Storage Makes Strange Bedfellows

EMC Corp. (NYSE: EMC) certainly knows how to keep its enemies close. It bought three software companies over the last six months, and all three maintain partnerships with EMCs fiercest rivals.

VMware is the latest to join the EMC fold (see EMC Gobbles VMware). Like other EMC acquisitions, Documentum Inc. and Legato Systems Inc. (Nasdaq: LGTO) (see EMC Swings Into Software Big Leagues), VMware's success was built largely on how well it sells to EMC's competitors.

IBM Corp. (NYSE: IBM) and Hewlett-Packard Co. (NYSE: HPQ), for instance, are major resellers of VMware’s server virtualization software for Intel-based computers. VMware’s CEO Diane Greene makes it clear she intends to keep those partners. So does EMC CEO Joe Tucci, who maintains that VMware will keep the status quo, even as EMC tries to use VMware’s technology to gain competitive edge against IBM's Tivoli and HP's OpenView software.

A tricky situation? Yes, but one EMC is familiar with. EMC also let Documentum and Legato remain intact after acquiring them. On the conference call to announce the VMware deal yesterday, Tucci brought up Documentum’s partnership with Network Appliance Inc. (Nasdaq: NTAP) and Legato’s relationship with IBM. His message: Our new acquisitions can still go out and play with our competitors.

So what if IBM announced a full-out raid on EMC customers two weeks ago? (See IBM Attacks EMC Customer Base.) That doesn’t make it a bad customer.“So far, EMC’s done a fairly decent job of not pissing off their competition,” says analyst Steve Berg of brokerage Punk Ziegel & Co. “This thing can go south at any time, but so far, so good.”

These types of relationships are unusual, but hardly unique in networked storage. “I think the industry is getting quite used to 'co-opetition,' ” says David Goulden, the EMC executive VP who will oversee the VMware relationship.

The situation still requires some walking on tippy toes. Tucci says EMC contacted IBM and HP before completing the VMware deal, and “we have assured them of our willingness and desire to continue relationships” with VMware. Greene says Tucci assured her of the same before profitable VMware’s board consented to the $635 million sale. She expects IBM and HP to continue to sell VMware software on servers and desktops.

“A lot of how we go to market is with their [IBM and HP] channels, and I don’t see that being interrupted,” says Greene, who will remain as head of the VMware subsidiary once the EMC deal is done.

Things will probably continue as they are, as long as IBM and HP have nowhere else to turn for the software that VMware provides. That leaves them in the same place as EMC competitors that work with Documentum and Legato.On Monday, EMC’s NAS rival NetApp announced a deepening partnership with Documentum just as EMC is getting ready to close the Documentum deal (see EMC to Close Documentum Buy).

“Partnering with EMC’s fierce competitor reinforces Documentum’s position that it will maintain relationships it had pre-EMC,” says Enterprise Storage Group Inc. research analyst Peter Gerr. “It shows the pending acquisition of Documentum by EMC won’t minimize its ability to pick other partners.”

NetApp and Documentum say they will perform joint lab testing to certify and support Documentum’s enterprise content management software on NetApp hardware. Documentum will join the NetApp Developer’s Program, and the companies will develop expanded go-to-market strategies.

Legato lists EMC rivals IBM, HP, NetApp, and Sun Microsystems Inc. (Nasdaq: SUNW) as strategic partners. “That heterogeneous support is one of the keys to keeping us as a division,” Legato CTO George Symons says. “We have very good working relationships with most of them, and I wonder if a few of those relationships will be strained.”

The EMC plan is to keep those relationships strain-free. “They’ve got to strike a good balance between integrating all of these products together and being autonomous,” Berg says. “And to be autonomous, they have to let [VMware, Documentum, and Legato] run like businesses to not interfere with those partnerships.”— Dave Raffo, Senior Editor, Byte and Switch