Top national solution providers acknowledge that VCE has made significant progress with the channel in the past year. But they still question the long-term viability of the joint Cisco and EMC venture and are concerned that VCE hasn't much changed its sales strategy in a rapidly crowding, rapidly evolving converged infrastructure market.

"The converged infrastructure bus has left already," said a top executive at a national solution provider who requested anonymity. "They have to stop trying to define it and start marketing the software-defined, flexible data center. What we just heard from them is to redirect customers back to the same converged conversation they were asking us to have two years ago. It's a stale message for a company that needs 'fresh' really badly."

"The conversation is shifting from a tactical product sale around converged infrastructure to solution sets that are specialized for applications. If that's the message, I think that's going to be a hit," said Thatcher Alexander, corporate president of Alexander Open Systems, an Overland Park, Kan.-based solution provider. "That's the message VCE is starting to get out there to the direct customers. But they need to sales-enable the partners and get that message into the partners' mouths, though, or they won't scale."

[Related: The VCE Gamble: Know When To Hold 'Em, Know When To Fold 'Em]

CRN interviewed about half of the dozen or so partners who attended VCE's second partner conference -- an intimate gathering of top converged infrastructure solution providers held in Dallas last week.

While the first VCE conference -- held in Boston in November 2011 -- was all about addressing complaints from the channel, partners said this gathering was less about smoothing out the channel strategy and more about how to grow VCE's sales and what it plans to do next. Most of VCE's executive team was on hand, although CEO Praveen Akkiraju was not in attendance, according to partners.

VCE as of this past summer had about 150 global channel partners. According to internal sources not authorized to speak publicly, it now has between 600 and 650 customers for Vblock -- the converged stack that combines Cisco servers and networking with EMC storage and VMware software and orchestration -- in various levels of implementation.

VCE executives told partners at the Dallas conference that the company added 130 "new logos" in the last quarter and that it is holding at about a $200 million to $250 million quarterly run rate -- roughly the $1 billion annual run rate that EMC and Cisco executives have talked about on their respective earnings calls.

Partners said that they wanted to hear more at the conference about how VCE plans to compete with the likes of Hewlett-Packard, Oracle, Dell and other top vendors all pushing a converged infrastructure strategy. The challenge for VCE remains how to convince customers to invest lock, stock and barrel in the fully created Vblock stack and pay a premium for that instead of buying the various products piecemeal -- the so-called V plus C plus E approach -- or buying some products to work with data center products from other vendors such as Dell.

"All my guys say VCE is really pushing EMC and Cisco hard for better pricing," said the first solution provider. "The Vblock is still more expensive than doing it piecemeal, and the value of that is a tough sell. We've had calls all over the place on Vblock and a lot of customers are interested because of the converged infrastructure and that it seems to be easier to manage, but it's just not the same price as building your own, especially if you can't really customize it. I don't think VCE can hide that anymore. They know they can't hide the objections they're getting."

Several partners said they raised the issue with VCE executives, who urged them to sell the value of the complete stack and the one-throat-to-choke service and support on that stack.

"I said, 'Guys, it's not that simple,' " said a senior vice president at another solution provider who also requested anonymity. "In many cases, the problems with the system are at such a granular level you have to ask the original manufacturer anyway, so the support really isn't all that smooth. With VCE, you have a fit in some cases, and in most cases you don't. That's why EMC launched VSPEX -- to cover all the fits it doesn't have. There's just not that many customers who want it exactly the way Vblock is. And now, people are pushing back."

VCE did not respond to CRN requests for comment.

NEXT: Assessing VCE's Strengths

VCE has plenty of positives these days. Earlier this year, VCE executives told CRN that the company sees more than 40 percent repeat customer business. All partners interviewed by CRN said that customers who had bought their first Vblock are often coming back for their second and third -- an admittedly strong sales hook for the company.

"That is true," said the first solution provider. "The VCE messaging is get the first one in and the second and third will follow, and they're right. Customers who have bought it and need it like it, and if they're big enough and have the needs, they're buying them again."

"It's a sticky solution," said Alexander Open Systems' Thatcher. "We would prefer selling VCE than a V plus C plus E, because we think that's a much stickier sale for AOS. So my recommendation is that VCE now teach the partner community to take this from a tactical product sale to a true business applications sales. They don't have the bandwidth to do this without partners."

Signs that VCE is evolving its sales and marketing model are starting to appear. While the company did not offer much in the way of strategy beyond redirecting partners toward the same converged infrastructure conversation, solution providers said VCE plans to deliver its long-promised "downmarket" Vblock early in the new year, and that that's only one part of a significantly bolstered product road map.

VCE also told partners to expect a substantial announcement regarding VCE from Cisco and EMC in January, although they did not disclose to partners what that is.

"The road map is pretty exciting," said Kent MacDonald, vice president of converged infrastructure for Long View Systems, a North America integrator based in Calgary. "They asked us to tell the story -- the value of the integrated stack and how much market there is to capture. Their growth, with respect to some of the earlier hurdles we had with the channel, has been a good story, and if we can move further down into commercial [midmarket] territory they're expanding the market."

Partners said VCE executives told them the first entry-level Vblocks will hit the market as soon as January.

"We expect to see a lot of new opportunities there," said Tony Balistrieri, executive vice president of marketing and partner strategy at FusionStorm, a San Francisco-based solution provider. "We don't do a lot of enterprise; we focus a lot more on midmarket so that should expand the appeal. VCE's best story is repeat business so I'm not sure they'll be able see that benefit there, but it is more customers."

Another area where partners expect to see more from VCE is in Vblock packages that are prevalidated for work with specific applications. Such an offering around SAP HANA already exists, and offerings for other major application workloads are in development, partners said.

"More stuff like SAP, Epic, some of the UC stuff from Cisco, that will be helpful," said Tony Berg, data center practice director for World Wide Technology, a St. Louis-based solution provider. "They seem like they're taking a lot of the ideas we have for certified-type Vblocks with specific applications and that they want to come back with more. I see that as our biggest task: getting more of those things certified so customers know it's a validated configuration."

NEXT: Can VCE Thrive In A Changing Market?

VCE's long-term viability is still a subject of much debate. For starters, little is publicly known about its actual revenue -- EMC and Cisco both recognize revenue from Vblocks sold in their respective P&Ls, which is how they explain that the "losses" incurred from investing in VCE aren't actually losses.

In addition, as financial analysts have frequently stated, it's hard to determine how many customer opportunities VCE gets into that Cisco, EMC or the other companies wouldn't be able to access in a V plus C plus E or other a la carte sales approach. There's also the question of alliances, and given the moves made by both EMC and Cisco -- and VMware's eye-popping $1.2 billion acquisition of potential Cisco SDN competitor Nicira -- they suggest a fraying relationship between VCE's parents.

"Considering the changing alliances in large cap tech, we wouldn't be surprised if the Cisco, EMC and VMware partnership, VCE, is soon shuttered," wrote Mark Sue, managing director with RBC Capital Markets, in an October note.

Couple that with VCE's early channel headaches -- confusion over messaging and who gets paid when -- and the warring sales factions with Cisco and EMC that would rather take deals piecemeal to meet individual quotas, and VCE still faces significant hurdles.

"I still can't see a situation where V plus C plus E isn't a better option for 95 percent of potential customers," said the second solution provider. "They've enabled more partners to sell VCE but they still haven't found a way to get all the Cisco and EMC guys to play nice and support these sales. It's easier on everybody, including the customer, to buy what they want in pieces and have their guys assemble it."

Some solution providers have found more success pushing the integrated Vblock than the piecemeal model, however. World Wide Technology's Berg said that now that more customers understand the appeal of converged infrastructure, they also understand that by buying pieces separately and building it themselves, what they end up paying in labor, support and other orchestration costs often eats up what they might think they save by doing that instead of paying a premium for a Vblock.

"More customers now are looking under the covers and seeing that they do save in rack-and-stack and other things that they're not really thinking about during the discussion phase," Berg said. "You'll always have technical guys who think they can build it better than VCE can, but at the executive level, the VCE model is appealing."

Converged infrastructure is a tide carrying all boats, acknowledged partners. All of the VCE partners in attendance at the Dallas event carry converged infrastructure solutions other than VCE, including the NetApp-led FlexPod approach, the EMC-led VSPEX reference architecture approach, and other reference architectures and models from the likes of Cisco, HP, Dell, Juniper and others. Their bets are covered, partners say.

"We sell FlexPod, VSPEX and VCE, and each depends on the customers and the size of the deal," Balistrieri said. "What's nice about VCE is that you do have the built, tested package into which a customer can go in and look at easily migrating a big application. The converged infrastructure market is growing so there is a market for all the approaches."

NetApp, for example, might be able to count three times the number of customers for FlexPod than VCE has for Vblock. But VCE executives reiterated to partners that Vblocks are exactly defined, and because FlexPod is a reference architecture and not itself an integrated stack, its definition is by nature much looser.

"They talked about how it is very easy to count what a Vblock is vs. that with FlexPod; it's certainly more gray," Long View's MacDonald said. "There are definitely some questions about how many FlexPods really are out there because of how you define it. But the overall market has shifted, and we're all seeing that shift of customers going from siloed buys of storage or networking to converged infrastructure. That's further validation for VCE, FlexPod and this whole market."

PUBLISHED DEC. 5, 2012