EMC and Cisco untangle VCE joint venture

Cisco is reducing its stake in VCE, leaving it mostly in the hands of EMC

Today marks the beginning of the end of VCE, the joint venture launched by Cisco and EMC in 2009 to facilitate the new era of virtualised data centers. EMC announced it will assume a greater financial stake in the company, essentially taking Cisco out of the partnership.

Cisco currently holds a 35 per cent stake in VCE, but the accord announced today will essentially reduce the networking vendor's share of the $1.8bn (£1.12bn) business to a minority status. This will give EMC, whose stake in VCE is 58 per cent, unfettered control. The remaining equity is held by VMware, EMC's subsidiary, and Intel.

VCE was founded to facilitate the build-out of virtualised data centers through Vblock, a reference architecture centered on Cisco servers and networking gear, EMC storage equipment, and VMware virtualisation software. At the time, Cisco was entering the server business to compete against IBM, Hewlett-Packard, and Dell. Virtualised datacentres were considered so complex that only a joint venture such as VCE could accelerate market adoption and deployments.

But the theory of VCE never really panned out in practice. While VCE did succeed in seeding the market with virtualised datacentres, it also became a source of tension between Cisco and EMC. While the joint venture could have been a meeting point for greater collaboration among its members, Cisco and EMC grew further apart and became rivals.

Ultimately, the idea of Vblock was never revolutionary. Reference architectures and products certified for interoperability have long been part of the IT landscape. While Vblock expedited sales and deployments of virtualised datacentres, critics charged it was too rigid in its design, forcing end users into forklift upgrades and narrow purchasing options.

In the channel, VCE is symbolic of conflict. When Cisco unveiled its Unified Computing System, it froze out most of its channel partners at first, saying the platform was too complex. Instead, it sold UCS direct and created VCE as a channel. Over time, though, Cisco brought more partners into the UCS fold, but VCE remained a competitor of solution providers and integrators.

In the past five years, VCE has grown from an idea to a sizable vendor, and it continues to grow at healthy double-digit rates. But Cisco and EMC haven't been happy partners, and the competition among all three VCE players has continued to increase.

In 2011, VMware bought Nicira, a start-up specialising in software-defined networking, which effectively put it in competition with Cisco. Cisco and EMC have regularly encroached on each other's turf, with EMC dabbling in servers through a joint venture with Lenovo and Cisco entering the storage business with its purchase of Whiptail in 2013.

And while Cisco and EMC were developing VCE, they were also creating competition for their creation. Cisco worked with NetApp to create FlexPod, an alternative Vblock architecture that substituted EMC's storage products. And VMware created VSPEX, a reference architecture that provided buyers with greater options than Vblock by providing more supplier choices.

Over the past year, EMC has been under pressure by activist investor Elliott Management to sell off its 80 per cent stake in VMware or merge with another vendor. EMC explored the idea of merging with HP, or at least selling it VMware, but those talks officially dissolved last month because the two companies couldn't agree on a strike price. Cisco was mentioned as another merger target for EMC, but CEO John Chambers publicly said there was no interest in such a deal.

The health of the VCE joint-venture has been long questioned by analysts, partners, and customers. The effective withdrawal of Cisco confirms suspicions and will bring this grand experiment to a close.