EMC’s strategy is to capitalize on the confluence of traditional enterprise data, cloud computing and big data growth. Through a combination of in-house R&D, acquisitions and partnerships, EMC’s strategy is to provide infrastructure solutions to small, medium, and large enterprises and service providers with a focus on facilitating IT-as-a-service.
This was the message put forth by EMC’s CEO, Joe Tucci, Presidents Pat Gelsinger and Howard Elias, and other EMC execs at this week’s analyst and customer events in New York City. In what EMC claimed was the biggest announcement in the history of the storage industry, the company introduced more than 40 new products and showcased its newest acquisition, Isilon.
The underpinning of EMC’s strategy is VMware, which EMC is positioning as the technology enabler to the cloud. The company believes that private and hybrid cloud adoption will far outpace that of public clouds in the enterprise. EMC cited two main drawbacks of the public cloud, including: 1) Poor SLA’s – paraphrased as “we’ll do our best but if we fail, please don’t call us” and 2) data lock-in (i.e., you can get data into the public cloud but you can’t get it out). Nonetheless, EMC’s Tucci admitted that the #1 question he gets from CIOs is, “why isn’t your storage as inexpensive as Amazon’s?” What’s Tucci’s response? He cites the SLA drawback but candidly admits that the public cloud service providers have a highly standardized and homogeneous infrastructure that is optimized for cost.
To that end, EMC’s strategy is to identify like-minded enterprise cloud providers and enable the development of so-called hybrid clouds – a combination of virtualized, on-premise data center infrastructure and outsourced services. The goal is to create a homogeneous, standardized environment that can both deliver excellent service levels and at the same time be more cost competitive with public cloud providers. EMC doesn’t have to equal the cost structure of the public cloud – it just needs to close the gap for its CIOs to be able to justify continued internal expenditures.
How Does EMC Position in the Cloud?
EMC wants to be the trusted cloud infrastructure provider that can maximize efficiency, agility, customer control, and choice. At the same time it de-positions the public cloud as unreliable and prone to data lock-in. Meanwhile, EMC is aiming at vertical stack vendors such as Oracle, HP, and IBM by claiming that these firms are simply re-packaging their proprietary technologies and “cloudwashing” instead of attacking the fundamental problem of today’s IT, which is that infrastructure is inflexible and expensive.
What’s the real story here? The truth is that public cloud providers do have a no-apologies SLA that is sub-optimal for many enterprise applications. At the same time, firms such as Amazon and Google are targeting the “Ruby on Rails crowd” and SMBs to gain an initial market foothold and are largely ignoring the enterprise—for now. Also, many of the applications on the public cloud (e.g., infrastructure, consumer email, etc.) are perfectly suited for this type of offering. The reality is that from a user’s perspective, cost and flexibility are paramount and “good enough SLAs” are good enough. In addition, while often data in the public cloud is seemingly locked, the fact is that data in tools like Google Apps is fairly easy to convert. Nonetheless, Tucci is correct that these attributes, while fine for many small businesses won’t cut it for the critical infrastructure at many Global 2000 companies.
What about HP, IBM, Oracle and IBM? The story on Oracle seems pretty clear: Optimize the Oracle stack and extract as much rent as possible out of customers using the Oracle database lock-in as leverage. Oracle is loathe to have customers virtualize Oracle database-based apps with VMware and is fighting tooth-and-nail to create an all-Oracle offering that includes technology from the former Sun Microsystems portfolio.
The jury is still out on IBM and HP, but it is clear both companies are focused on efficiency and simplifying IT. HP in particular is betting its business on converged infrastructure and is a key proponent of VMware. IBM as well is a huge VMware reseller however its infrastructure convergence strategy is less clear. Nonetheless, IBM’s high-touch, services-led model keeps it close to customers and its big data/smart data strategy is among the best in the business.
The bottom line is that EMC owns VMware, and VMware is the family jewel of enterprise cloud computing and ultimately IT-as-a-service. By having the vision to acquire that core asset, EMC has put itself in the enviable position of potentially being the next Wintel of the enterprise. Not coincidentally, Paul Maritz (former Microsoft) and Pat Gelsinger (former Intel) are two of the best executives in the industry and understand the playbook better than most.
Ironically, EMC’s 80% ownership of VMware has had a strange effect on EMC’s valuation. Specifically, EMC’s valuation on a price to earnings basis compares very favorably with other large companies such as IBM, HP, and even Oracle. However EMC’s value is predominantly driven by VMware, which has a very high relative value due to its growth rate. Investors see that as risky despite its tremendous future potential. This fact has put downward pressure on the value of EMC’s core business, which some feel is undervalued for a company of its size, growth rate, and ability to throw off cash. Due to the VMware exposure in EMC’s stock, investors compensate by conservatively valuing EMC’s core business. In fact, from March to December of 2010 the core value of EMC (adjusted by subtracting 80% of VMware’s value) declined substantially (nearly $2B in market cap terms).
Action Item: EMC has embarked on an aggressive buying spree, acquiring growth companies including Data Domain, Greenplum, and Isilon. To the extent that EMC can demonstrate solid performance from these assets and VMware continues to perform, EMC’s value should continue to move forward ahead of its peers. The bottom line on EMC is that its vision, acquisition prowess, and execution ethos has placed the company squarely in the battle for the enterprise in the next decade, and CIOs must not look at EMC as a storage vendor but rather as a strategic infrastructure player for IT-as-a-service.