Virtustream will form the basis of EMC's managed cloud services business, and will be sold both direct and through service provider and integrator partners.

EMC has entered into a definitive agreement to acquire privately-held Virtustream, which provides application lifecycle automation and orchestration for I/O-intensive mission-critical enterprise applications through both software and infrastructure-as-a-service. The purchase price is approximately $1.2 billion, and is all cash. It is expected to close in the third quarter of 2015.

Virtustream will operate as a separate EMC Federation business, which will run the managed cloud services business. It will be led by Virtustream CEO Rodney Rogers, who will report to Joe Tucci, EMC Chairman and CEO.

The channel implications are significant, but appear to be limited to service provider and system integrator partners. Rogers indicated that as Virtustream drew closer to their planned IPO, they attracted multiple expressions of interest from potential acquisition partners. He said that in considering their options, one reason they went for EMC was their support for these channels.

“A big part of our decision is that SPs and SIs are an important part of our customer base,” Rogers told a conference call announcing the transaction. He indicated that was where most of their software income comes from.

“We are very careful in consulting not to infringe on our SI ecosystem,” Rogers said.

The EMC executives on the call also stressed the partner opportunities.

“System integrators and service providers will receive access to the platform and will be able to quickly adopt and deliver branded services on top of this platform,” said Joe Tucci.

“We embrace the partner ecosystem in all the cloud efforts we have across the company,” said Howard D. Elias, President and Chief Operating Officer, Global Enterprise Services, at EMC. “We will not just continue [what Virtustream had been doing], we will expand that. We will have joint go-to-market and enablement, not just on technology, but on the field sales and marketing level.” He also said EMC would ensure that EMC’s direct sales force is neutral on delivery.

Tucci said that Virtustream complemented EMC’s existing hybrid cloud portfolio.

“If you don’t have a cloud-first strategy, you don’t have a strategy,” Tucci said. “We needed to fill this piece of the puzzle, and we felt strongly that the best asset out there was Virtustream. Enterprise customers are showing a preference for the hybrid model, and are increasingly demanding managed cloud offering for both on-prem and off-prem. The addition of Virtustream with its leading managed cloud services completes the picture.”

VirtuStream, like EMC, is a strong SAP partner, and SAP HANA is a core application that benefits from the services VirtuStream provides.

“This will elevate our alliance with SAP as we deliver SAP HANA,” Tucci said.

Rogers outlined VirtuStream’s value proposition, which has been highly targeted at the Fortune 500 to date, and specifically their enterprise mission critical enterprise apps like SAP HANA.

“We have built some very unique IP, with our xStream cloud management software platform,” Rogers said. “It really runs as an abstraction layer above the virtual machine management layer. It defuses the definitional boundaries of virtual machines, and breaks the cloud down to its molecular components. This lets us eliminate resource contention and controls and guarantees throughput. We can control application response times, and that’s very unique.”

Over 90 per cent of VirtuStream’s IaaS runs on VMware, with which it is tightly integrated.

“We also interface with a number of OpenStack distros, but the integration with VMware is much more robust,” Rogers said.

VirtuStream sells both cloud infrastructure-as-a-service and cloud software, with their income being approximately 60 per cent IaaS and 40 per cent cloud software. They run their own IaaS platform, and license it to service providers to run their own branded IaaS. The software is sold to the enterprise, typically through integrator partners. Rogers indicated that software was the fastest growing of the two businesses, but also cautioned that it was also the younger of the two, so that was not unexpected.

“For us, it’s all about the application performance on the infrastructure,” he said. “Our motivation was to get to the point where we can control and guarantee IO for mission-critical apps. We can provide a guarantee in response time and latency.” He also indicated that they can bill customers for just the specific resources they consume, and don’t have to upsize, so that the result is both performance- assured and cost-optimal.

“We have built a digitized library of automation templates,” Rogers added. “We also automate functions in conjunction with system components the applications reside on. This automates patch maintenance, and linear and non-linear upgrades. It means management with less labor.”

Finally, Rogers said that with VirtuStream’s comprehensive defense-in-depth security model and governance, customers can run the most secure environment in this business, because of the rigorous security and automated compliance features in their stack. Gartner gave Virtustream the highest ranking in the area of security and compliance in Gartner’s “Critical Capabilities for Public Cloud Infrastructure as a Service” report.

Rogers said the acquisition makes as much sense for them as it does for EMC.

“As a young business, we have commercialized the business quite well and have punched above our weight and our reach,” he said. “What this deal does is let us expand both the depth and breadth of our technology.”