EMC surprised the cloud sphere with its intent to acquire Virtustream. This marks the first separate cloud move of EMC since a while [Update - EMC correctly points out that back in October 2014, EMC acquired CloudScaling Maginatics and Spanning - more here - it all depdends on what is a 'while'), outside the plans it has with VMWare and Pivotal.
So let’s dissect the press release in our custom style – it can be found here:

EMC Corporation (NYSE: EMC) today announced it has entered into a definitive agreement to acquire privately-held Virtustream. When the transaction closes, Virtustream will form EMC’s new managed cloud services business. The acquisition represents a transformational element of EMC’s strategy to help customers move all applications to cloud-based IT environments. With the addition of Virtustream, EMC completes the industry’s most comprehensive hybrid cloud portfolio to support all applications, all workloads and all cloud models.

MyPOV – EMC puts it out squarely, in its current hybrid cloud offering there was no solution for managed cloud, which now comes to EMC thanks to Virtustream. To a certain point EMC (in with that going forward I also mean VMware) encroaches on some business that was more or less left for partners to build. Now EMC competes with these partners, which shows that the potential of managed cloud is too substantial for EMC to leave it to partners.

Virtustream CEO Rodney Rogers will report to Joe Tucci, EMC Chairman and CEO.

MyPOV – Good move that should allow Virtustream to remain Virtustream, only with bigger funds, sales force and partner ecosystems.

“Virtustream is an exceptional company and this is a critical and transformative acquisition for EMC in one of the industry’s fastest-growing and most important sectors,” said Joe Tucci. “With Virtustream in place, EMC will be uniquely positioned as a single source for our customers’ entire hybrid cloud infrastructure and service’s needs. We could not be more delighted that Virtustream will be joining the EMC Federation family. It’s a game changer.”

MyPOV – The usual quote, only not a game changer necessarily, EMC still pays in the hybrid cloud game, but another game strategy that EMC can play. In the original two world approach with EHC and vCloud Air either would move to a managed cloud offering, on premise or in the cloud. What is now clear is, that the complexity of the loads (here it is the SAP products) requires more expertise and more hand holding, something that Virtustream has successfully shown in the past.

One of the world’s fastest-rising cloud software and services companies, Virtustream is trusted by enterprises worldwide to migrate, run and manage mission-critical applications in the cloud, including SAP. Virtustream customers include marquis enterprises such as The Coca-Cola Company, Domino Sugar, Heinz, Hess Corporation, Kawasaki, Lexmark, Scotts Miracle-Gro and a global footprint of service provider partners who use Virtustream software to power their cloud offerings.

MyPOV – Agreed, Virtustream has done best at getting the next generation of SAP products – with Suite on Hana and now even S/4HANA into a managed cloud offering. It will be interesting who will now step up in the managed cloud space for SAP specifically and complex enterprise loads in general. But then e.g. Oracle will push to run things on the Oracle cloud. Infor has selected AWS cloud on the public cloud side. So there may be only limited potential for the ‘next’ Virtustream, as long as EMC executes well.

Virtustream’s cloud software and Infrastructure-as-a-Service portfolio will be delivered directly to customers and through partners. EMC Federation service provider partners will receive access to Virtustream’s xStream cloud management software platform and be enabled to adopt and deliver their own branded services based upon it.

MyPOV – Good to mention partners, who would have been worried if EMC would go to market directly. So this paragraph sounds like good news for existing EMC partners, they get another cloud deployment option and offering. For Virtustream it means a significant change in business mode from direct to indirect. Questions on documentation and robustness and time to come up to speed will be crucial now, and are not traditionally the first order of business for a technology vendor selling directly to customers. But then EMC always had a very large account sales force, which I expect EMC to keep operating.

Presently EMC provides the Federation Enterprise Hybrid Cloud Solution — an on-premise private cloud offering that provides on-ramps to public cloud services such as VMware vCloud Air. Virtustream brings to the EMC portfolio a managed cloud software and services capability — whether on or off premise — which EMC also intends to incorporate into the Federation Enterprise Hybrid Cloud Solution. With the addition of Virtustream, EMC will enable customers to move their entire application portfolio into a cloud environment.

MyPOV – The last sentence is key – Virtustream enables EMC to bring [a customer’s] entire application portfolio to the cloud – which points to the question why the existing offerings were not able to move these loads. The truth is probably that for highly complex ERP applications like e.g. SAP this is not a trivial task. It is not simple and straight forward loads, but the orchestration of a multitude of servers and services, a complex task that Virtustream has turned into an expert to manage.

Founded in 2009 by Rodney Rogers and president & CTO Kevin Reid, Virtustream delivers application lifecycle automation and orchestration with a particular focus on I/O-intensive mission-critical enterprise applications such as SAP S/4HANA and others. Virtustream’s xStream platform is tightly integrated with VMware vSphere and architected to deliver service level agreements (SLAs) for not only infrastructure availability, but for application performance and transaction latency as well.

MyPOV – 2 takeaways here – notice how EMC avoids ‘in memory’ with I/O intensive. A clear asset of Virtustream is to understand HANA deployments in general, the suite on HANA offering and the more recent S/4HANA product architecture. All in memory. So Virtustream gives EMC access to a new storage medium, that EMC has been more slowly getting to given its install base is moving loads from HDD to SSD. The other is the confidence that Virtustream had to run these complex loads, giving customers application performance and transaction latency SLAs. The two go well together of course, but where always something EMC did not provide before, EMC provided the software, partners would have to decide how comfortable they are with deep SLAs.

“Virtustream has established itself as an industry leader and innovator for running mission-critical enterprise applications in the cloud,” explained Rodney Rogers, Virtustream Chairman and CEO. “We’re proud to be joining the EMC Federation where our combined capabilities, products and services will allow us to accelerate our vision of delivering the platform of record for enterprise systems, and address the complete breadth of cloud computing needs.”

MYPOV – The usual glowing statements of the acquired party, let’s hope for customers it will all work out well.

Recognition by Leading Analyst Firms

Virtustream’s rapid rise to premier cloud provider status is evidenced by Forrester* ranking Virtustream as one of only two “Leaders” in the hosted private cloud solutions market. Gartner has recognized Virtustream in the Gartner Magic Quadrant for Cloud Infrastructure as a Service — one of the few independent companies to reach this status worldwide in public cloud IaaS.

In addition, Virtustream integrates a comprehensive defense-in-depth security model and governance solution. This market-leading attribute is validated by Virtustream’s highest ranking in the area of security and compliance in Gartner’s “Critical Capabilities for Public Cloud Infrastructure as a Service” report. Virtustream delivers its capabilities both as software for on-premise or service provider deployment and as the foundation of the company’s IaaS solution.

MyPOV – No comments on the quotes from the esteemed colleagues. But no question Virtustream is a good buy for EMC.

Transaction Terms

The all-cash transaction is expected to close in the third quarter of 2015, subject to customary closing conditions, is valued at approximately $1.2 billion, and has been approved by the boards of directors of both EMC and Virtustream and the requisite Virtustream stockholders. The transaction is expected to have no material impact to EMC financial results in 2015 and is expected to be additive to revenues and accretive to EPS in 2016.

MyPOV – Good luck closing. The executives shared on the call that this was a competitive bid, congrats to EMC to emerge as the winner. Now for everyone else it will be harder to operationalize SAP loads, but nothing that smart people cannot understand and build (or adapt) to.

Federation Executive Quotes:

David Goulden, Chief Executive Officer, EMC Information Infrastructure

“As IT organizations race to keep pace with the demands of the modern and rapidly changing business, they need to leverage both private and public clouds. The EMC Federation Enterprise Hybrid Cloud Solution enables customers to deploy rapidly a hybrid cloud that incorporates the best of both. Today’s news completes the picture, culminating in what customers want most, a one-stop-shop experience for their entire hybrid cloud needs.”

Pat Gelsinger, Chief Executive Officer, VMware

“This acquisition is great news for our customers, VMware and the EMC Federation of businesses. With the addition of Virtustream, we will be able to offer customers a comprehensive set of hybrid cloud offerings, including private, managed and public cloud solutions. As we deliver VMware vCloud Air to our customer base to help them continue their journey to the cloud, Virtustream complements and expands our value proposition.”

MyPOV – Nice to get the quotes in of the potential ‘rivals’ inside of the EMC keiretsu – so good they are in line.

Partner Quotes:

Bill McDermott, Chief Executive Officer, SAP

“SAP has a long-term partnership with Virtustream to host mission-critical applications in the cloud. We are excited to see Virtustream become part of EMC. SAP will continue to serve as a partner with the new EMC managed cloud services business and we remain ever committed to supporting the hybrid cloud landscapes of shared customers around the world.”

Don Whittington, VP & CIO, Florida Crystals Corporation

“Virtustream has been a key strategic partner for us for the last 5 years and has had a material impact on our complex IT landscape and how we run our business. The coming together of Virtustream and EMC is a natural fit that offers great promise through their combined ability to address the wide spectrum of cloud computing requirements.”

Tom Frana, CEO, ViON

“ViON leverages Virtustream’s xStream software platform to provide secure cloud solutions for federal government agencies. The combination of Virtustream's capabilities with EMC’s robust security portfolio and comprehensive cloud solutions will allow us to bring even more compelling services to market.”

Gil Torquato, CEO, UOL Diveo

“Both Virtustream and EMC are valued partners of UOL and are critical to our success in meeting the rapidly growing demand for enterprise-class cloud solutions in Brazil. Virtustream becoming part of the EMC Federation pairs Virtustream’s xStream cloud management software with EMC’s rich technology set for the delivery of market-leading, end-to-end cloud solutions.”

MyPOV – Great collection of quotes – starting with the key load creator, SAP. It will be interesting how SAP will look at IaaS and how much it will leave to partners – at the end we are in the cloud revenue race – and IaaS revenue is also cloud revenue. SAP will have made a bundle on this, as it was an investor in Virtustream. At some point I was thinking that SAP will buy Virtustream. But then SAP uses a lot of VMware in its cloud offering, so now it will get it via EMC, may have been cheaper in the long run.

And good to see a customer, even a Constellation SuperNova winner, Florida Crystals quoted (more here). Whittington is running one of the first 0 datacenter IT teams in the country and keeps pushing the envelope in terms of IT embracing innovative best practices.

And key to see partners from the US and Brazil here, as their go to market has been affected by this acquisition. But there is little they can do of course, and in the end getting a richer EMC product maybe better for their business, too.

The new EMC Cloud Portfolio and where Virtustream fits in

Overall MyPOV

Cloud consolidation is a key trend we predicted already three years ago. Too many ‘old school’ vendors like EMC, who despite of all the investments and acquisitions still do a lot of traditional business need to acquire more innovative vendors to inject their capabilities in their solution portfolio. With that they accelerate cloud adoption across the board, which is a benefit for most enterprises. My guess is more enterprises out there will consider the Virtustream capabilities when sold as EMC as standalone Virtustream. Enterprises don’t like uncertainty when they pick partners. 

On the product side it also means that EMC needed a 3rd offering, between private cloud on premise and public cloud. As mentioned ERP applications are unwieldy and complex ‘characters’ when it comes to their footprint, but they can be mastered as Virtustream has showed.

Lastly for EMC it is a key acquisition, as when competing with e.g. Microsoft, Oracle, Google, SAP et al, EMC does not have ‘in-house load’ (disregarding the VMware EUC apps and the McAfee cloud offerings as not substantial), that creates the needed economies of scale to operate successfully in the cloud age. Getting more SAP load is favorable for EMC. But then SAP load remains an attractive target for all players, so EMC cannot rest on the laurels of the acquisition for (too) long. We will be watching.