Would A Dell-Owned VMware Throw Monkey Wrench Into Dell-Microsoft Relationship?

Dell and Microsoft are close industry allies, but what will happen to their relationship after Dell takes over control of VMware?

This is a question partners on all sides are pondering in the wake of Dell's $67.1 billion bid to acquire EMC, which owns around 80 percent of VMware. The virtualization vendor, which EMC acquired in 2007 and then spun out three years later, is a longtime rival of Microsoft's in the data center.

Microsoft for years has been trying to knock VMware off its perch atop the server virtualization market. In 2008, it unveiled a competing technology, Hyper-V, which it includes for "free" with Windows Server.

[Related: VMware Shares Hammered After Dell-EMC Deal Unveiled, Analyst Warns Of 'Nightmare' Scenario]

Dell has been supporting Hyper-V since 2010, and on the desktop side of the business, has dutifully cranked up its marketing engine every time Microsoft has released a new version of Windows.

Dell also received a $2 billion loan from Microsoft as part of its $24.4 billion leveraged buyout two years ago.

So what happens if Dell's blockbuster bid for EMC gets regulatory approval? One VMware partner told CRN that a Dell-owned VMware would make him consider switching to Microsoft Hyper-V.

"We love VMware, but we would start to look seriously at recommending Hyper-V if Dell doesn’t spin it out during the next 12 to 24 months," said the partner, who didn't want to be named.

While a spinoff could happen, VMware CEO Pat Gelsinger said during Monday's conference call held to announce the Dell-EMC deal that Dell CEO Michael Dell is interested in upping his share in VMware.

"It is Michael’s intention to be a larger, longer-term owner of VMware over time. He intends to repurchase more economic interest in the company," Gelsinger said on the call, as reported by USA Today.

Microsoft couldn't be reached for comment.

A Dell spokesman said via email that the vendor "has a long history of offering customers choice in partners and technology. It’s a bedrock in our values and business strategy and a model we will continue to support."

"Dell does not have plans to change the partner or technology structure approach to our business – which means we will continue to provide customers choice and leverage our relationships in the industry to deliver the best solutions to meet their needs – from us directly, through our channel partners, or through our extensive industry alliance partners," the spokesman said.

Gordon Martin, president of PeakUpTime, a Tulsa, Okla.-based partner of Dell, Microsoft and VMware, said the Dell-EMC union would provide the ability to back-integrate VMware into many devices, with particular emphasis on virtual desktop infrastructure.

"This could be a win for VMware at the expense of Microsoft in Dell-EMC VDI environments," Martin said.

Microsoft partners have a different view of how things will shake out if Dell decides to keep VMware in-house. Several told CRN that Microsoft is far more focused on its Azure public cloud business than on Hyper-V at the moment, and so the battle between the vendors has now shifted to hybrid cloud.

In this market, Microsoft is by far the dominant vendor. Azure is widely seen as the No. 2 player in the public cloud after Amazon Web Services, while VMware's vCloud Air offering has had trouble gaining traction, and is facing an uncertain future, sources told CRN last month.

"This is really more an Azure vision versus VMware’s vision of hybrid," said an executive from one national partner of both vendors, who didn't want to be named. "Microsoft has some teeth in Azure. They aren’t trying to win the Hyper-V war, they're just delaying long enough to ensure that Azure consumption can be driven."

Chris Hertz, CEO of New Signature, a Washington, D.C.-based Microsoft partner, doesn't think Dell's ownership of VMware would impact its relationship with Microsoft.

"Dell already competes directly with Microsoft in numerous places," Hertz said. One example is systems management technology, where Dell's KACE product line competes with Microsoft System Center Configuration Manager, Windows Intune and Enterprise Mobility Suite, said Hertz.

"I don't see this dramatically changing the Dell-Microsoft relationship, no more than Microsoft's continued exploration of first-party devices has," Hertz told CRN.

PUBLISHED OCT. 13, 2015