Where Does VCE Go From Here?

And while we're at it, where does the whole category of converged and hyperconverged vendors go from here?

Right now, this is the #1 question I get from colleagues, IT pros and industry-watchers.

Make no mistake: I was a passionate advocate of VCE -- at the time.  Many of my colleagues have worked for VCE, or -- in some cases -- still work for VCE.  By the way, a big shout-out to my colleague Nina Hargus, just promoted from being VCE's CMO to EMC's.  

I tend to want to wish people the best, but unfortunately the future looks quite dark through my lens.

The products may not have yet changed, but the context certainly has.

The Big Idea

VCE was born Nov 3 2009 (yes, six years ago) as a response to a problem we all saw in the industry -- customers were getting killed trying to self-assemble infrastructure.  To this day, many still are.

Folks would take storage from one vendor, compute from a second, fabric from a third and a hypervisor from a fourth-- and that's when the fun started.

Some assembly required.

Infrastructure projects became lengthy and complex, with uncertain schedules and outcomes. Worse, keeping everything patched, upgraded and operational was a huge drag on IT operations, not mention all sorts of support calls.

There had to be a better answer.

The idea was simple, yet radical at the time. Create a "virtual infrastructure product" (later dubbed converged infrastructure) that masked the end user from the inherent complexity of multi-vendor infrastructure. Effort spent on the plumbing could now be invested in other, more productive areas.  

It might seem rather obvious now, but -- at the time -- it took some serious evangelizing.  However, to this day there are still many IT shops who haven't gotten the memo that build-it-yourself is often a poor way to do infrastructure.

Competitors reacted quickly but never really caught up in any meaningful way. And a host of startups tried to one-up the idea by eliminating the need for external storage, dubbed hyperconverged.

The good news?

Generally speaking, Vblocks delivered on expectations. Once IT teams realized they were making themselves miserable trying to be system integrators, their world became better.

But thee's always more to the story, right?

Structural Problems Underneath

The goal of VCE was to hide complexity from IT users, but VCE had no shortage of structural complexity to deal with.

First, the VCE product itself is after-the-fact integrated using standalone technology designed and engineered independently by three entirely separate entities: VMware, EMC and Cisco.

Each company has its own technology agenda. Each company has its own customer agenda. Each company has its own sales agenda. Each company is trying to maximize their portion of the deal.

Trust me, it was an uphill battle at the time, and probably still is. Despite press releases to the opposite, there were never any group hugs, and we never sang Kumbaya together.

The expected divisive forces between the companies were held together largely through the efforts of John Chambers and Joe Tucci. John has since retired, and EMC is now being sold to Dell. Other than a shared desire to take care of existing customers, I don't see a lot of appetite to continue strategic investments in the original VCE construct.

To better serve its customers, VCE proliferated their portfolio like crazy. The singular notion of a Vblock has now morphed into a dizzying array of variations: Coke, Diet Coke, Coke Zero, Cherry Coke, Diet Cherry Coke, Diet Cherry Coke Zero and so on. What was once a simple discussion now had become complex once again.

The other structural problem I saw was the underlying business model: VCE is essentially an additional integration/sales/support function. Customers were paying for integration that arguably should have been there in the first place.  Also, that means almost no money for things like innovation, R&D, etc. -- most of that had to come from the parent companies.

What Happens Now

Dell will eventually acquire EMC, and for all intents and purposes, VCE is now just another product group at EMC that gets to carry different business cards. While Cisco-based versions of their products will continue to exist for some time, that's not where the focus is going to be. Witness VxBlocks.

Using Dell technology will obviously be the new focus. Strategically speaking, there's little incentive for Dell/EMC to invest in Cisco integration, and vice-versa. And the two CEOs who made it all happen won't be involved going forward.

The other challenge will be to continue funding VCE's comparatively expensive business model. The elephant on the balance sheet is ~$50B in debt that has to be paid off sooner than later. If the folks at EMC and VCE aren't expecting a massive haircut, perhaps they should. VCE will be in a tough spot to keep up their high-touch model, invest in value-added differentiation, while they attempt to continue proliferating newer Dell-based models of Vblocks.

At some point, something will have to give, won't it?

Sorry, But There's More

All the horizontal infrastructure business models are getting compressed. It really doesn't matter whether we're talking about servers, storage, networks or hypervisors.

The twin culprits are commoditization and cloud. Margin compression means less money to spend on R&D, creating unique value-add, and delivering top-shelf customer experiences.

Integrating horizontal technologies into an appliance did create new value for a while, but now it looks like just another, bigger lump of commodity. It's like a movie sequel: we know what's going to happen.

Real and sustained differentiation takes money -- great gobs of it -- and that's not going to be part of the equation for the foreseeable future.

The best answer to escaping the infrastructure commoditization trap is to move up the stack: applications and databases. People spend real money on that stuff :) But there's almost none of that in the combined Dell/EMC portfolio.

The best answer to escaping the cloud trap is to have one, obviously. Dell/EMC certainly has sincere plans, but it's going to take a while, not to mention great gobs of, errr, money.

And unless that future cloud has very rich PaaS and SaaS capabilities that enterprise customers want to use, any future IaaS cloud will tend to be commoditized as well -- thanks to Amazon, Google and Azure.

Strategically, VCE is stuck in a nasty vise.  And there's no way out that I can see.

Playing The Game

As any card player knows, the value of the cards in your hand depends greatly on what game is being played. If the game changes quickly, what once looked like a winning hand can end up being a struggle. That's how I would describe what's happening here.

So what should VCE customers expect?

To be clear, nothing is going away anytime soon. The VCE construct will certainly continue to exist in some form or other to take care of existing customers, provide upgrades to existing products, etc. Neither Dell nor EMC nore Cisco will ever want to walk away from enterprise customers.

But I think that the days of VCE as a growth story are over. When a part of the business stops growing, investments are capped, and it's turned into a cash cow on the consultant's chart.

That's how the game is played.

By The Way

I think Oracle has figured out a strategically brilliant way to escape the twin traps of commoditization and cloud.

Let's not forget, Oracle has a compelling array of applications and database technology to integrate with infrastructure IP it designs and builds itself. If an IT shop is heavily invested in the Oracle Database and the applications that run on top of it, it's not even a fair comparison. That's what you can do when you own the whole stack: infrastructure, database, middleware and applications.

And have great gobs of money.

Oracle has escaped the cloud trap by actually having one: the Oracle Cloud -- a comprehensive array of IaaS, PaaS and SaaS services clearly targeted at enterprise IT that can be consumed either on-premises or via Oracle's Cloud -- or any combination.

If the game has changed, Oracle is holding some extraordinary cards, and certainly knows how to play them.

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Comments

[Rui Sousa]

VIP. Very Independent Opinion....

Of course Oracle has the best option and the best salary too.

:-)

[Chuck Hollis]

It'ts funny -- when people don't like what I say, they tend to come after me personally.

If you think what I say is wrong, please say so -- but I can live without the snark.

-- Chuck