Editor’s note: The launching of a joint venture, Virtual Computing Environment or VCE, gave EMC and Cisco an opportunity to explore converged IT infrastructure. Now Cisco has sold most of its stake to EMC. That means more competition between the tech giants, both of whom have a major presence in the Triangle. Analysts at Technology Business Research break down the joint venture’s breakup and what it means. VCE picked Austin, Texas for its headquarters in 2011 but did establish an outpost in RTP.
By Scott Dennehy, Geoff Woollacott, Krista Macomber, Technology Business Research
HAMPTON, N.H. - VCE gave EMC and Cisco a solid foothold in converged infrastructure; now both companies are free to pursue separate paths.
EMC CEO Joe Tucci stated during the company’s 3Q14 earnings call that considering the accelerated pace of the IT industry, “Business as usual is not — and will not — be an option.” To that end, EMC announced a new structure for VCE, its joint venture with Cisco and VMware for Vblock-branded pre-integrated converged systems, which will enable EMC to increase its equity interest in VCE as Cisco reduces its stake from 35% to 10%. VCE has served its purpose for both EMC and Cisco. The industry shifts since the VCE formation in 2009 have been considerable, spurring Cisco’s and EMC’s road maps to also shift in these days of heightened coopetition and rapid market volatility.
As the industry moves toward software-defined, hyperconverged data centers, the line between server and storage arrays blurs and drives vendors to move beyond historical borders.
TBR believes the new structure of VCE will increase the competitive nature of the relationship between EMC and Cisco, and enable the vendors to pursue independent forays into adjacent marketplaces more freely, either organically or through partnerships. However, the two companies will continue to partner where it makes sense for both parties, and take what they have learned from the VCE formation to go head-to-head with alternative platform bundles where each deems it is in their strategic best interests. Furthermore, eliminating the bureaucracy associated with a joint venture will increase VCE’s agility and enable the company to maximize its growth opportunities. In light of the organizational break-ups of HP and Symantec, the restructuring of VCE is further evidence of how vendors are adapting to the speed at which the market is moving.
Alliance flexibility will be critical to both companies in rounding out portfolio gaps and delivering workload optimized, converged systems — a driving force, in TBR’s opinion, behind the new VCE structure. For example, EMC is partnering with commodity server vendor Phoenix, rather than with Cisco, to provide the base-layer compute platforms required for EMC’s Elastic Cloud Storage and EVO:RAIL appliances.
However, EMC’s efforts to balance business line independence with its focus on accelerating adoption of cross-federated solutions (demonstrated by the launch of the VMware EVO-based Federation Software-Defined Data Center Solution during 3Q14) introduce unique go-to-market hurdles.
As EMC moves forward, the company can optimize its IP portfolio by leveraging different server platforms. EMC can move down market with white label Intel servers, or it can seek to break ground with OpenPOWER platforms for niche workload applications. The lessons learned from VCE can extended into other workloads and platform environments in different bundles, adjacent to a Cisco-optimized Vblock with converged systems around CPU alternatives as Intel, ARM, and IBM/OpenPOWER seek to win share from one another.
Selecting carefully the markets in which and workloads for which it chooses to lead with cross-federation while articulating the independent flexibility and best-of-breed capabilities of its independent arms simultaneously will be a challenging but necessary balancing act. TBR believes bringing VCE in-house provides EMC with a cloud solution integration arm through which it can seek alternative partnership opportunities — such as with IBM and OpenPOWER — to accelerate growth.
For Cisco, a smaller stake in VCE gives the company more flexibility in its relationship with NetApp, and Cisco will continue to benefit from growth in FlexPod systems. More importantly, a looser tie to EMC provides Cisco with freedom and capital to pursue its own storage road map, such as Invicta, more aggressively.
TBR believes Cisco is likely to develop its own brand of converged systems that leverage UCS compute and Invicta flash storage components in the future. This would enable Cisco to go to market with a fully converged infrastructure stack without depending on EMC, or NetApp, for storage components. TBR believes Cisco’s ability to deliver its own converged infrastructure offering will strengthen its value proposition through a more holistic design and one-stop support.
Operating previously as a separate entity, VCE will now become part of the EMC Information Infrastructure product division (EMC II), although the overall VCE organizational structure, including CEO Praveen Akkiraju and senior leadership, will remain intact. In addition, TBR expects minimal, if any, impact on VCE customers and partners for at least the short term, as EMC stated there are no planned changes to the VCE go-to-market model or channel partner program.
(C) Technology Business Research