Dell's $67 billion acquisition of EMC could bolster Microsoft's encroachment on VMware's turf.
When the deal is complete, sometime in mid 2016, VMware will become a tracking stock of Dell-EMC. Many analysts were hoping VMware would be spun off completely or in part.
Instead, VMware will be a tracking stock, which typically trades at a discount relative to a spun out entity. And on a conference call with analysts, VMware CEO Pat Gelsinger noted that Michael Dell is likely to build up his economic interests in the company over time.
What's changed here? In the short term, not much. VMware has a strong ecosystem and installed customer base. VMware is the infrastructure that runs enterprise hybrid clouds. Over time, watch for the erosion.
When EMC owned VMware it was easier to develop an ecosystem. EMC let VMware run on its own---even though it was the cash cow in its federation---and the storage giant wasn't a threat on the server side. EMC didn't make servers, so it was easier for VMware to build partnerships with every server vendor. In software defined networking, VMware also had an easier time. Sure, VMware would annoy partner Cisco, but EMC didn't make networking gear.
Now let's put Dell into the equation. Dell is a server giant and it competes with Lenovo, IBM, Cisco and HP. Aidan Finn, a server management veteran, said in a blog:
Do you think that HP, IBM, Lenovo, or Cisco would be happy to partner with Dell on virtualization and private cloud? I sure don't! I think we'd see more momentum for source cloud in Fortune 1000s and the Microsoft stack. Acquiring VMware would be not as rewarding as Dell might think - VMware was probably already concerned about the threat of public (Google, Microsoft, AWS) cloud and open source private cloud, and marginalization through acquisition by the #2 server vendor would not help.
For now, server vendors will have no choice but to offer Dell-owned VMware's technology. Server buyers will want the choice that they already have: Configurations with VMware, Microsoft and open source options for virtualization. But if there's any slippage in customer demand, it's likely that the virtualization co-opetition scenario isn't going to hold.
The most conflict-free course for the VMware ecosystem would have been a near complete spin off. Customers will dictate the outcome overtime, but VMware needs all of its server partners and not just Dell.
Should that VMware ecosystem take a bit of a hit, it's likely that server vendors will rally around Microsoft's Hyper-V and SystemCenter, which will incidentally plug into Azure cloud infrastructure.