On April 1, 2014, VCE held its first analyst day in San Diego, CA. It has been five years since VCE started (albeit under a different name and business model); however, despite the day (April Fool’s Day), only a fool today would question the viability and success of VCE.
For those who are still confused by VCE, its charter is to deliver converged infrastructure (i.e. compute, network, virtualization and storage), plus software and services that enable very large companies (e.g. Fortune 500 or Global 2000) to design, architect, deploy, manage and support these systems in an optimally and timely way.
What has made VCE successful?
Neuralytix attributes a number of basic drivers that has enabled VCE to grow rapidly:
- Market leaders as investors (EMC, Cisco, VMware and Intel);
- Market leading components (EMC’s storage infrastructure, Cisco’s compute and networking equipment, and VMware’s hypervisor and management suite, all running on Intel processors);
- A clear need for a transformation in the way IT is procured and deployed;
- Focus on operational (and by extension, cost) efficiency; and
- Customers who are willing and able to challenge the status quo.
VCE sells one thing – Vblocks (and software and services to enable them) A Vblock is essentially a modular, multi-workload converged system optimized for operational efficiency.
Vblocks consists of:
- Cisco servers and networking
- EMC storage;
- VMware virtualization and
- VCE Vision management software.
At least, those are the obvious components. Vblocks also consists of “soft” components including:
- Proven optimizations of certain workloads (such as SAP, databases, and VDI);
- Optimized deployment (that minimizes time-to-value (TTV) between ordering and usability);
- Certified upgrades (that are pre-tested to ensure compatibility between hardware and software components); and
- Single point of support (for all hardware and software components).
These “soft” components represent the highest value from VCE. Frankly, any system integrator can (and do) bundle together hardware components and hypervisors. Many can also sell the licenses for enterprise software.
Where VCE excels, and where it differentiates itself, is that integration is not done at the customer, but rather, at the “factory”. Integration includes loading, testing, and optimizing the required enterprise software pre-delivery. Integration includes documentation and customization of future upgrade and support packages to minimize datacenter disruptions and downtime. Integration means that VCE is solely responsible for helping IT to keep the Vblock optimized..
The combination of these “soft” components are simply not available from most integrators. The certification, and the responsibility assumed by VCE is also not available from most integrators. Only a company with the technological wherewithal, and financial backing of VCE could even begin to attempt to pull of such a level of responsibility.
Despite Neuralytix’s high praise of VCE and Vblock Systems, along with the commendations from its customers, VCE is not without challenges.
Neuralytix has identified a number of challenges facing VCE:
- Lacking a clear defined message of VCE’s go-forward charter;
- Broad brand recognition;
- Confusion over the role of VCE’s investor companies; and
- The ability to scale down to take advantage of new markets.
VCE should consider measuring itself (and its potential competitors) on a number of different matrices:
- Time-To-Operation (TTO) – This would measure the time (in days) from design to deployment.
- Operational Efficiency (OE) – This would measure the time (in hours or days) that it takes to support and maintain the entire datacenter infrastructures, including testing and deploying upgrades and patches.
- Return on Investment (ROI) – This would be the traditional ROI calculation, but with a specific focus on company growth or profit increases against the investment made in deploying standardized datacenter infrastructures.
- Total Cost of Ownership (TCO) – Similar to the above, but comparing TCO of an on-premise deployment versus an in-cloud deployment over the course of 3-5 years.
During the presentations at the analyst day, executives from VCE constantly referred to components “from the investor company”. Neuralytix advises VCE to cease these practices. To properly develop a meaningful market position and recognition, VCE must recognize the contributions of its investors, but then make fewer references to “the investor companies”. It takes away from the separate legal and operational entity that is VCE.
This is, perhaps, the most contentious issue at VCE.
Currently, VCE markets to the largest enterprises in the world, where datacenter transformation can mean significant value and competitive advantage that can only be measured in double-digit percentage point gains in revenue growth. These are also the companies with the most immediate need for what VCE offers.
Neuralytix estimates that the market opportunity in the Global 2000 alone exceed $10B. The question is does VCE solely focus the majority of its efforts in the Global 2000? Or does it scale its systems down to support large mid-market enterprises?
On the surface, the answer may seem obvious – of course! However, VCE requires a high touch selling motion and white-glove pre- and post-sales service. Smaller enterprises may not desire (or require) this level of service or intervention from the VCE. However, Neuralytix believes as we head towards 2020, the market for standardized datacenter infrastructures in the midmarket is likely to be more than twice the size of Global 2000 market.
Neuralytix was impressed by VCE’s first analyst day. VCE gained the confidence of the attendees from a company maturity perspective as well as a well-defined roadmap (under non-disclosure). Most critically, VCE demonstrated a level of sophistication and agility in how they would address future markets and opportunities.
There is no question that VCE acts like a startup. Its ability to be opportunistic and adapt must be admired. Neuralytix believes that the executives that are leading VCE have the experience to turn its opportunism into long term opportunities. VCE is leveraging its very passionate customers to convince prospective customers of the value of VCE and its solutions.
We believe that VCE will continue to grow strongly and exploit its first mover advantage in the standardized datacenter infrastructure market.