Why VMware is spinning off Cloud Foundry and SpringSource

To say VMware and EMC are desperately seeking enterprise cloud credibility with the proposed spinoff of Cloud Foundry and SpringSource along with key EMC(s emc) technologies into a separate subsidiary might be overstating the case. But not by much. The move shows that EMC and VMware(s vmw) must strengthen their hand in enterprise software and cloud computing. The EMC subsidiary, expected to be announced this week,  will focus resources — and about 1,000 former VMware employees — on this key segment where VMware’s buyout of SpringSource in 2009 and other acquisitions failed to gain traction.

With this move, VMware is taking assets that it undervalued and undersold and gives them their own launch pad. That reconfiguration will let VMware focus on core infrastructure — virtualization, software defined networking etc. — and work with other parties in application development platforms. The new subsidiary gets room to pursue other clouds to host its application services. Startups already use Spring and RabbitMQ, another VMware acquisition, to build applications. But enterprises want support, training etc. to put those application services on their own cloud without being tied to vSphere’s licensing and price model, according to one industry vet.

Taking on the cloud giants

The new subsidiary would also bring EMC’s Green Plum data analytics expertise and Pivotal Labs agile development into the mix. Together this melange of technologies — if put together right — could pose a potent counterweight to Microsoft’s(s msft) Azure Platform as a Service and — perhaps more importantly — Amazon Web Services. Amazon(s amzn) is adding higher value services like the Redshift data warehouse as a service to attract enterprise customers. Redshift takes aim squarely at Oracle(s orcl), IBM(s ibm), and Hewlett-Packard(s hpq) — and you don’t get much more enterprise-oriented than that.  And, cloud-based enterprise software mojo courtesy of this VMware spin off would give EMC — a legacy storage hardware maker — more relevance going forward.

Last July, in breaking the news of a possible VMware spin-off, GigaOM’s Om Malik and Stacey Higginbotham wrote:

“The move would help VMware, which is majority owned by storage vendor EMC, offer a competitor to cloud computing services offered by Google, Microsoft and Amazon. All three of those players are building out the infrastructure and platform layers to become the IT departments for developers and enterprise customers.”

VMware continues to dominate server virtualization in corporate data centers, but is struggling to extend that power into the cloud, and its core virtualization business is getting commoditized. As mentioned, it faltered in its effort to sell a more complete software stack — including SpringSource’s Java-based frameworks — to enterprise accounts. Key SpringSource execs left VMware because they felt corporate leadership did not give Spring technology ts due. The new subsidiary will be able to concentrate on that business and leave VMware to keep running its profitable virtualization business. Of course, that all depends on execution.

New subsidiary gets key piece parts, but execution is key

Paul Maritz, the former VMware CEO who became EMC’s chief strategist a few months ago, will reportedly lead this new effort. He is known for his technological smarts and strategic vision. And, his years as a top Microsoft executive give him credibility in enterprise applications. Still, under Maritz, VMware itself was unable to push its full software stack vision successfully. And the brain drain from SpringSource and other acquired companies could haunt the spinoff going forward. (Both VMware and EMC declined to comment for this story.)

Under CEO Joe Tucci, EMC has shown great adaptability and foresight with acquisitions including the buyout of VMware itself, that extended its reach beyond storage hardware. It remains the storage kingpin among enterprises running their own data centers but more storage workflows are moving to the cloud — where the brand of underlying storage hardware is of little consequence. EMC clearly sees that threat, but it’s by no means clear that the company has the mindset to compete with IaaS/PaaS giants like AWS or Google which have huge economies of scale. Cloud Foundry, an open-source PaaS that VMware encouraged other vendors to build upon while also planning its own commercial version, provides some assets that could play in the broader Infrastructure-as-a Platform space. It is unclear where other cloud assets such as the Mozy cloud storage, acquired by EMC but then turned over to VMware, will play.

But the long and short of it is that this spinoff is EMC’s and VMware’s latest attempt to grapple with that key web-scale enterprise cloud challenge. And to succeed, execution will have to be flawless.