VMware’s AirWatch Deal: The Unresolved Strategic Issues

There is a clear short term rationale for VMware’s $1.5 billion purchase of AirWatch but there is also a long term challenge.

We praise this move by VMware, which follows on our recent interview and strategic commentary (12/5/13) on VMware’s mobile cloud strategy and implementation.

The rationale for the addition of a market leading, established MDM/MAM player was indicated in our previous articles. VMware had the choice of the build option – developing these capabilities within its Horizon platform – or buying an integrate-able, established market entrant.

It is clear, from an experienced observer, that a $1.5 billion dollar deal had to have been under strategic and tactical evaluation even while the nascent Horizon platform was in the early product development and release phase. We surmise there had to have been full-scale A and B teams in VMware’s business development process.

The conclusion – choosing AirWatch – is essentially the end of the Horizon dream, with perhaps the exception of some specific areas that will fill in the future AirWatch product extensions.

A summary analysis comparing the Horizon platform to AirWatch reveals the following significant value affecting gaps.

AirWatch Assets:

  • 10,000 customers
  • Over $100 million in 2013 revenues
  • Definitive product licensing or SaaS pricing model
  • Established distribution and Go to Market structure
  • Well-established software suites for IOS/Android/Blackberry/Microsoft, as well as Symbian devices
  • Security layers and containerization structures in effect

Horizon is deficient in its present state against almost all of these attributes. The head of End User Computing at VMware characterized the company’s efforts as “early attempts in mobile” and even “nothing in mobile really.”

VMware views their competitors in the mobile cloud as the “Big Players”: from Citrix to IBM and Oracle. Basically the decision was made that time was not on the side of Horizon.

The challenge for VMware is not the acquisition itself since they have stated that they intend to keep AirWatch as a separate entity with its existing business structure and leadership. The key long-term issues arise from what has not mentioned in the interviews and product announcements to date.

VMware divides its business into three main categories, or buckets: 1) SDDC (software defined data center); 2) Hybrid Cloud; and 3) End User Computing.

We discussed in our earlier analysis the difficulty in connecting, or leveraging, in the end user mobile cloud business, the great asset of virtualization, for which VMware is noted. The End User Computing segment is the focus of VMware’s mobile cloud initiatives

We had thought that VMware’s VDI (virtual desktop infrastructure) product and its planned DaaS (desktop as a service) offering might be the beginning of such a bridge binding the three categories together. (VMware had purchased leading VDI provider DeskTone in October 2013.) However, there has been little mention thus far of VDI in connection with the AirWatch acquisition, other than the fact that it will be included under the leadership of the VP of End User Computing – along with the mobile area. Perhaps more will come later.

There is no doubt that AirWatch is a high growth company that gives VMware a leading position in the EMM (enterprise mobile management) market, which certainly may be reason enough for the deal in the short term.

AirWatch has considerable engineering, product development resources, by our estimate over 600 employees in this area alone, (including their June 2013 purchase of Google’s Motorola Solutions; Mobility Service Platform and its 1500 total employees). The strategy to keep AirWatch as a separate group (within the End User Computing segment) will, however, raise the challenge of finding a strategy which leverages the three strategic business units.

One other area untouched in the discussions thus far is the opportunity afforded VMware with the acquisition of the network management software firm Nicira for $1.26 billion in 2012. Nicira, focused on SDN and network virtualization, could perhaps be that bridge.

This potential bridge gained strong support from COO Carl Eschenbach’s comments on the recent earnings call that the “ NSX (Nicira), platform, will do for networking what vSphere and server virtualization did for compute”. In addition to this strategic affirmation as to the relationship opf NFV and virtualization in the Datae Center was Carl’s statements as to the go to market advantages of the three columnsbuckets in addressing a customer’s total needs.