BMC and VCE Partnership Shows Consortium Is Gaining Power

Is there strength in numbers? The deal VCE recently struck with BMC suggests that a consortium of companies layering in best-in-class technology might be a more effective approach to win large-scale government and enterprise customers in the private cloud space, writes CIO.com's Rob Enderle.

VCE (Virtual Computing Environment) is a showcase for a new kind of company, one that is made up of a series of partners yet has its own identity and CEO in order to drive an independent agenda.

This week, BMC became the latest addition to the solution set, and while the relationship is similar to a typical partnership between traditional companies, it further validates the VCE model, which could become a template for other vendors courting enterprise and government clients in the rapidly expanding private cloud segment.

Let's explore VCE as a successful template for pursuing large enterprise and government customers.

The Very Large Enterprise/Government Problem

For most companies, at the core of building a unit that services very large customers is both the unique nature of every deal and the inability to manage pricing and contracts at this scale. We've certainly seen Google struggle in Los Angeles with one of its first attempts. Even IBM has distanced itself from government business in the past due to its cost, complexity and high degree of exposure.

Large government is especially challenging because it comes with a massive amount of unique requirements concerning domestic content, labor practices and favorable pricing strictures. This last point can be among the most problematic because each deal tends to be unique, making it nearly impossible to reach agreement on a comparable price. This can subject the deal to different interpretations, potentially leading to huge fines, depending on the outcome.

In addition, the deployments themselves tend to be incredibly resource-intensive. As a result, critical resources are at times pulled from other teams or parts of the business. Further, the company-wide demand that can put the projects in flux can jeopardize timely completion, an unhappy prospect given the substantial penalties firms can accrue when they fail to meet critical milestones.

And finally, because of the uniquely large scale of the client, solutions generally can't be contained within one company's product set, forcing unique one-off partnerships where the project leadership is learning aspects of the solution during deployment.

How VCE Began

VCE was born as a partnership among three enterprise-class vendors to go after very large enterprise and government accounts: Cisco, EMC and VMware. Michael Capellas, a practiced CEO of large-scale enterprise (Compaq, WorldCom) and seasoned hand at mergers (HP, Verizon), was called on to lead the effort. Intel joined the team later as a major funding partner and the core processor technology under the endeavor.

It is an interesting side note that in the contentious HP/Compaq merger it was Capellas who swung the major investors behind the deal and it was likely Carly Fiorina's fear that he would eventually displace her (as he had Benjamin Rosen at Compaq, due to his stronger operations skills) at HP that eventually forced him out and into WorldCom. HP was then forced to replace Fiorina with Mark Hurd, who had a skill set similar to Capellas, suggesting that ushering out Capellas only delayed Fiorina's departure, and HP then had to deal with the unique problems associated with Hurd's reign. Had Capellas stayed, much of HP's recent pain could well have been avoided.

With this structure, VCE could be crafted to deal exclusively with a unique and very large class of accounts, and do so effectively with targeted deals that required a broader solution than any of the three partners could provide on its own. It also effectively shielded the partner companies from the unique language in these large-scale contracts because, while the deals were high stakes, there were few of them, which made the distinct challenges each posed comparatively simpler to manage.

In the consortium model, it is far easier to provide the assurance that provisions such as a "most favored nations" clause are in compliance if you can manage each related deal in depth, rather than a single company having to worry about what the teams focused on specific solutions might be doing that could cause a contract breach.

Is BMC and VCE Greater Than the Sum

However, the real test of an entity like this isn't the capability simply to use the initial founders' technology, but its capacity to look outside of that solution set and include a third party's offerings to better complete the deployment. In this latest instance, it was BMC's large-scale systems management suite that was more appropriate for some deals than any of the home-grown offerings, which weren't designed to scale to such large solutions.

That VCE can supplement the tools initially provided by Cisco, EMC and VMware with class-leading technology from BMC illustrates that this consortium can behave like a more traditional company by supplementing its core technology with third-party offerings as needed. In the end, VCE provides a visible example that a consortium approach to the problem of massive private cloud offerings can be expanded when needed, while suffering from no more limitations than any other large-scale company operating under a more traditional structure.

VCE and BMC already count Harris Corp, Telstra and QTS as mutual customers.

Wrapping Up: Validation of the VCE New Company Type

Overall, VCE's new partnership with BMC seems to confirm that the consortium model has legs, and that it may serve as a template for additional ventures among other vendors wanting to chase large enterprise and government deals while avoiding much of the associated exposure. It could well be that future companies in this class will look less like the more traditional umbrella corporations like IBM and HP, and more like VCE.

Only time will tell, but the BMC deal validated the VCE model and strongly suggests that it will be a model on which future endeavors will be patterned.

Rob is president and principal analyst of the Enderle Group. Previously, he was the Senior Research Fellow for Forrester Research and the Giga Information Group. Prior to that he worked for IBM and held positions in Internal Audit, Competitive Analysis, Marketing, Finance, and Security. Currently, Rob writes on emerging technology, security, and Linux for a wide variety of publications and appears on national news TV shows that include CNBC, FOX, Bloomberg and NPR.

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