When Dell voted to buy back the VMware tracking stock and go public again this morning, you had to be wondering what exactly the strategy was behind these moves. While it’s clearly about gaining financial flexibility, the $67 billion EMC deal has always been about setting up the company for a hybrid and private cloud future.
The hybrid cloud involves managing workloads on premises and in the cloud, while private clouds are ones that companies run themselves, either in their own data centers or on dedicated hardware in the public cloud.
Patrick Moorhead, founder and principal analyst at Moor Insight & Strategy, says this approach takes a longer investment timeline, and that required the changes we saw this morning. “I believe Dell Technologies can better invest in its hybrid world with longer-term investors as the investment will be longer term, at least five years,” he said. Part of that, he said, is due to the fact that many more on-prem to public connectors services need to be built.
Dell could be the company that helps build some of those missing pieces. It has always been at its heart a hardware company, and as such either of these approaches could play to its strengths. When the company paid $67 billion for EMC in 2016, it had to have a long-term plan in mind. Michael Dell’s parents didn’t raise no fool, and he saw an opportunity with that move to push his company in a new direction.
It was probably never about EMC’s core storage offerings, although a storage component was an essential ingredient in this vision. Dell and his investor’s eyes probably were more focused on other pieces inside the federation — the loosely coupled set of companies inside the broader EMC Corporation.
The VMware bridge
The crown jewel in that group was of course VMware, the company that introduced the enterprise to server virtualization. Today, it has taken residency in the hybrid world between the on-premises data center and the cloud. Armed with broad agreements with AWS, VMware finagled its way to be a key bridge between on prem and the monstrously popular Amazon cloud. IT pros used to working with VMware would certainly be comfortable using it as a cloud control panel as they shifted their workloads to AWS cloud virtual machines.
In fact, speaking at a press conference at AWS re:Invent earlier this month, AWS CEO Andy Jassy said the partnership with VMware has been really transformational for his company on a lot of different levels. “Most of the world is virtualized on top of VMware and VMware is at the core of most enterprises. When you start trying to solve people’s problems between being on premises and in the cloud, having the partnership we have with VMware allows us to find ways for customers to use the tools they’ve been using and be able to use them on top of our platform the way they want,” Jassy told the press conference.
The two companies also announced an extension of the partnership with the new AWS Outposts servers, which bring the AWS cloud on prem where customers can choose between using VMware or AWS to manage the workloads, whether they live in the cloud or on premises. It’s unclear whether AWS will extend this to other companies’ hardware, but if they do you can be sure Dell would want to be a part of that.
Pivotal’s key role
But it’s not just VMware that Dell had its sights on when it bought EMC, it was Pivotal too. This is another company, much like VMware, that is publicly traded and operates independently of Dell, even while living inside the Dell family of products. While VMware handles managing the server side of the house, Pivotal is about building software products.
When the company went public earlier this year, CEO Rob Mee told TechCrunch that Dell recognizes that Pivotal works better as an independent entity. “From the time Dell acquired EMC, Michael was clear with me: You run the company. I’m just here to help. Dell is our largest shareholder, but we run independently. There have been opportunities to test that [since the acquisition] and it has held true,” Mee said at the time.
Virtustream could also be a key piece providing a link to run traditional enterprise applications on multi-tenant clouds. EMC bought this company in 2015 for $1.2 billion, then later spun it out as a jointly owned venture of EMC and VMware later that year. The company provides another link between applications like SAP that once only ran on prem.
Surely it had to take all the pieces to get the ones it wanted most. It might have been a big price to pay for transformation, especially since you could argue that some of the pieces were probably past their freshness dates (although even older products bring with them plenty of legacy licensing and maintenance revenue).
Even though the long-term trend is shifting toward moving to the cloud, there will be workloads that stay on premises for some time to come. It seems that Dell is trying to position itself as the hybrid/private cloud vendor and all that entails to serve those who won’t be all cloud, all the time. Whether this strategy will work long term remains to be seen, but Dell appears to be betting the house on this approach, and today’s moves only solidified that.
