VMware: Dell's purchase and the spoils of war

The real prize from the EMC Dell deal is the associated purchase of VMware, Inc. Analysts from all over the globe predict everything from utter VMware destruction to VMware as a cash-producing Wunderkind. They're all wrong.

Many, including HP CEO Meg Whitman, have predicted chaos for Dell as it integrates EMC into its current offerings. Some have gone so far as to say that Dell will destroy VMware. I don't believe that Dell will destroy VMware, nor do I think that Dell will extract all the profit out of it to fund Dell's dreams. I also don't believe that Dell's ownership of VMware will send the masses running toward Microsoft for Hyper-V salvation. I get the distinct impression that VMware will stand as a separate entity, with its own leadership, as it has from the beginning.

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From Meg Whitman's comments in the above referenced post: "Fourth, this move is going to cause chaos in the channel as they bring together two different programs and approaches." To that statement, I quote Sun Tzu, from the Art of War: "In the midst of chaos, there is also opportunity."

I think that whatever minimal chaos this deal causes, business continuity will prevail. There's no reason to do things any differently than they're done right now. VMware isn't doing anything wrong. Although I haven't always agreed with everything its leadership has done, the company isn't hurting financially. It produces the best and most supported virtualization products on the market.

Why would Dell tinker with its success?

The short answer is that it won't.

VMware is a bonus for Dell in the EMC purchase. One I'm sure that it's very proud of.

EMC, like Dell, is an empire builder, having purchased six dozen companies since 1996 in the areas of storage, storage management, virtualization, services, security, and content management.

Dell's portfolio of hardware, software, and services has grown to the point that it is now a real contender in the same space as IBM. And I believe that business continuity for its customers is top priority. To my knowledge, Dell has never been a slash-and-burn or a rip-and-replace company.

To answer another of Ms. Whitman's statements: "Third, bringing two portfolios together will require a significant amount of product rationalization, which will be disruptive to their business and create confusion for their customers. Customers simply will not know if the products they are buying today from either company will be supported in 18 months."

I agree with this one. Remember Compaq, Autonomy, and Palm? Oh wait, sorry, that wasn't Dell. OK, so now I disagree. I think that Dell will continue its support of its purchased products. Sure it will rebrand those products, merge the ones that it makes sense to merge, and possibly even dump a few in the process, but I expect that Dell will honor its customers with support.

Sun Tzu had the following to say about the spoils of war: "Celebrate the victors and the brave. Make taking of the spoils of war a glorious thing. Yet also beware of the damaging effects of extrinsic motivation. When the spoils of war become the main motivation, soldiers lose focus."

The lessons in his words are simple: Celebrate what you've won, but don't let the winning of stuff become your focus. As a friend of mine used to say, "Ken, keep your eye upon the donut, not upon the hole." VMware is a spoil of war, but it should be preserved and prized on its own.

As a "spoil," what exactly does VMware bring to Dell?

VMware acquired its own set of companies including two prizes: Desktone and AirWatch. VMware is also the clear market leader in both cloud systems management and data center automation. See Figures 1 and 2.

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Figure 1: IDC 2014

Figure 1 shows the top four leaders in the cloud systems management market for the years 2012 through 2014. You can see that VMware holds a firm grip on the top spot.

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Figure 2

And shown in Figure 2 are the market results from IDC's research for data center automation. VMware controls the dominant spot in this space with IBM trailing by roughly half of VMware's share.

VMware's 2014 total revenue was just over $6 billion, with a net income of $860 million, with 18,000 employees.

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It was VMware's launch in 1999 with its first product that brought x86 virtualization to the IT world. Since that time, VMware has dominated the server virtualization market and expanded it into the cloud and the software-defined data center. It is one of the world's most recognized data center technologies.

EMC is no slouch in the tech industry with $24.4 billion in total 2014 revenue, $2.7 billion in net income, and 70,000 employees of its own.

Dell's numbers are also substantial. For FY 2013, its total revenue was $56.9 billion and $2.37 billion in net income with 108,000 employees.

Seeing the numbers for all three companies, one has to wonder where the $67 billion purchase price came from. I'm no financial wizard, but it would take a lot of convincing for me to believe that EMC's and VMware's $30 billion gross revenue is somehow worth the $67 billion it took to capture them. I do believe that Michael Dell and company can make it work. Unfortunately, it will mean a major tech layoff in the 30,000 employee range. I hope that they're not all US-based.

The US labor market seems to be a favorite punching bag for tech companies that make large financial blunders and then pay them back by laying off US workers. The EMC purchase was by no means a blunder, but the inflated price will come with costs to the employees.

VMware is an excellent complement to Dell's other offerings. I foresee complete package deals coming out of Dell using EMC storage, Dell servers, and VMware. I even foresee Dell-branded data center solutions and possibly Dell data centers springing to life from this marriage. It wouldn't surprise me to see Dell data centers that provide ready, set, go-style cloud environments to businesses.

Skip the "cloud-in-a-box" or "data center-in-a-box" offerings when Dell can offer you a complete compute setup that's something akin to Amazon's AWS and S3 services. Hopefully the leadership positions of VMware in the data center automation and in the cloud systems management spaces will make it easier to purchase and to use cloud computing for startups as well as established businesses that want to make the leap.

In my opinion, a Dell, EMC, VMware solution is a very good one. It was a good purchase for Dell and to Dell goes the spoils--VMware and all.

What do you think of the Dell purchase of EMC and VMware? Do you think it's a good thing? Do you think it leaves customers with more questions? Tell me your thoughts.