Is VMWare Prepared To Let CloudFoundry Spin Away?

It’s been five years since EMC(EMC) spun off a minority stake in VMware(VMW). Today, GigaOm reports that

Image representing VMware as depicted in Crunc...

EMC, which owns around 80% of VMware, plans to spin out cloud assets from each company into a newly independent company.  No word yet on what structure the spinoff will take or how it will be handled, but a surprising amount of detail from GigaOm:

Our sources say we might hear more about these developments on July 23 when VMware announces its second-quarter earnings, although there is a chance that VMware could wait until late August when it hosts its annual VMworld user conference in San Francisco. From what we have learned, this new company would include the following pieces:

  • Cloud Foundry: This is VMware’s platform-as-a-service offering that lets developers easily deploy applications built using a wide variety of programming languages, frameworks and other components. Thus far, Cloud Foundry’s associated open-source project has attracted more attention than VMware’s paid service, serving as the platform for AppFog, Iron Foundry (a .NET implementation) and ActiveState’s Stackato on-premise PaaS software.
  • Greenplum + Chorus: Greenplum is EMC’s big data division, which sells its namesake analytic database as well as two Hadoop distributions and analytics collaboration software called Chorus. Greenplum also sells preconfigured appliance, called the Big Data Appliance, on which to run all its software.
  • Project Rubicon: This is the name of an EMC and VMware joint venture created earlier this year and appears to be the IaaS play. Rubicon has an independent board, but people working for it are paid by VMware or EMC. At its creation, the Rubicon employees consisted of the technical team behind Cloud Foundry, but not the marketing or operational staff. The venture was designed to help give the sense of independence from EMC and VMware for Cloud Foundry customers. Project Rubicon includes IaaS-type technology developed by the Mozy team. Mozy was a storage company acquired by EMC in 2007 and taken over by VMware in 2011.

We’ve heard two possible names to head the new company — both former Microsoft executives. One is Tod Nielsen, who is the co-president of VMware’s applications business and was previously the VP of Microsoft’s platform group. The other name we’ve heard bandied about is Mark Lucovsky, who is the VP of Engineering in charge of Cloud Foundry and was a Microsoft employee who helped build Windows NT.

Why a spin-out makes sense.

While VMware is a public company, EMC owns about 80 percent of its stock. That causes many to question how independent VMware can really afford to be, especially as it builds out services such as Cloud Foundry that might reduce overall sales of EMC gear to customers.

If VMware and EMC do spin out Cloud Foundry, as we hear they plan to do, it may be because they want to help alleviate the perception that EMC and VMware are heavily tied to Cloud Foundry. For many in the developer and enterprise community, the concept of cloud computing is built on the idea of virtualization and commodity hardware. EMC’s expensive storage boxes, which were used in building out Cloud Foundry, are at odds with that vision. Others are concerned that VMware’s ties to Cloud Foundry will mean that users get locked into the VMware ecosystem if they use the service.

Cloud Foundry was launched in April of 2011, and so far has attracted a lot of partners. But as it grows, the focus seems to be on helping developers build apps in Cloud Foundry that will be able to run on a variety of clouds. Thus, having Cloud Foundry under a separate company independent of VMware and EMC makes more sense.

There is a definite hunger in the market for pure plays on cloud computing. We would love to see EMC treat this as a true spin and distribute 100% of the new company to current shareholders. We suspect they are more likely, however, to repeat what they did with VMware and IPO 10% of the new company thereby retaining control through majority ownership.

Disclosure: The author holds no position in any stock listed

2 thoughts on “Is VMWare Prepared To Let CloudFoundry Spin Away?

  1. TheSpinDoctor

    Interesting. VMW/EMC was an extremely popular stub trade populated by numerous large hedge funds. Should be interesting to see what happens here, but many institutional investors are familiar with the name. 

  2. Pingback: Tuesday links: the goal of trading | Abnormal Returns

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