VMWare, a cloud computing company, is selling Zimbra to Telligent, which makes social software for businesses. VMWare is seeking to reinvigorate its core business that led to this strategic decision. VMWare was an early pioneer in the server virtualization market. As the virtualization market has matured, the Company’s growth has slowed and it needs to concentrate its resources on differentiating its core business. This type of fast moving acquisition and divestiture is characteristic of the tech world. Zimbra was bought by VM Ware in 2010. This was seen as a way to extend the Company’s reach into new markets.
While Zimbra has continued to grow over the last three years, VMWare sees the need to focus more fully on its software defined data center business model. While the two companies appear to have some level of complementary benefit when first acquired, the strong headwinds of competition in cloud computing appear to have a negative effect on VMWare’s growth rate. This divestiture is a smart one for the Company. Zimbra’s underlying business is competitive as well, and will need additional capital investment to ensure a strong position and rapid growth.
Post divestiture, VM Ware will have more management bandwidth to devote to fixing its core business. Finally, having completed multiple divestitures of company, VMWare can now focus in a single-minded way on its core business. While the cloud represents a paradigm shift in the way we use computers, the immensity of the market has attracted a lot of entrants. VMWare is a strong company and can best build long-term shareholder value by identifying the next generation of innovation utilizing the cloud.