Can EMC Live Up To Its Promises?

The Hopkinton, Mass.-based company sure thinks it is. While the rest of the industry continues to struggle, EMC continues to demonstrate strength. Its most recent quarterly earnings report, issued in July for the second quarter, revealed that sales were up 33 percent while profits totaled $193 million. The results were helped by the fact that customers are spending disproportionately more on storage and storage management than on other IT goods. And they are likely to do so for some time.

Many experts, from Cisco CEO John Chambers to those on Wall Street watching IT, expect IT spending to rise anywhere between 2 percent to 5 percent over spending levels of 2003. But in storage, that growth is expected to be more like 7 percent.

And that has put EMC on the fast track. But staying abreast of the spending has put enormous strain on the company. Sixty percent of its worldwide employees, for example, have been with the company for less than five years. That includes not only rank-and-file support, and sales and engineering professionals, but also plenty of executives, including CEO Joe Tucci and executive vice president Howard Elias, who oversees all of EMC's corporate marketing and technology development.

While he's thrilled that storage spending "continues to grow as a percent of IT wallets," Elias admits that all that growth has meant much upheaval for EMC. Acquisitions have only compounded the problem. Since 2003, EMC has bought content-management company Documentum, digital-rights management supplier Legato and virtualization expert VMware, among others. The deals have made EMC, according to it, one of the 10 largest software firms in the world, but has also presented significant internal challenges.

In addition to sorting things out internally, EMC also is challenged to stay abreast of changes in customer buying habits and other industry trends. One tough nut to crack, Elias says, is how customers want to acquire software today. Just as they did with hardware when they moved to more modular bundling of products, so, too, are they looking to acquire software in more flexible ways. Gone, Elias says, are the 20,000-seat deals of the past. Now customers want to pay for their software as they ramp up, forcing his company to rethink the way it bundles, prices and licenses its software.

Another significant challenge is security. Thus far, EMC has not clearly articulated just how it plans to protect all of the bazillion terabytes of data storage its customers have bought from it. And that's not making them exactly comfortable these days, Elias concedes.

"We need to better articulate our [storage] strategy and message," he says. "Customers look to EMC and ask, 'What is your security strategy?'"

Elias says his company is trying to craft a better message, but acknowledges that more work needs to be done. What else? Well, channels, for one thing. The company has a little more than 500 committed partners working on its behalf. And they are starting to generate consistent revenue. But, says John Koury, vice president of channels marketing, the company is again "just getting started."

Like others, Koury is an outsider who joined to help make EMC a better place. A year on the job, Koury came aboard just after the company rolled out its first major reseller program, which is called Velocity. It gave form and shape to EMC's channel efforts, but needs tweaking as it enters year two. For one thing, today most partners basically have the same benefits and requirements despite the obvious differences in their businesses, Koury says; that will likely change.

Koury is trying to complete the global rollout of the program and improve how it provides co-op marketing funds to partners. He's also trying to balance the number of allies it recruits. Today, he simply does not have enough partners to cover all the midmarket opportunities staring it in the face. Many midmarket customers, after all, are now buying as much storage capacity as EMC's largest customers did just eight years ago. Only they do not have an EMC direct salesperson to help them make purchases.

Can EMC really become an indirect company? In the past quarter, 85 percent of its sales to commercial customers went through partners; the goal is to drive that to 100 percent. So progress is really being made. But don't forget about conflict with EMC's own people. After all, in the company's 25-year retrospective newsletter, executive vice president David Goulden is quoted as saying, "Services are now a competitive weapon for EMC."

My advice: Mind your step if you enter EMC's channel.