March 04, 2013, 7:12 AM — There's been a lot of speculation on what the future holds for VCE, the converged data center infrastructure coalition formed by Cisco, EMC and VMware, in light of recent maneuvers by those companies to become more competitive and less reliant on each other in the marketplace, and with the advent of software-defined networking. VCE itself, though, is leading the nascent market for integrated infrastructure, according to Gartner, and is on a billion-dollar run rate - but also losing almost that much for founders EMC and Cisco. VCE CEO Praveen Akkiraju and CTO Trey Layton navigate the churning waters of the converged data infrastructure market with Network World Managing Editor Jim Duffy
Gartner says VCE has 57% of the $388 million converged data center infrastructure market in Q2 of 2012. What's your value proposition?
Akkiraju: There are three key aspects unique to VCE: the simplification of the data center infrastructure by breaking down the silos between storage, compute and networking; fundamentally pre-engineering and pre-testing the system before they hit the customer floor. When the system hits the data center floor it looks exactly as the customer wants it to be. We do that in an industry best 30 to 45 days. And it's operational in 48 hours. That is the unique value proposition VCE provides compared to (integrated workload and integrated reference architecture alternatives). There's also a significant reduction in total cost of operations of data center infrastructure. We publish compatibility matrix of pre-tested, certified- to-work products. And this has been proven out over 500 customers and 1,100 units deployed. Another value is application acceleration. Based on best-of-breed components, we are able to deliver up to 30% better performance on applications customers deploy.
VCE experienced 53% growth in Q2 2012 and is on a $1 billion run rate... What's your growth trajectory?
Akkiraju: We can't discuss Q3 and Q4 results since we are a private company. The industry is growing between 30% and 50% according to various analyst reports. But I can't say whether we are growing within that rate or better than the industry rate.
How do you alleviate concerns about vendor lock-in or inflexibility in choosing different vendors or different implementations?
Akkiraju: We are in the cloud revolution. You accept a level of standardization for speed and cost savings. VCE exemplifies a cloud company. We will deliver to you a standardized converged infrastructure to dramatically accelerate your ability to service your customers, or your internal business requirements and lower your TCO. Cisco, EMC and VMware are absolutely best-of-breed in each of their categories. The foundation of Vblock is truly leadership. By accepting a level of standardization on best-of-breed components, they are able to then free up their resources and dramatically enable a new set of capabilities within their IT organizations. We don't mandate application workloads or management and orchestration systems, unlike some other offerings in the marketplace. So we consider ourselves quite open.
Layton: Lock-in is more of a perception than reality. We interface into non-investor company environments. We do not require connectivity into investor company products or environments. We support bare metal OSs and other hypervisors. But our support for investor company technology is better than anyone else can provide. We can guarantee a performance experience for the VMware environment but assure the customers that the Vblock is functioning properly when running another hypervisor or OS that's not our responsibility with the investor companies to support. That's been a model of Vblock systems since Day One and is something that is misunderstood. We have 300 million configuration options with new products and enhancements announced Feb. 21.
Gartner says the integrated reference architecture approach, like that marketed by Cisco and NetApp, offers the same benefits as integrated infrastructure, yet allows greater flexibility since the system can be built from best-of-breed components. How do you convince a prospective customer to opt for VBlock vs. FlexPod?
Layton: A reference architecture is a guideline of how you might interconnect components together. The engineering integration (inherent in Vblock) provides quality that a customer is going to have to learn through trial and error by their own choices of implementation - types of racks, types of cables, and ways in which components are interconnected and logically configured to communicate with each other. This causes IT to be so expensive to manage today. We are trying to materially impact the operational cost of infrastructure. Our customers are seeing that in real time and that's causing them to reinvest in Vblock systems because of that TCO and predictable performance, and not the trial and error experience of a reference architecture.
Akkiraju: Level of integration is fundamentally different than any competitors could provide. We are based on best-of-breed components and we have the opportunity to leverage $20 billion+ of R&D that Cisco, EMC and VMware put into network, compute, storage, server and virtualization. The biggest asset that VCE has is our people, our engineers. That's how we will continue to innovate and differentiate Vblock from any other offerings in the market.
Do you plan to branch out into the integrated reference architecture space in order to expand your addressable market?
Akkiraju: The cardinal foundation of VCE is our customer experience. More and more workloads are moving onto these converged infrastructure deployments. We will not be going down the reference architecture path. We will take our value proposition and bring it downstream to the marketplace so we can continue to differentiate ourselves with innovation and the customer experience. The last two quarters of 2012 were the highest financial quarters for us as a company.
Do you see much concern or discussion among your customers about the fact that VCE is an alliance of three companies whose individual interests might diverge over time? In other words, do customers ask about the longevity or long-term viability of the VCE alliance?
Akkiraju: We are delivering on our business financial goals and objectives for Cisco and EMC. We are helping execute on Cisco's data center strategy and EMC's data center strategy by accelerating adoption of their technologies into accounts they may not have been able to break into themselves just selling individual components. We are strategic for Cisco and EMC because the combinations we are enabling ... we are talking about how you fundamentally transform the data center. This is a conversation that allows Cisco and EMC to engage at a different level through us. We are adding value on top of what Cisco and EMC are delivering with their products. There's a technical innovation and value add that we provide back into Cisco and EMC. We have their 100% support. I have had both (Cisco CEO) John (Chambers) and (EMC CEO) Joe (Tucci) on customer calls with me, as required, when the customer needed to hear from them directly on any aspect of the relationship. We absolutely have full support from the executive teams at both Cisco and EMC.
The relationship, as with any other in the industry, will have areas where there are sources of competition, but in the case of VCE we represent a unique route to market for all three companies. Most importantly, we are delivering on our financial business commitments and results; and have been executing the strategy that Cisco and EMC have. We never really have an issue of this being an inhibitor of sales. Sixty-five percent of customers come back to buy more Vblocks after the first or second Vblock. That's a true testament of what we've been able to deliver. And it demonstrates the disconnect between the narrative and the noise, and what customers actually receive as a value from VCE.
What we deliver stands on its own merits in terms of technology capabilities. If we are unable to make the case that we don't have a best of breed product they might choose to go down (an alternative) path. What customers care most about is whether we can deliver value in the data center. We have not seen customers back away from VCE because of the noise out in the marketplace or perceived competition within VCE. Cisco and EMC stand firmly behind us in partnership and commitment. This has really not been an issue the way the customer sees it. We see a disconnect between (what's reported in the press) and the way customers make decisions based on our ability to deliver, Cisco and EMC's commitment, and the value that we can actually provide to them.
Have Cisco, EMC and VMware invested any more capital or manpower into VCE since its inception?
Akkiraju: Absolutely. From a people perspective, we have grown tremendously even over the last year. We no longer source talent from Cisco, EMC and VMware but we are hiring from a lot of our competitors and other industry leaders in this space: database administrators, application experts. We are trying to build a data center company, a company that truly understands data centers, with data center and cloud experts. We demonstrate ongoing investments in VCE on an annual basis. The investment continues and we are growing.
What is the potential impact, positive or negative, of SDNs on your business or products? Does network virtualization pose a risk to the integrated infrastructure approach or to VCE as an entity? Does VCE plan to have an SDN strategy and/or adopt or support those proposed by Cisco or VMware/Nicira?
Layton: I am excited with what's going on in the software-defined data center, software-defined storage and SDN space. We are enabling our investor companies to come together with their SDN technologies in the instance of a converged infrastructure system of the future that will leverage their best-in-class technologies. Is it disruptive to us? No, it's simply enabling us to move on to the next generation of technology and offer a different degree of value -- we're excited to be at the point of intersection between each of the investor companies.
Akkiraju: We're partnering very closely with all of the software-defined aspects of our core components. The physical infrastructure is not going anywhere. You're always going to have a physical and virtual component and there also needs to be a lot of context that is shared. We are actually going to be a lot further ahead than any of our competitors because we're going to have access to a lot of the software-defined components of our core infrastructure.
Jim Duffy has been covering technology for over 25 years, 21 at Network World. He also writes The Cisco Connection blog and can be reached on Twitter @Jim_Duffy.
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