Should Dell have pursued a more aggressive debt-reduction move with VMware?

When Dell announced it was spinning out VMware yesterday, the move itself wasn’t surprising: there had been public speculation for some time. But Dell could have gone a number of ways in this deal, despite its choice to spin VMware out as a separate company with a constituent dividend instead of an outright sale.

The dividend route, which involves a payment to shareholders between $11.5 and $12 billion, has the advantage of being tax-free (or at least that’s what Dell hopes as it petitions the IRS). For Dell, which owns 81% of VMware, the dividend translates to somewhere between $9.3 and $9.7 billion in cash, which the company plans to use to pay down a portion of the huge debt it still holds from its $58 billion EMC purchase in 2016.

VMware was the crown jewel in that transaction, giving Dell an inroad to the cloud it had lacked prior to the deal. For context, VMware popularized the notion of the virtual machine, a concept that led to the development of cloud computing as we know it today. It has since expanded much more broadly beyond that, giving Dell a solid foothold in cloud native computing.

Dell hopes to have its cake and eat it too with this deal: it generates a large slug of cash to use for personal debt relief while securing a five-year commercial deal that should keep the two companies closely aligned. Dell CEO Michael Dell will remain chairman of the VMware board, which should help smooth the post-spinout relationship.

But could Dell have extracted more cash out of the deal?

Doing what’s best for everyone

Patrick Moorhead, principal analyst at Moor Insights and Strategies, says that beyond the cash transaction, the deal provides a way for the companies to continue working closely together with the least amount of disruption.

“In the end, this move is more about maximizing the Dell and VMware stock price [in a way that] doesn’t impact customers, ISVs or the channel. Wall Street wasn’t valuing the two companies together nearly as [strongly] as I believe it will as separate entities,” Moorhead said.


By Ron Miller

RPA market surges as investors, vendors capitalize on pandemic-driven tech shift

When UIPath filed its S-1 last week, it was a watershed moment for the robotic process automation (RPA) market. The company, which first appeared on our radar for a $30 million Series A in 2017, has so far raised an astonishing $2 billion while still private. In February, it was valued at $35 billion when it raised $750 million in its latest round.

RPA and process automation came to the fore during the pandemic as companies took steps to digitally transform. When employees couldn’t be in the same office together, it became crucial to cobble together more automated workflows that required fewer people in the loop.

RPA has enabled executives to provide a level of workflow automation that essentially buys them time to update systems to more modern approaches while reducing the large number of mundane manual tasks that are part of every industry’s workflow.

When UIPath raised money in 2017, RPA was not well known in enterprise software circles even though it had already been around for several years. The category was gaining in popularity by that point because it addressed automation in a legacy context. That meant companies with deep legacy technology — practically everyone not born in the cloud — could automate across older platforms without ripping and replacing, an expensive and risky undertaking that most CEOs would rather not take.

RPA has enabled executives to provide a level of workflow automation, a taste of the modern. It essentially buys them time to update systems to more modern approaches while reducing the large number of mundane manual tasks that are part of just about every industry’s workflow.

While some people point to RPA as job-elimination software, it also provides a way to liberate people from some of the most mind-numbing and mundane chores in the organization. The argument goes that this frees up employees for higher level tasks.

As an example, RPA could take advantage of older workflow technologies like OCR (optical character recognition) to read a number from a form, enter the data in a spreadsheet, generate an invoice, send it for printing and mailing, and generate a Slack message to the accounting department that the task has been completed.

We’re going to take a deep dive into RPA and the larger process automation space — explore the market size and dynamics, look at the key players and the biggest investors, and finally, try to chart out where this market might go in the future.

Meet the vendors

UIPath is clearly an RPA star with a significant market share lead of 27.1%, according to IDC. Automation Anywhere is in second place with 19.4%, and Blue Prism is third with 10.3%, based on data from IDC’s July 2020 report, the last time the firm reported on the market.

Two other players with significant market share worth mentioning are WorkFusion with 6.8%, and NTT with 5%.


By Ron Miller

Is overseeing cloud operations the new career path to CEO?

When Amazon announced last week that founder and CEO Jeff Bezos planned to step back from overseeing operations and shift into an executive chairman role, it also revealed that AWS CEO Andy Jassy, head of the company’s profitable cloud division, would replace him.

As Bessemer partner Byron Deeter pointed out on Twitter, Jassy’s promotion was similar to Satya Nadella’s ascent at Microsoft: in 2014, he moved from executive VP in charge of Azure to the chief exec’s office. Similarly, Arvind Krishna, who was promoted to replace Ginni Rometti as IBM CEO last year, also was formerly head of the company’s cloud business.

Could Nadella’s successful rise serve as a blueprint for Amazon as it makes a similar transition? While there are major differences in the missions of these companies, it’s inevitable that we will compare these two executives based on their former jobs. It’s true that they have an awful lot in common, but there are some stark differences, too.

Replacing a legend

For starters, Jassy is taking over for someone who founded one of the world’s biggest corporations. Nadella replaced Steve Ballmer, who had taken over for the company’s face, Bill Gates. Holger Mueller, an analyst at Constellation Research, says this notable difference could have a huge impact for Jassy with his founder boss still looking over his shoulder.

“There’s a lot of similarity in the two situations, but Satya was a little removed from the founder Gates. Bezos will always hover and be there, whereas Gates (and Ballmer) had retired for good. [ … ] It was clear [they] would not be coming back. [ … ] For Jassy, the owner could [conceivably] come back anytime,” Mueller said.

But Andrew Bartels, an analyst at Forrester Research, says it’s not a coincidence that both leaders were plucked from the cloud divisions of their respective companies, even if it was seven years apart.

“In both cases, these hyperscale business units of Microsoft and Amazon were the fastest-growing and best-performing units of the companies. [ … ] In both cases, cloud infrastructure was seen as a platform on top of which and around which other cloud offerings could be developed,” Bartels said. The companies both believe that the leaders of these two growth engines were best suited to lead the company into the future.


By Ron Miller

Container security acquisitions increase as companies accelerate shift to cloud

Last week, another container security startup came off the board when Rapid7 bought Alcide for $50 million. The purchase is part of a broader trend in which larger companies are buying up cloud-native security startups at a rapid clip. But why is there so much M&A action in this space now?

Palo Alto Networks was first to the punch, grabbing Twistlock for $410 million in May 2019. VMware struck a year later, snaring Octarine. Cisco followed with PortShift in October and Red Hat snagged StackRox last month before the Rapid7 response last week.

This is partly because many companies chose to become cloud-native more quickly during the pandemic. This has created a sharper focus on security, but it would be a mistake to attribute the acquisition wave strictly to COVID-19, as companies were shifting in this direction pre-pandemic.

It’s also important to note that security startups that cover a niche like container security often reach market saturation faster than companies with broader coverage because customers often want to consolidate on a single platform, rather than dealing with a fragmented set of vendors and figuring out how to make them all work together.

Containers provide a way to deliver software by breaking down a large application into discrete pieces known as microservices. These are packaged and delivered in containers. Kubernetes provides the orchestration layer, determining when to deliver the container and when to shut it down.

This level of automation presents a security challenge, making sure the containers are configured correctly and not vulnerable to hackers. With myriad switches this isn’t easy, and it’s made even more challenging by the ephemeral nature of the containers themselves.

Yoav Leitersdorf, managing partner at YL Ventures, an Israeli investment firm specializing in security startups, says these challenges are driving interest in container startups from large companies. “The acquisitions we are seeing now are filling gaps in the portfolio of security capabilities offered by the larger companies,” he said.


By Ron Miller