is putting more chips on the table against Citrix to beat them on the overall virtualization vision. This definitely gives Airwatch a nudge on the vision axis since it can now align with the rest of VMware's software offerings, which was the only real play XenMobile has on Airwatch in today's market.

      As a former Citrite I'd say that things are looking bad for Citrix; first the unexpected absence of MarkT, then SumitD & BobS jumped ship for VMware!

      Good luck Citrix.. VMware says 'Game On!!'
      Kenny Baldwin
  • Seems a little pricey

    VMware is paying $1.54 Billion for AirWatch, expected to contribute $0.075 Billion in revenue in 2014.

    The addition of AirWatch will grow VMware to almost half the size of BlackBerry.
    bb_apptix
  • Smart exit for AirWatch investors

    This is going to be a landmark year for enterprise mobility. It remains to be seen how much of a deal VMWare got, but I think this is a great exit strategy for AirWatch. As the mobile market matures, there is less of a need for MDM software. I agree with Marshall that MDM is a commodity and content is what matters. If you want to know what MDM 2.0 looks like it's a mobile collaboration and productivity solution with MDM-like features built in. I work @Accellion - what an exciting time.
    janinekromhout
    • RE: Smart exit for AirWatch investors

      I know Accellion is partnered with Good who, In my opinion, is FAR superior to AW. While AW may have better marketing, their product cannot compete from a Workflow perspective and their "Content Locker" is an absolute joke!

      I'd much rather be a Good employee considering how much more biz they do than either MI or AW. If AW got $1.5B, what is Good worth?
      RickRWC
      • Good...nah

        Good, not Great. The Good container isn't as user friendly as MaaS360, Citrix or AirWatch's new stuff. The big players use EMM as a way to hook into other products and wider enteprise management. So like carriers can subsidize the EMM businesses as required. VMware (to sell more View, vSphere), Citrix (XenApp), IBM (Worklight, Tealeaf, WebSphere) etc.
        CraigCG
  • VMWare bought a lemon

    Only problem is VMware bought piece of junk product. My employer tried using Airwatch for checking mobile devices out/in and it constantly loses inventory, scrapped products just show up after being moved to another bucket. That isn't the worst it is constantly logging clients out of the web interface within minutes and clearing cache doesn't help.

    More trouble than it's worth.
    slayer1313