Better Together: Parsing EMC/VCE

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In a media environment consumed with mass hysteria over Ebola, ISIS and the mid-term elections, EMC, Cisco and VCE’s joint decision that VCE will become an independent company within EMC’s Federation didn’t generate as much buzz as it should have. That’s really too bad, since the agreement is a big deal for the companies, their customers and partners, and the broader IT industry. (Disclosure: Pund-IT has consulting relationships with EMC and VCE. )

Why is that the case? For reasons practical and strategic.

Let’s consider VCE first. Some IT industry watchers simply assumed that the joint venture (JV) was a marriage of convenience between EMC and Cisco that would falter and fail as numerous other high profile tech vendor trysts have.

Not too surprisingly, VCE’s competitors trumpeted that cautionary tale but to no avail. They may have initially considered the company a lightweight upstart, but as VCE began eating their lunch (along with the extra cookie mom packed for the bus ride home), their disdain evolved into efforts to temper VCE’s market momentum, again to no avail.

VCE began shipping its first Vblock systems and solutions less than five years ago. The company’s business scaled rapidly into what is now a $2 billion annual run rate with sales growing some 50%+ over each of the last six quarters. At the same time, VCE’s loyal clients account for a remarkable two thirds of total sales. That’s all good, but to take its Vblock architecture and “VCE Experience” strategy to the next level, the company’s business model needed to evolve further.

Having a permanent, stable home within the EMC Federation while remaining independent and intact under the leadership of CEO Praveen Akkiraju and his senior team with its own mission, operating charter and organizational structure should do the trick -- particularly given EMC’s long success in nurturing innovative, youthful organizations.

The deal will also be good for EMC and Cisco.

VCE will substantially broaden EMC’s exposure and opportunities in converged infrastructure and hybrid cloud markets. That’s excellent news considering how those sectors are vastly outperforming other enterprise IT markets in terms of sales growth and profit margins. Plus, VCE’s more than $2 billion revenue stream should bolster EMC’s value to shareholders in the short term, and deliver additional, expanding benefits in the years to come

Cisco also stands to win. VCE accounts for a substantial portion of the company’s UCS sales and has thus helped Cisco become a driving, disruptive force in Intel-based server markets. The company remains a strategic partner with continued investment VCE, such as multi-year agreements between Cisco, VCE and EMC related to customer support, reseller and technology exchanges. These agreements and the Vblock Systems product roadmap that leverages Cisco servers and networking technologies demonstrate that current and future Vblock customers should have a high degree of confidence in VCE and its solutions.

Though VCE’s success to date is admirable, the company will benefit from additional investment from EMC and from a more nimble and agile ownership structure. The EMC Federation is a natural and best destination for the company. Its independent status will allow VCE to freely choose how best to develop new solutions and explore new markets and alliances.

Overall, this agreement is more about the future than the past. Along with providing the company the support it needs, the agreement should provide VCE the time and opportunities it requires to leverage EMC Federation technologies, move up the stack and broaden its portfolio. Precisely how the company will proceed may not be entirely clear, but as a critical independent member of EMC’s Federation, VCE’s options seem virtually limitless.

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