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CEO Spotlight: David DeWalt, EMC Software Group

By Angel Mehta, Managing Director, Sterling-Hoffman Executive Search

EMC’s metamorphosis from a pureplay storage company into a massive IT services provider, which also happens to be the world’s seventh largest enterprise software business, is a major success story by any measure. The man charged with leading its software initiative is none other than David DeWalt, former CEO of Documentum – EMC’s largest software acquisition to date. Angel Mehta, Managing Director of Sterling-Hoffman, chats with David DeWalt about crisis management, the new EMC, and what participating in over 50 liquidity events teaches you about M&A.

Angel Mehta: EMC has expanded and diversified quite a bit over the past few years; help me understand EMC’s core offerings today.

David DeWalt: We focus on four major, easy words and the strategies behind them. Store, Manage, Protect and Share. It’s a simple, easy way for our employees and customers to understand what we do. Store is an easy one, referring to storage of course… EMC has a complete family of storage products -- both hardware and software that manage the storage and the resources related to it. This is a big part of our strategy to manage the physical infrastructure out there. EMC has a very large business in this regard as most people know, a little bit more then $1 billion a year in revenues related to the management of storage software products. We also have a complete set of software products related to content management, which is where the Documentum acquisition comes into play.

Angel Mehta: Where does ‘Protect’ come into the picture?

David DeWalt: It has to do with backup & recovery, for example, which is what drove EMC’s acquisition of Legato. We have done other acquisitions in security, related to the concept of ‘Protect’. For example, last month we announced the intent to acquire RSA Security. The idea being that if we’re going to store and manage information, it obviously has to be secure – so we’ve assembled or acquired a complete portfolio of products and underlying technologies that help with this issue.

Angel Mehta: Have the acquired businesses grown themselves since moving under the EMC umbrella?

David DeWalt: Yes. Each of the first three concepts -- Store, Manage, Protect -- is nearly a billion dollar business. The last concept is ‘Share’, which has to do with collaboration. Prior to becoming part of EMC, Documentum acquired a company called e-Room, which was very successful – I think in the past you’ve talked to eRoom founder Jeffrey Beir, right?

Angel Mehta: I did, yes. We actually considered implementing e-Room at our firm for a time.

David DeWalt: It’s a great product, and we’ve had a number of other collaborative products on the market. So overall, the goal was to build a balanced portfolio of products in the four categories (Store, Manage, Protect, Share) that manage information, all around a strategy called ILM (Information Lifecycle Management).

Angel Mehta: Most companies struggle with positioning problems when they grow rapidly via acquisition. What’s the one thing you wish that customers or the market would understand better about EMC’s offerings from an enterprise software perspective?

David DeWalt: You’re right that the issue is perception. I was a customer of EMC when I was the CEO of Documentum… I was also a partner of EMC, and now I’m an employee – so, I’ve seen it from every angle. But the biggest thing for EMC is that many customers and people in the technology world do not recognize precisely what you said: EMC has grown and diversified – in complimentary ways, of course. It has transformed from being just the leading storage hardware company to a very complete technology company: hardware, software and services. It’s really the combination of the first three concepts: the power of “And” as we call it. Today, EMC is the seventh largest software business in the world as measured by revenues. We did a little bit more than $3.5 billion in revenue in 2005 and we’re one of the fastest growing software businesses out there. Our services business did well in excess of $1 billion in revenue. So, it’s not accurate to label us as just a storage hardware company anymore.

Angel Mehta: My question would be, how significant is the software side to EMC’s overall growth strategy? Given all the talk about software’s growth leveling off… is the software business viewed as a growth business over the next five years?

David DeWalt: Absolutely. It’s very significant. It’s the key component of the strategy. The leveling off you’re referring to applies more to startups, in my mind, because companies are just weary of purchasing from vendors that might not be around in 2 years. But there is still a plenty of demand for software solutions, and there always will be. If you know EMC’s history, largely the company grew on one product line called Symmetrix, a hardware storage platform. As it came through 2001, EMC got humbled by the fact that it essentially had one big product line that was storage hardware. When the bubble burst, it really got affected. So, we embarked on a transformation process. Software was the key component of that strategy. Since July of 2003, we’ve acquired 17 companies, 15 of them were software companies. It’s the fastest growing component of EMC’s product portfolio and the greatest profit contributor.

Angel Mehta: How relevant has SaaS been to the Documentum part of EMC? What are the challenges that the emergence of software-as-a-service pose for you?

David DeWalt: For the vast majority of the software industry’s lifespan, we’ve had one model for software: perpetual loan to sell – we just licensed it perpetually as a model. That’s how all the big software businesses grew up. Most of the billion dollar software companies today are still about perpetual licensing. So the challenges, obviously, are that from a market perspective, models like SaaS end up being a competitive alternative to your existing product line. In the long run, you have to have the capability to deliver in the model that customers want. We do it today with offerings like EMC Documentum eRoom.net. From a development standpoint, the early challenges were that legacy products were not built to be delivered as a service. This was a problem common to every vendor – that your products would need to be “rearchitected” and optimized for delivery over the web. Concepts like multi-tenancy allow you to host data from multiple customers inside a single server instance. That’s an architectural challenge that every software company has to overcome.

But SaaS is not the only ‘disruptive’ challenge for the old software guard. Look at open source – it’s changed the way people think about software. So disruptive forces like SaaS are, as strange as it sounds, becoming routine: people in our industry understand that this kind of thing is going to happen, and represents a massive opportunity when it does.

Angel Mehta: What are your top two business priorities for the software business at EMC over the next 12 months?

David DeWalt: The two that I would highlight are: refining the go-to-market strategy, and then scaling the go-to-market strategy. As a roughly $4 billion software business, the main success factor is just continuing to scale. We think about it along two dimensions: first, scaling by market segment, meaning, we need to grow from our standard segment of enterprise-level customers, by continuing to strengthen our channel in the midsize and expanding our reach into the SMB (small and medium businesses) markets. For example, on the last point, we’ve launched the EMC Insignia line of products that enable small and medium businesses to store, manage, protect and share their vital information.

The second dimension is our growth in the emerging regions of the world. Some of the fastest growing markets include Asia, South America, and Eastern Europe. The challenge is building products that meet local requirements; for example, ‘right to left’ support for Arabic and Hebrew nations. Multi-byte and localization requirements for Asian languages. Portuguese and Spanish support for South America. You can’t do business globally unless your products fit the local requirements.

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