VMware and AirWatch: A match made in heaven

The enterprise mobility management market is about to get a lot hotter as targets start to dwindle.

VMware’s decision  to acquire enterprise mobility management (EMM) vendor AirWatch for more than $1.5 billion is the biggest in a growing market that’s showing signs of rapid consolidation.

AirWatch is privately held and based out of Atlanta. It has been one of the clear leaders in the growing market for mobility management solutions over the past three years. The acquisition represents a clear statement of intent from VMware, affirmation of the need for managed mobility solutions, and a successful, well-timed exit deal for AirWatch.

The deal is the biggest so far in a market that has already seen heavy M&A activity over the past 24 months. VMware’s acquisition of AirWatch is a significant shake-up, and will leave a few independent, niche mobility specialists up against a growing list of major IT vendors.

This means, of course, that there are only a few high-end options remaining for bigger names to acquire. The VMware–AirWatch deal looks set to kickstart a busy period of acquisition activity, as mega-vendors that are not already heavily involved in the space buy into it.

Sweet deal for AirWatch

AirWatch has been one of the leading vendors in the enterprise mobility management market, exhibiting phenomenal growth over the last few years – now boasting 1,600 employees and 10,000 enterprise customers globally. Having received $US225m in investment in early 2013 (used primarily to complete its global expansion and aggressively push organic growth), the acquisition price of $US1.5 billion will no doubt be pleasing to AirWatch’s founders and investors.

The firm’s leadership may well have seen this as the ideal time to sell up, and we are inclined to agree. AirWatch’s reputation for leadership in terms of feature innovation (including its cloud platform) and large, quickly growing customer base makes it an attractive target, but with heavy competition from mega-vendors with huge resources looming ever closer on the horizon, this growth is under threat.

AirWatch’s policy of aggressive customer acquisition appears to have paid off, and joining one of the big-name vendors and making use of the extra resources to continue expansion looks like a sensible route to take. AirWatch appears to be targeting a long-term move into the wider IT services and asset management world beyond mobile, as evidenced by its support for Mac OS, but it will take time and further massive investment for it to emerge as a real competitor in that bigger market.

A bold move from VMWare

The deal demonstrates the value placed on EMM solutions by leading IT service and application vendors; mobility is becoming an integral part of these vendors’ wider offerings, and they are prepared to spend big to get the right product.

The acquisition allows VMware to plug a gap in its offering. AirWatch’s fast growth and large customer base is highly valuable, and VMware can start to ramp up the acceptance of its mobile offering with AirWatch’s ecosystem partners and channels. AirWatch’s market presence will have driven the price upward, but VMware can now also add an important array of features to its End User Computing unit.

VMware’s strength and reputation lies in desktop virtualisation, which it has used as its primary method to manage enterprise mobile estates. AirWatch will provide it with attractive, tried and tested, alternative features in mobile device management (MDM), mobile app management (MAM), and mobile content management (MCM). The acquisition adds significantly to VMware’s existing EMM feature set, automatically positioning the firm as a leader in the market.

A shrinking pool

The EMM market is fast consolidating, and only a few leading independent software vendors remain: Good Technology, MobileIron, SOTI, BoxTone, and the likes of Apperian in the MAM space. BlackBerry is, of course, a different case, but cannot be disregarded as a competitor with its large base of customers and its BES 10 offering cross-platform mobility management.

These vendors will face stiff competition from mega-vendors such as IBM, SAP, Dell, and CA, as well as VMware, Citrix, and security vendors such as Symantec and McAfee. Furthermore, several other big names are yet to make major moves (HP and Microsoft for example, and maybe even Oracle, which has made a relatively small recent acquisition in Bitzer Mobile), and the remaining independent leaders look like ripe targets for these big names to acquire.

Expect the VMware–AirWatch deal to fuel a surge in M&A activity in the space over the next 6–12 months, as the remaining mega-vendors buy their way into this fast growing market. EMM looks like the new hot commodity ready for land grabbing in the industry. However, if the offers do not come in, there is potential for one or two of the niche players to become a dominant “mini-major” in the space, rolling up the remaining competition and becoming the go-to name when enterprises want a specific EMM point solution.

Richard Absalom is an analyst for Ovum's consumer impact technology division.