The proliferation of cloud services is making it increasingly difficult for organizations to capitalize on the cloud promise of more flexible and less-costly computing resources than those found in traditional on-premises corporate data centers. EMC’s $1.2 billion acquisition of Virtustream aims to rectify this issue by offering a new set of sophisticated managed cloud services to its enterprise customers.
Industry estimates vary, but Statista Inc. believes the global cloud/datacenter-delivered managed network services market doubled in size from almost $1.4 billion in 2009 to $2.6 billion in 2015. And 451 Research recently released a report that predicted managed services offered by Cloud Service Providers (CSPs) will grow from $17 billion in 2014 to $43 billion in 2018, representing a compound annual growth rate (CAGR) of 25.6 percent.
The varying market-size estimates and forecasts are the result of research firms defining the addressable market opportunity differently. But the scale of the managed service market can’t be denied and the rapid growth of managed cloud services is clear.
The key drivers of this growth are also becoming more readily apparent. A joint THINKstrategies and iNetU survey in 2014 found that 70 percent of respondents needed to make changes to their cloud design during the migration process, and over half (52 percent) of those had to do so within the first six months. Even more importantly, 43 percent of the survey respondents reported their cloud implementations failed or stalled, and 49 percent required an increase in budget within six months.
Our joint survey found that there is a shortage of skilled staff within organizations with sufficient experience to successfully select, implement and manage cloud services. Even those enterprises that possess the necessary skills and experience would prefer to utilize a MSP to help them administer their cloud resources to ensure they optimize their performance so they can obtain a better return on their investment (ROI).
Smart CSPs and other technology companies also recognize that providing managed cloud services can give them greater insights into their corporate customers’ needs and an inside track into new business opportunities. And, if they do things right, they can also expect greater customer loyalty in an increasingly competitive market.
While all these ideas seem obvious, only a handful of major players offer managed cloud services. EMC’s willingness to pay approximately 10x Virtustream’s revenues in cash to acquire its highly specialized services, as well as the software that powers the services, is an indication of the perceived value of these offerings. Virtustream can not only monitor complex cloud services but also can identify service level compliance issues and prescribe actions to improve performance.
And the decision to build a new business unit around Virtustream’s capabilities also speaks to how strategic EMC believes managed cloud services will be in pulling together many of the pieces of EMC’s corporate portfolio, including VMware.
You can also see the significance EMC is giving this acquisition by looking at the number of senior executives quoted in its announcement. The major partners/customers also quoted illustrates the impressive track record of success Virtustream has achieved without much fanfare from the press or industry analysts.
This acquisition also shows how EMC’s CEO, Joe Tucci, is willing to make “big bets” to continuously evolve his company’s capabilities to keep pace with its customers’ changing needs. Over the past decade, Tucci has transformed EMC from a systems to a software company. Now he’s following IBM’s lead and turning EMC into a software and services company.
Anyone who has followed Tucci’s career shouldn’t be surprised by this move. I first met him over 25 years ago when he was responsible for Unisys’ services business and then watched him pull Wang Laboratories out of bankruptcy by moving it beyond midrange systems into networked technology services and solutions.
As the old adage says, “the more things change, the more they remain the same.”
EMC seeks to strengthen its position in an increasingly competitive marketplace by adding more value via services, and Virtustream will be a pivotal piece of its cloud services strategy.
Jeffrey Kaplan is the managing director of THINKstrategies, founder of the Cloud Computing Showplace and host of the Connected Cloud Summit executive forum series. He can be reached at email@example.com.