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Why VMware spent $1.5B on AirWatch

Brandon Butler | Jan. 23, 2014
VMware's purchase of AirWatch shows just how important the mobile device management market is for not only end users, but big technology companies too. The move - which at $1.5 billion is the largest acquisition in company history – also sets VMware on a path to further diversity from its core virtualization and cloud computing markets and almost instantly become a major player in the mobile market.

The acquisition is a significant one for VMware, and not just because of its record size for the company, but also because of the direction it points the company in moving forward. VMware has been through somewhat of a turbulent period during the past year and a half, but today's move has made it clear that it plans to play in the end user computing  (EUC) and mobile industries in a significant way. VMware went through a management shakeup which brought in a new CEO and CTO. Pat Gelsinger - the former EMC COO and Intel CTO - now heads up VMware and told Network World that the company would have a three-pronged strategy: 1) Virtualization, of all IT stacks, from compute, network and storage; 2) A range of private, public and hybrid cloud offerings; 3) end user computing, including mobile device management.

VMware hasn't been afraid to make acquisitions to fill out that strategy. In 2012 the company made a splash by dropping $1.2 billion to buy Nicira, the network virtualization company, which almost instantly turned VMware into one of the top companies in the emerging software defined networking markets, and caused some awkward strain in the long-standing EMC/VMware and Cisco relationship. On the cloud computing front, the company last year launched its vCloud Hybrid Service (vCHS), which is the public cloud component that it offers as an alternative to Amazon Web Services in the market.

The launch into the SDN and public cloud markets comes as the company faces increased pressure from Microsoft on its core compute virtualization market. All this helps explain the company's willingness to spend up to $1.5 billion on AirWatch.

The end user computing division has been somewhat lackluster recently, notes independent mobile market watcher Brian Katz. "Despite all that VMware has proclaimed for the last three years, they really haven't been doing mobile," he writes in an analysis note about the acquisition.

But, VMware has been building up its EUC division: In the middle of last year VMware poached longtime SAP mobile executive Sanjay Poonen to head up its end user computing division, and already in 2014 it has added two mobile executives from Citrix. Now, this acquisition will give all those new employees some new toys to play with. As part of the acquisition, VMware is also buying up some of the top talent in the mobile device market, including AirWatch CEO John Marshall and chairman Alan Dabbiere. In what is likely an effort to keep them on board, VMware paid $1.1 billion for AirWatch now with $365 million in incentive payments down the line.

Perhaps VMware has even loftier goals for AirWatch-type technology. Constellation Research's Ray Wang points out in a note that mobile device management solves a problem that many enterprises are looking at nowadays, and sets VMware up to play in the Internet of Things (IOT) market if it wishes. "While acquisitions today address critical consumerization of technology (CoIT) and bring your own device (BYOD) needs, the core concepts behind enterprise mobile management have many key components required to build sensor analytic ecosystems," he writes in a note. With Google recently making a big, $2.3 billion splash in that market when it acquired Nest, VMware may be looking to not only solidify its standing in existing market, but perhaps enter new ones as well.

 

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