It’s Time to Prepare for Dell Virtustream’s Early Retirement

How Customers Can Mitigate Risks of Forced Public Cloud Migrations

Private managed cloud providers are accelerating customer journeys to the public cloud due to the retirement of their own assets. This includes Dell Virtustream.

Virtustream is a Dell-owned provider of enterprise cloud services, software, and infrastructure-as-a-service (IaaS). After Dell acquired EMC in 2015, it absorbed several EMC components that were difficult to integrate with Dell’s existing cloud-related product portfolio. One example was Virtustream, a managed cloud service that EMC bought just a year prior.

The hope was that with EMC’s financial strength and customer base, Virtustream could enter the mainstream public cloud market. But this idea did not come to fruition, leading Virtustream to begin forcing its customers to migrate off Virtustream infrastructure and onto public cloud services.

Here, I will discuss Virtustream’s current position in the market, what concerns current Virtustream customers have, and what customers can do to gain control over their digital transformations and cloud migrations.

Virtustream’s Current State in the Market

Virtustream has been experiencing challenges with getting infrastructure provisioned despite historically owning their own datacenters. Because of this, Virtustream is changing their business model to promote more public cloud migrations and support through the hyperscalers.

They have already started to move customers out of Virtustream’s wholly owned infrastructure and into hyperscaler arrangements with GCP and Microsoft for their cloud environment. If you are a current Virtustream customer, you may be next.

As a result of this change in business model, there are several concerns Virtustream customers may have, including:

• Performance issues due to no material investments being made into Virtustream
• Limited timeframe with which to make the move to the public cloud, even for customers who were already considering a move to a public cloud provider
• Knowing there are better, more scalable options available in the marketplace but that a move to the cloud will still be necessary to get there
• The importance of de-risking their migration program

Customers in the Healthcare space, where Virtustream has gained a lot of traction, may face additional hurdles. Healthcare providers may have customized offerings, presenting a unique challenge for a custom support model in such a highly regulated industry.

Traditional private managed cloud providers usually provide dedicated or shared physical and virtual infrastructure for one customer. Regardless of industry, customers chose this operating model over a public cloud model for several reasons: customized support, higher availability, and security for their mission-critical applications. Now, these same customers have to rethink their infrastructure strategy or even switch operating models altogether.

What are Other Private Managed Cloud Providers Being Faced With?

Other private managed cloud providers have used a more forceful approach to migrating their clients to the public cloud. For example, Kyndryl is forcing customers to move to the public cloud in as little as 6 months.

Kyndryl was struggling to maintain profitability and experiencing compatibility issues with its existing portfolio. IBM, Kyndryl’s former parent company, began to form partnerships with the three major hyperscalers (Amazon Web Services, Microsoft Azure, and Google Cloud Platform) to control the public and private cloud. We have seen this play out with Virtustream in a similar way with Dell forming partnerships with the hyperscalers instead of directly competing with them and losing.

Dell has been trying to smooth out their relationships and move their customers from heritage Virtustream cloud contracts to their new Data Center Utility and Dell Technology Managed Services solution. However, it is important to note that there are situations where some customers are not experiencing such a gradual transition.

What Do Public Cloud Migrations Mean for Virtustream Customers?

Customers are being caught in a vulnerable position with limited options. This is a direct result of having been given a short period of time to migrate to the public cloud.

Customers are not engaged in the co-creation and product development processes for these new operating models. This gives them very little visibility into what comes next for their datacenter operations. By the time they hear about it on the quarterly earnings call, it’s already too late. Instead, these new operating models are being forced onto them by traditional private managed cloud providers.

Most companies are not in a strong enough position to fight back. Either they lack:

• The right degree of sophistication to negotiate such deals or
• The right amount of buying power or overall leverage.

Even if they have contractual footing, some clients will simply have to bend to the will of their traditional private managed cloud provider.

How Dell Virtustream Customers Can Mitigate Potential Risks of Public Cloud Migrations

Customers who are under contract with Virtustream or other similar firms should be aware of this potentially problematic situation. Here are two steps you can take to mitigate the impact of these changes.

1. Conduct a Comprehensive Contractual Review

Determine whether you are under contract with these firms or another traditional private managed cloud provider that may be affected by this shift to the public cloud. If such a relationship exists, conduct a detailed contractual review of the governing terms and conditions in place to understand the following key provisions:

• Termination and Transition Services
• Notice Period
• General Financial Constructs

2. Create a Competitive Environment

Form a deeper bench of competitors to Virtustream to mitigate the reliance you have on their software. Begin with your existing supplier relationships and explore whether an existing supplier can replace the function of what Virtustream is proposing. From there, begin to gather net-new suppliers and compile a list of potential RFP participants to create a competitive environment.

Virtustream’s change in business model poses a clear and present risk to organizations using their services. Organizations would do well to enlist support from a third-party advisory practice with experience in this particular area.

UpperEdge has advised clients in these situations and on downstream negotiations with their end-state hyperscaler. Learn more about how we can help you navigate a successful move to the public cloud with a comprehensive cloud strategy.