VCE is a venture a little over 2 years old (originally named Acadia) between EMC, Cisco and VMware with Intel as an investor. Several vendors are working together producing converged infrastructure products, but VCE was created as a separate company to operate as an aggregator for the three vendors. Converged infrastructure typically encompasses servers, storage and network and often virtualisation. The VCE solution is called Vblock.
In the 2011 Q4 earnings call, EMC announced that based on the Q4 number, VCE has an annualised run rate of $800M revenues. That should make the other vendors prick up their ears for a number of reasons:
1. First of all because the VCE model appears to work well. Several competing vendor representatives, we have spoken to, either misunderstand what VCE is about or misjudge what VCE is achieving.
2. The vendor partnership models have evolved into more complicated versions often being based on so-called co-opetition. This phenomenon of collaborating competitors is justified as long as the result is net positive and market share grows. The VCE model in contrast, has found synergies that are low on potential friction.
3. As more customers acquire converged products, it is important to explore how to promote or compete with converged infrastructure products from multiple vendors.
One of the reasons we chose one of our six themes to research go-to-market, is because we believe that go-to-market models will be disrupted by the evolution of aggregators. We expect that the most seismic disruption will come from entities separate from the vendors, yet VCE is an aggregator with potential to disrupt the vendor to vendor models.
The VCE attributes worth noting are:
1. it is doing three tasks: engineering, sales and support.
2. its engineering team has the clout to define the VCE products even though they source components from their individual partners.
3. it has its own sales force to ensure that sales reps have solid targets. However leads and customers can be managed jointly by all four organisations.
4. it can operate with higher levels of confidence in supporting customers being able to escalate should an issue rest across its partners.
The actual VCE business is accounted through the three operating partners which created some market confusion. It enables VCE to conceal numbers for revenue, profits etc. But EMC decided that it made sense for 2011 Q4 to unveil the $800M revenue. Even if this is an annualised projection and it only represents 1% of the contributing vendors’ total revenues it still represents an impressive growth. A fair comment is of course that these were not brand new accounts, but generously helped by the three partners.
So much more reason, why competitors pay attention to VCE. An example of which is NetApp’s FlexPod which combines NetApp FAS with Cisco UCS servers and Cisco Nexus switches. This model also has merit, but in the case of the three VCE partners setting up a separate business looks like a smart decision.
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