The Transformation Of EMC
But wait a minute. EMC, the longtime storage powerhouse, has spent more than $7 billion on some two dozen acquisitions since 2000, almost all of them software and most only indirectly related to storage. Given that, what is EMC's strategic focus these days?
It's changed, though even EMC's CTO, Jeff Nick, admits that explaining the company's new strategy is a challenge. "'EMC, the data storage company' is easy to get your head around," he says. "'EMC, the information infrastructure company'--what is that? It's a message we haven't honed."
That problem gets tougher this week when EMC discloses another acquisition: Network Intelligence, a developer of software for security event management, which EMC is buying for approximately $170 million. Also this week, EMC will complete its $2.1 billion acquisition of RSA Security, the data-encryption and identity-authentication technology vendor. And the company will introduce Infoscape, a content management application for unstructured data such as Word documents and E-mails that was created using technology from several of its acquisitions.
Network Intelligence and RSA join content management software vendor Documentum, virtualization specialist VMware, and digital-rights management application vendor Authentica, a few of the most significant in EMC's portfolio of acquired apps in the growing market for information management technology. This bought-and-paid-for expertise is meant to transform EMC from a purveyor of storage boxes into a one-stop provider of technology for collecting, managing, delivering, and securing business information.
That broad vision isn't reality yet, but EMC has managed to lessen its dependence on hardware sales. In its second quarter, ended June 30, software accounted for 39% of the company's $2.57 billion in revenue. That's quite a shift from 2000, when software was only 16% of its sales, and storage hardware represented 70%.
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Customers are just starting to get what EMC is about these days, CEO and president Joseph Tucci says
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Photo by Jason Grow
The main problem is that EMC hasn't given its customers a clear picture of how all these pieces fit together. "I think customers are starting to get it," CEO and president Joseph Tucci says, "but we're nowhere near where we need to be."
With some acquisitions, such as the $1.3 billion buyout in 2003 of Legato, the backup and recovery software developer, the link to EMC's storage business isn't that tough to see. Even acquisitions such as Documentum and RSA fit within the broad category known as "information life-cycle management"--the process of managing data from its creation or capture to when it's put in long-term storage or deleted. But systems management tools from Smarts or virtualization technology from VMware and Rainfinity--where do they fit?
INFO ENABLER
The buzz-phrase from EMC for describing its strategic focus is "information infrastructure." In an IT world of service-oriented architectures, information itself becomes a service that isn't tied to any particular application. That calls for a technology infrastructure that not only stores and manages information, but also manages the systems that deliver information wherever, whenever it's needed. "We're the information enablement," says Tucci.
EMC has used software to bounce back from a drop in storage sales, but it's not the profit engine of old. Near EMC's Hopkinton, Mass., headquarters, a large office building constructed in 2001 for expansion stands empty, emblematic of the company's boom-and-bust history over the last several years. After reaching $8.87 billion in revenue in 2000, sales shrank to $5.44 billion in 2002, and the company racked up big losses in both 2001 and 2002. Since then, sales have climbed steadily, to $6.24 billion in 2003, $8.23 billion in 2004, and $9.66 billion last year. For the first six months of this year, sales were $5.13 billion, on track to meet the company's 2006 revenue goal of $10.8 billion.
EMC's software acquisitions have done particularly well. Sales of Documentum and VMware software, which stood at $269 million and $75 million in 2003, are each expected to exceed $600 million this year. Smarts, a provider of network systems management software that recorded sales of $67 million in 2004, will almost double that this year.
Despite top-line growth, EMC has missed earnings targets in recent quarters, including a stumble in the second quarter when profits were down 5% year over year, mainly because the company didn't manufacture enough of its new Symmetrix DMX-3 storage systems to meet demand. Even with its aggressive acquisition strategy, EMC lost share in the worldwide storage software market in the second quarter, research firm IDC said last week. EMC still leads with 26.4% of the market, but that's down from 29.6% a year ago. Though competitors Symantec and Hewlett-Packard also lost market share, rivals CA, IBM, and Network Appliance gained.
Storage hardware remains the core of EMC's business. Storage systems accounted for more than 46% of the company's $5.1 billion in sales in the first half of this year. Demand is surging for the high-capacity Symmetrix systems, and last week EMC and Dell renewed through 2011 a multibillion-dollar deal under which Dell resells EMC networked storage systems.
More products mean added competition. From data storage to content management to information security to server and storage virtualization, more rivals are gunning for EMC on more technology fronts than in years past. One competitor in particular looms large. "Let's face it, EMC and IBM are jockeying for the same IT dollars," says analyst Tony Prigmore of Enterprise Strategy Group.
To execute on its strategy, EMC has been reorganizing in recent months, building divisions around its core products and acquisitions, shifting manag- ers, and creating a global services organization to manage product maintenance, customer support, and professional services. Tucci acknowledges that the reorg also is designed to improve quarterly performance by getting more people to focus on the company's internal processes.
TECH PILLARS
EMC is building its information infrastructure strategy around several pillars, what chief development officer Mark Lewis calls "anchor-point acquisitions." They include the data security technology of RSA and Network Intelligence; information storage and resource management, including EMC's storage hardware as well as software products such as Smarts, Legato backup and recovery software, and nLayers application discovery and mapping tools; and content management centered on Documentum technology and EMC's Captiva information-capture applications.
It became clear about a year ago that security was underrepresented in the vendor's product line when CIOs began asking Tucci about EMC's security strategy, information security VP Dennis Hoffman says. The result: Security "is going to be integrated into everything EMC makes," Hoffman says.
EMC's thinking is that businesses can't maximize the value of their information if they can't minimize the risks of it being misused. As data becomes more of a service, security like that provided by RSA will be needed to govern who can gain access to data, Lewis says. RSA and Network Intelligence will make up the core of EMC's new information security division, headed by Art Coviello, previously RSA's president. The division will incorporate the Authentica digital-rights management software that EMC bought in February.
Some RSA technologies already are integrated with EMC products: Documentum uses RSA encryption, for example, and the Centera content-addressable storage systems incorporate the Network Intelligence security technology. Work is under way to develop what Hoffman calls a "common security platform," due in 2008, that will add RSA's ID authentication and authorization technology to EMC products, providing access controls for content repositories and the Symmetrix high-end storage systems. Authentica digital-rights management tools also will be part of that platform, helping content managers attach policies and expiration dates to files, restricting who can see them and for how long.
Coviello says data security can be extended to business transactions and other real-time information flows, not limited to data that's "at rest" in EMC storage systems. "Data security needs to be built in, not bolted on," he says.
That sounds like the right direction to Vincent Cottone, senior VP of infrastructure services at financial services company Eaton Vance, an EMC customer. One of his company's biggest challenges is putting the right data security in place as it makes more financial information available to partners and clients. "Firewalls are no longer a help here," he says.
Eaton Vance is a longtime user of EMC's storage systems. And it built a fund management app using RSA technology before EMC bought the company. Will EMC's acquisition of RSA help? It depends on how well EMC integrates RSA's technology, Cottone says. Of Eaton Vance's 60-plus IT vendors, EMC is in the top tier, he says. "They're very strategic, in tune with the way we do business."
The acquisition of Network Intelligence comes into play in security audit and compliance tasks. The software collects and stores data about security events from system, network, database, and storage-device logs. That data can be analyzed to help formulate, implement, and enforce security policies, and to audit compliance with those policies. Because EMC had been selling Network Intelligence's products before it bought the company, they're already integrated with EMC's Centera and Celerra storage systems. Work to integrate them with the Smarts system is under way.
Through its global services group, EMC is offering new security services, such as building data encryption into storage systems to protect data that's flowing over public networks or being shipped on tape, and determining the level of security needed for stored data. Along with pulling all customer service and support operations under one roof, the global services group will offer product implementation and integration consulting services. It includes Internosis, a services company specializing in Microsoft products that was acquired in January, and Interlink, an IT services company acquired in May.
BUTTING HEADS WITH IBM
EMC will find itself knocking heads more frequently with IBM in the content management market after IBM's deal last month to acquire FileNet, a developer of content management and business process workflow applications, for $1.6 billion. That follows EMC's 2003 acquisition of Documentum and OpenText's pending buyout of Hummingbird for $489 million. Earlier this year, IBM said it would spend $1 billion in the next three years to expand development of information management software.
Given that as much as 80% of all information in corporate IT systems is unstructured--E-mails, images, PDFs, Word files--EMC's intent is to link its storage management business as closely as possible to its content management products. "What's happening is that content management is moving into the data center," says Dave DeWalt, CEO of Documentum before its acquisition, who now oversees EMC's customer operations as well as its content management and archiving businesses.
Infoscape, which EMC will unveil this week, is used to locate, classify, and manage unstructured data. The software is intended for smaller companies that don't use large-scale content management systems like Documentum and is made up of pieces of acquired technology from Astrum, Documentum, Legato, and Smarts. It will be available next month, priced at $150,000 based on a 10-terabyte license. The software is complemented by an information management strategy consulting service, also debuting this week.
Fifth Third Bank uses EMC's replication tools and storage systems to maintain about 95% of its 600 terabytes of data. That puts EMC "in the top two or three IT vendors for us," storage management VP Steve Swanson says. The bank has tried a test version of the Infoscape bundle, and Swanson sees the potential of adding RSA encryption for data protection. "From a historical perspective, yeah, they've been a storage vendor," Swanson says. "But some of their recent acquisitions position them to be something more than that."
Tucci isn't ruling out more acquisitions but says making the pieces EMC already has work together is the focus now. That, and helping customers understand the company's information infrastructure vision. But time isn't on Tucci's side. If EMC misses its financial numbers a few more quarters and continues to slide in market share, explaining the company's strategy gets even harder.