VMware Shakeup Could Mean Closer EMC Ties

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Yesterday’s ouster of VMware (NYSE: VMW) CEO and co-founder Diane Greene could mean the beginning of a closer relationship with parent company EMC (NYSE: EMC), according to observers.

Paul Maritz, a former Microsoft executive who came to EMC earlier this year in the acquisition of cloud computing start-up Pi, will take over for Greene, whose attachment to the company she founded with her husband, VMware chief scientist Mendel Rosenblum, led to frequent conflict with EMC.

“Diane has very strongly maintained VMware’s almost complete independence from EMC, which is totally unique in EMC acquisitions,” said Illuminata analyst Gordon Haff. “I strongly suspect that a factor here was the degree of independence that VMware could enjoy.”

Greene’s insistence on VMware’s independence meant EMC salespeople couldn’t sell VMware bundled with their storage solutions, which was one of the reasons EMC had bought VMware in the first place. As competitors such as Microsoft ramp up their own Virtualizationofferings, industry observers expect to see more bundling of VMware with EMC’s products.

Despite her independence, Greene was also known as a consensus-builder, creating a collaborative ecosystem that embraced partners that included EMC competitors such as Dell (NASDAQ: DELL), IBM (NYSE: IBM) and Hewlett-Packard Co. (NYSE: HPQ). This often left EMC frustrated, analysts noted.

“Throughout the past eight years, Diane has always been very cooperative with a lot of the different vendors out there,” said Mitch Northcutt, a senior vice president at IT infrastructure consultancy GlassHouse Technologies.

“That was very wise of her because her product was going to have an effect on the hardware and software sales of the Dells, HPs and IBMs, and without their support she could have run into a tremendous amount of resistance and negative publicity about virtualization.”

At the same time, “there was friction early on with EMC because IBM and HP were EMC’s biggest competitors and were also VMware’s biggest partners,” Northcutt said.

Greene’s cooperative approach led to VMware’s rapid growth — it has consistently grown more than 50 percent annually, and first-quarter results reported in April showed 69 percent growth.

That stellar growth made VMware a Wall Street darling in its stock market debut last year, but when the faltering economy — the company said yesterday that sales this year will be “modestly below” its 50 percent target — caught up with the company, Greene became vulnerable.

“Normally you cut companies some slack in bad economic times, but VMware was seen as being recession-proof so they didn’t get any slack,” said Nicola Sanna, CEO at VMware partner Netuitive.

That wasn’t the only problem Greene had, Sanna said. Competitors were flocking in and, at the same time, VMware didn’t have adequate virtualization and storage management technologies in place.

“While Diane has done a fantastic job in building the ecosystem, some were asking if she was too tentative in adopting management technologies within the product portfolio,” Sanna said. “They were asking when VMware will get into selling and offering management technology, which is very important and necessary in larger deployments of virtualization.”

It wasn’t that Greene and her managers were unaware of the problem. The problem was that VMware was caught between a rock and a hard place. It didn’t want to change its model, which is very efficient, and it also didn’t want to compete with big players such as CA (NASDAQ: CA) and IBM, which already have virtualization and storage management technologies.

The Future

Satoshi Nakajima, who worked for Maritz at Microsoft as lead software architect for Windows 95, said he was surprised to hear about the appointment. But he noted that Maritz’s knowledge of the enterprise software market makes him a good fit for VMware.

“Paul Maritz was the reason Microsoft shifted more of their business to the enterprise side,” said Nakajima. “He saw there was a lot more opportunity to make money from enterprises than consumers as far as the revenue per machine Microsoft could make.”

There has been speculation that EMC may look to sell its majority stake in VMware. And with Greene gone, VMware may lose some key staff.

“I think it’ll be interesting to see what happens over the next quarter at VMware, because there’s a lot of loyalty in the organization between her and her staff,” said Northcutt.

The question of whether the shake-up will see changes in the VMware ecosystem weighs on observers’ minds. “I am sure they will continue supporting the partners because they need to play nice with the rest of the ecosystem,” said Sanna.

One thing that is well known about the South African-born Maritz is his competitive nature. He may be most remembered for reportedly saying that Microsoft would “cut off Netscape’s air supply” back when Netscape had the leading Internet browser. During the Department of Justice’s antitrust case against Microsoft, Maritz denied ever making the comment.

One thing is certain: VMware’s and EMC’s quarterly earnings reports and conference calls on July 22-23 will likely be lively, when Maritz and EMC CEO Joe Tucci will face questions from analysts about VMware’s future.

VMware shares plunged 24% Tuesday on the news of Greene’s departure and sales warning, while EMC shares fell 12%.

David Needle contributed to this story.

Article courtesy of InternetNews.com

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