EMC announced this morning that it had purchased Virtustream, a cloud management firm, for $1.2 billion. The company has indicated it will incorporate Virtustream as the company’s newly formed cloud managed services business.
Virtustream, which launched in 2008 has raised of $129 million since its inception. A billion dollar exit on that kind of raise is not too shabby, and it gives EMC more cloud credibility with one fat check.
It’s not the first time EMC has used its checkbook to buy a cloud company. Last Fall, it bought three of them in quick succession. Much like every traditional IT vendor — whether we are talking Microsoft, IBM, HP, Oracle or SAP — EMC sees the world changing around it. It knows that its established hardware business is beginning to fade as companies shift their attention to the cloud. As a company, it clearly understand, it’s absolutely essential to its long-term viability that it makes this pivot to the cloud.
There is always an inherent pressure around building or buying. A big company like EMC with deep pockets can use its wallet to purchase established cloud companies. The cash enables it to string together these purchases, and begin to build them into a credible cloud business.
The Virtustream purchase is a huge step in the right direction as it gives it a managed services business in the cloud, an area that addresses a huge pain point for large enterprise customers around moving and managing software like SAP to the cloud. These companies struggle with how to move these large applications to the cloud, and a company like Virtustream can help ease the way.
The company has an impressive client list including Coca-Cola, Heinz, Hess and Kawasaki, among others.
There’s an interesting dynamic in play here. On one hand you have large, established vendors who are struggling to move to the cloud with their customers, while fighting disruption from startups at the bottom of the market. On the other, you have customers who are struggling to make that same transition to the cloud.
Large enterprises are sometimes reluctant to work with smaller vendors and want that comfort of working with a name they know. As companies like EMC, HP and IBM purchase their way to the cloud, they give customers these established vendors, along with the energy and innovation of the smaller companies they purchased.
The danger here is that bringing a smaller company inside the huge corporate infrastructure can suck out its innovation, and all of the reasons it bought the company get lost in the corporate bureaucracy.
But big companies bring advantages too, like resources and processes that a smaller company can’t possibly achieve on its own. The big company just needs to have the good sense to leave the company alone and let it do what it does well.
EMC has experience in this regard. It has left VMware as a separate company. It has also helped spin out Pivotal, and it has had the foresight to leave these companies alone.
If it can take Virtustream and fold it smoothly into the corporate fabric, this will be a good purchase. The problem is that with any purchase, combining companies and cultures is always a challenge, and the devil remains in the detail.