Dell + (EMC + VMware) = ?

Wall Street has had a massive few days covering the Dell/EMC news. From a financial standpoint, any company that pays $67 billion to acquire another company is certainly major news, but from a technical standpoint, what exactly does this mean for the virtualization industry?

In late September, the rumor mill was ripe with news that Dell was planning to buy Citrix. It is now blatantly clear that Dell has focused its attention elsewhere, and that the Reuters report had no solid basis. Many, including this writer, questioned the wisdom of that potential acquisition, as well as whether a new string of major acquisitions would be forthcoming within the virtualization industry.

As is standard within the technology industry, the market leaders acquire many small- and medium-sized companies as part of the growth plan. But what if…?

What if the Dell/EMC deal goes sour and someone else steps in to purchase EMC? Someone like Cisco or IBM or even Hewlett-Packard? The first reaction by many upon hearing the news was likely disbelief that Dell was purchasing EMC, because Cisco and IBM seem to be more likely suitors.

But assuming that the deal proceeds as announced, what will be the response of the other key hardware vendors? Cisco, in particular, has not been in the limelight recently with regard to large acquisitions, so one has to wonder whether this means that this will remain status quo or whether a major acquisition is quietly brewing. The latter seems the more plausible situation. At this juncture, Cisco is a staple of many organizations, and acquiring a storage leader or a virtualization giant seems like a natural way to extend its technical and business reach. If Cisco were considering an acquisition in answer to the virtualization space, Citrix may be a top contender. Hewlett-Packard is going through a largely amiable but difficult breakup, so an acquisition couldn’t even be considered right now.

Dell owns Compellent: what does this mean for the existing storage arm of Dell? That acquisition was completed in 2011, so it has been a mere four years. Of course, four years in the technology sector is forever, but two large storage-related acquisitions within four years certainly show that Dell plans to take on market leadership in storage.

Does the sale of EMC indicate that storage is maturing to the point at which extreme consolidation occurs? Clearly, the cost of storage has decreased dramatically every year. Ten years ago, and even five years ago, yes, storage had been a barrier to entry for many organizations looking to implement desktop and application virtualization solutions; however, the decreased cost has since removed that financial hurdle. While storage cost is certainly still a factor in planning and budgeting a virtualization solution, it is no longer the most expensive aspect.

And what does this mean for VMware? VMware has defied the odds in many ways over the years. When Diane Greene’s company started gaining popularity in the 2000s, it was widely thought to be a one-hit wonder that would fade away as quickly as it appeared. But VMware has shown itself to be a formidable innovator and industry leader that wouldn’t settle for success with one product. As VMware grew and expanded over the years, its acquisition by EMC may have initially helped fuel its growth, but then it may have served to curtail it due to corporate overhead.

VMware’s CEO, Pat Gelsinger, refers to his company as the “crown jewel” of the deal. It’s undeniable that VMware is largely a stable, well-run organization at this point. Nonetheless, the acquisition of EMC will cause at least a minimum disruption to VMware, as it’s impossible to stay totally focused when products and people are in a huge swirl. Further, the new alignment with Dell as it relates to hardware will serve to alienate some customers while attracting others.

Although there will be some rocky times during the separation, VMware stands to be an even greater benefactor than EMC from this transaction if it is able to continue in stealth mode. Dell, on the other hand, will probably take at least two years to fully absorb the acquisition, EMC products, and people.

Exactly how the acquisition of EMC will play out for Dell remains to be written in the technical and business journals. However, we know with absolute certainty that Dell is not going to acquire Citrix. Nevertheless, is this the start of acquisition fever in the tech industry?