Why EMC just spent $1.2B to buy cloud vendor Virtustream

EMC has a private cloud, VMware has a public cloud, Virtustream provides a managed cloud

EMC Virtustream cloud
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EMC is getting more cloudy today with the $1.2 billion acquisition of infrastructure as a service (IaaS) cloud vendor Virtustream, a company that is recognized across the cloud industry as having the technical chops for helping big companies with complex cloud deployments.

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Virtustream’s technology will compliment other strategies of EMC Federation companies including VMware, RSA, VCE and the EMC storage division. While EMC and VMware each have private and public cloud platforms, Virtustream will give the company a new managed cloud offering, which rounds out the company’s cloud offerings.

 What Virtustream is

Started six years ago by Rodney Rogers and Kevin Reid – whose previous consulting business was eventually acquired by Capgemini - Virtustream has developed a technology named xStream that sits above the hypervisor to act as a cloud management platform that allocates resources based on the requirements of an application. It runs on bare metal, or in either single or multi-tenant models. Unlike other IaaS vendors that provide service level agreements (SLAs) based on uptime of the virtual machine, Virtustream provides SLAs for application performance. “Our approach is that it’s all about the apps that run on the infrastructure,” Rogers said during a press conference call announcing the acquisition today. The approach of focusing on application performance has meant that Virtustream is used widely in deploying large-scale enterprise resource planning (ERP) applications from SAP, Oracle and Microsoft (SAP is an investor in Virtustream).

The company has been lauded in cloud circles. In recent years it has placed highly in both Gartner’s IaaS Magic Quadrant and Forrester’s hosted private cloud Wave reports. Rogers said the company is on track for a $100 million annual revenue run rate this year. He was planning an initial public offering of Virtustream when suitors began expressing interest in buying the company. That’s where EMC comes in.

Why EMC is interested

EMC as a storage company faces headwinds as cloud computing takes off. The more that customers store data in public cloud platforms like Amazon Web Services and Microsoft Azure, the less storage equipment they need on their own premises. So, through its federation strategy, the company is building up plethora of cloud options for customers.

VMware (which EMC owns about 80% of) has both a public and private clouds to offer customers – vRealize and vCloud Air. VCE is a converged infrastructure that can be used to build a private cloud.

But Virtustream offers a different type of cloud experience. While Virtustream has VMs by the hour for rental, the company really focuses on consulting with customers and deploying complex applications in either its private or public cloud products. That’s something hat VMware doesn’t really specialize in.

While EMC customers are interested in using the cloud, there’s a hesitation by many of them to migrate mission critical legacy enterprise apps to the cloud. Virtustream can help with that through its managed cloud offering.

EMC noticed that other vendors are having success in the managed cloud market. Rackspace is probably the biggest managed cloud vendor – the publicly traded company offers “Fanatical Support” on top of its cloud, helping customers deploy complex apps into the cloud. EMC likely wants a slice of that market, and Virtustream gives it to them. And it fits snugly in with other EMC Federation cloud offerings. It’s a natural fit, and all it cost EMC was $1.2 billion. Now throughout the EMC federation customers can buy private, public or managed clouds. The acquisition is expected to close later this year.

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