Why VMware paid $1.5 billion to leap into mobile

The big news last week was EMC VMware’s announcement that it intended to acquire mobile device management firm AirWatch for $1.5 billion. Up until now, VMware’s forays into end-user computing have been virtualization-centric, as in the company’s Horizon Suite. AirWatch will take VMware a big step closer to end users.

The acquisition comes at a critical time for the company. Although still the leader in virtualization, VMware is under increasing pressure from Microsoft and open source competitors. The AirWatch purchase opens a new array of opportunities.

Sanjay Poonen is the general manager of VMware’s end-user computing business. Formerly head of SAP’s mobility division, Poonen was heavily involved in the AirWatch deal, an acquisition he believes will “change the course” of VMware. Several days ago, InfoWorld executive editors Galen Gruman and Doug Dineley and I spoke with Poonen about the AirWatch deal and its implications. The following is an edited version of that interview.

InfoWorld: Why is AirWatch worth $1.5 billion? That’s more than VMware paid for Nicira.

Poonen: It’s the biggest acquisition we’ve made. As we looked at this, we were very customer-focused. In customer deals we would win the desktop deal … but we’d lose the mobile deal to AirWatch, since we didn’t have much of a mobile product. I called the customers and [asked] why AirWatch was winning. It was just a better product. … They were investing both in product and go-to-market and we could sense their momentum. We evaluated the tool for our internal use and the IT guys also liked it. A couple of other things also really felt good: The culture of the team was very similar to ours and they have an innovation-driven culture.

InfoWorld: What about unique intellectual property? What was their technology differentiation?

Poonen: They were the only company that had built out a portfolio for everything that we call enterprise mobile management and security: mobile device management, mobile app management, mobile content management, mobile email management — a full-blown portfolio. We’re going to invest and do even more.

InfoWorld: The overlap between what AirWatch does and what you do on the desktop is not that large, other than maybe application provisioning and management. Is that the area where the two companies come together strategically?

Poonen: No, the overlap is little to nothing — and that’s actually good. We were starting to find that CIOs would have these two people under them: a VP of Infrastructure that loved our data center stuff … and another vice president, a VP of end-user computing. People who handled all of the desktop stuff — mostly a Windows-related environment, where you’re virtualizing it or managing it — and increasingly a mobile environment where people were handling iOS, Android, Windows phones, or whatever.

That entire group of end-user computing tools needed an underlying common framework. For example, you need single sign-on. Another underlying service could be social computing, where you have an activity stream. We will have a really broad portfolio that is the envy of the industry. It will be very easy to communicate to our customers that the mobile focus of the company, in terms of mobile management and security, will be AirWatch. We’ll retain the brand, we’ll amplify it, and we’ll bet hard behind them.

InfoWorld: What about on the desktop management side? That’s one area where very few of the enterprise mobility management vendors play.

Poonen: Yes, that’s one of the propositions, though not the only one. A vendor can heterogeneously solve these three problems: management, security, and virtualization, as it applies to end-user devices. It could be a desktop, it could be a laptop, it could be a tablet, it could be a phone, it could be a car. But ultimately, it’s an end-user computing device. The management aspect of it includes things like policy, workflow, compliance. … Our desktop virtualization and image management products, View and Mirage and so on, have been enormously successful. The mobile market is wide open. In that market we were hearing from customers that AirWatch had the gold medal.

InfoWorld: What is it about AirWatch that wins with the customers? There are others, such as Mobile Iron.

Poonen: They’re all good. I’m not here to slam them — they all do things very well. But what I was hearing from customers was … they love the AirWatch user experience. It’s simple, it’s easy to use: That was number one. And with end-users it has to be Sesame Street simple. Number two, they … had cloud and on-premises. I think 60 to 70 percent of their customers are in the cloud, either a public cloud or dedicated private cloud type of setup. Third, customers liked the breadth of their portfolio, everything from mobile device management to mobile app management to mobile content management to email management.

InfoWorld: What about the virtualization end of mobile? VMware looked at it three to four years ago and it didn’t really go anywhere. What do you see as the opportunity for virtualization on mobile today? Especially when Google, Microsoft, and Apple are saying “don’t touch our stuff.”

InfoWorld: In the case of Apple, they have a walled garden. With Android, we built a Type 2 virtualization called the Mobile Virtualization Platform, and we’re working with OEMs and with telcos to have it deployed. It’s basically a container that allows you to toggle between the private world and your corporate business world fairly easily — and still have the business world be contained and run inside that virtualized platform. If you buy, for example, a Verizon Samsung phone, it comes loaded with VMware Switch. Now, it runs only on Android, because Apple doesn’t let you do that. So we’ve been thinking through the future of containers and the future of virtualization platforms. It’s too early to tell which approach is going to win.

InfoWorld: But there’s been a ton of these over the last four years and the markets are really, really tiny.

Poonen: Exactly. That’s why we couldn’t have built a business on just the mobile virtualization platform. The asset that we built is a good piece of technology, but it’s far from sufficient. What we will do is fold that into the AirWatch family of products. The AirWatch brand will be the brand of all of our mobile products.

InfoWorld: It sounds like one possible use of that technology is to extend AirWatch’s container approach to maybe a larger container for industries that need essentially a virtual machine that people don’t perceive as such.

Poonen: Exactly. It’s hard for me to predict, but in the future maybe some of the Android-based ruggedized phones in the military may need a very virtualized platform — security at a Type 2 hypervisor level is very secure. You can’t touch that thing.

InfoWorld: What are some of the other opportunities?

Poonen: Another example is mobile content management. It’s evolving into a space called enterprise file sync and share, which is where Dropbox and Box play. The product AirWatch has in that area, Secure Content Locker, is really starting to do very well in the market. They have customers in the airline industry and oil and gas industries that are really starting to use this. But they don’t want to buy an MDM tool from one vendor, a content management tool from another vendor, a secure email product from a third vendor, and an identity management product from a fourth. We really think the platform approach is going to be the reason we win.

If you go to the Apple website, there’s a great story on United Airlines. One of the pilots says: I use this secure content tool to bring up all of my documents for my landing stuff, so I don’t have to carry 45-pound bags into the cockpit. And the tool is AirWatch. In many cases, where you have mobile devices and you want to share a document, these should be connected processes. You manage the device, you manage the apps, and you manage the content. A number of other customers like that, too: Walgreens, Renault, BestBuy. Nine of the top 10 U.S. retailers are customers. They’ve been very successful in oil and gas, and now, I believe, banking and federal will be good verticals that evolve this year.

InfoWorld: What, if any, integrations will there be between AirWatch and VMware View? And how important is desktop virtualization to delivering apps to mobile devices?

Poonen: We can’t talk about the specifics of road maps until the AirWatch deal closes. But I’ll give you a high-level description of how we think about this. Wherever you’re able to have content, it needs to be visible for desktop and mobile. So you need to make sure that happens.

We have a product called Mirage. It’s not new, but it’s an image management product for Windows. We never had an image management product for Mac, but AirWatch has built some laptop management capabilities for Mac. That’s great. Now you have a story that stretches across Windows and Mac. As people virtualize desktops, they may want to have a single sign-on place to access their desktops through View or from their mobile devices through AirWatch. That single sign-on capability will be ours, which was underneath Horizon App Manager. So some of these logical places are pretty easy to think about.

InfoWorld: How do you think this acquisition will affect your brand perception?

Poonen: I use this analogy. In the previous decade, there were two acquisitions that really changed the course of the companies acquiring them: Google acquired YouTube for $1.6 billion, and eBay acquired PayPal for around $1.5 billion. Those two acquisitions, at about the same price as we’re paying for AirWatch, were seminal points in the histories of those companies. I’m not saying Google was made just by YouTube. But eBay was transformed by PayPal and certainly YouTube has been a significant part of the Google proposition.

I think AirWatch is one of those moments for VMware, where we get an opportunity to not just be a de facto standard for, let’s say, 100 million virtual machines one day. We now get to potentially touch 100 million devices in one day. And we’re in the first inning. It’s clear that we have 10,000 customers and the most number of devices under management, but … I think the first company that can manage 100 million devices and also have 100,000 customers, it’s going to be game over. And that’s our goal.

We have to take the 10,000 customers and get this to as many as 500,000 customers. Every employee carries at least one device. I happen to carry three devices, but I am the crazy mobile guy at VMware. I think it’s a great opportunity for us — and the point is to be able to catch that asset as you acquire it at just the right point. That’s what eBay did with PayPal, that’s what Google did with YouTube. I sincerely believe we picked up a really good asset at the right time.

This article, “Why VMware paid $1.5 billion to leap into mobile,” originally appeared at InfoWorld.com. Read more of Eric Knorr’s Modernizing IT blog. And for the latest business technology news, follow InfoWorld on Twitter.