Pivotal Software Comes Full Circle With VMware

For those who prescribe to the Samsãra doctrine of cyclic existence, Pivotal Software has been born and reborn into many corporate lives. They began as a business division of Palo Alto-based VMware, a virtualization and software company, before being spun out as an independent venture meant to cloud-compete with the likes of Microsoft, Amazon and Google.

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Long-time VMware tech exec Paul Maritz was crowned CEO-king of the cloud empire in 2012 and they began anew as Pivotal Software. Their flagship product is the Cloud Foundry, an open-source platform-as-a-service (PaaS) that provides developers with a place to deploy applications built using a myriad of programming languages, frameworks and other mechanisms. It allows developers to manage applications instead of infrastructure.

Tasked with staking a claim in the cloud services market, Maritz made it known that Pivotal wasn’t there to play little league. He admits that Pivotal’s vision isn’t for “the faint of heart” and spoke about his plans on making big data his domain. They want to be all things to all clients and offer options for both streamlined, scalable services and a suite of products built for on-premise use.

“It is not too dramatic to say that unless businesses develop these [big data business applications] capabilities in the future, they will go out of business or they’ll be rendered irrelevant,” said Maritz in a 2013 interview with CRN editors. “This isn’t going to happen overnight, but I do believe this a big a shift from mainframe to client/server. This is a new era that is starting. If you were a VAR who was a reseller of mainframe services and you were stuck on that, you probably went out of business and missed the whole client/server revolution.”

Armed with $1.7 billion in funding raised over three rounds by EMC, Ford Motor Company, General Electric and VMware, Pivotal began to build out their platform with acquisitions like its 2013 deal for mobile development and strategy firm Xtreme Labs.

In 2016, Pivotal went on a two-month shopping spree and snapped up three more companies, including Slice of Lime, a user experience design company; CloudCredo, a startup that specialized in the deployment of Cloud Foundry applications; and Neo Innovation, a small software development company.

Rob Mee took over as Pivotal’s CEO after Maritz stepped down to retire from his career in management. Three years later, the company entered a new phase when they debuted on the NYSE in April 2018, Interestingly, their IPO didn’t attract the typical 20 percent plus pop seen in early trading activity. At close of first day, the stocks were trading at $15.40 – up a modest 2.5 percent from the mid-list price of $15.00.

Much of this could be attributed to Pivotal’s somewhat complicated origin story that starts with EMC-owned VMware spinning off their cloud business back in 2012. EMC was a data analytics and cloud company that was then acquired by Dell in 2016. Following EMC swearing fealty to the Dell kingdom, 70 percent of Pivotal became part of Dell’s fiefdom but due to how the stock deal was structured, controls 96 percent of shareholder voting rights.

To compound the issue, much of Pivotal’s business came from being rolled into services sold by both DellEMC and VMware – accounting for 37 of the firm’s revenue. Lack of name recognition due to their sales channels and the backend nature of their target demographic (developers) also led to their IPO to fizzle out on their first day of trading.

Over the last year, their stock has dropped by 66 percent – 41 percent of that decline came after Pivotal’s reported Q1 financial results fell short of analyst predictions. Subscription revenues were slower to come for the company and some deals they were expecting to come together in the quarter slipped by.

Analysts from Wedbush Securities reduced the stock’s rating from “outperform” to “neutral” along with a scathing review of Pivotal’s performance: “It is clear to us that this management team does not have a handle on the underlying issues negatively impacting its sales cycles and the activity in the field which gives us concern that this quarter will be the start of some ‘dark days ahead’ for Pivotal.”

After VMware filed a SEC application revealing they were in talks to bring Pivotal back into the fold for $15 per share, stocks surged up to 72 percent from $8.30 Wednesday (Aug 13) closing price. On August 22, Pivotal issued a press release stating that VMware had signed a definitive agreement to acquire the cloud company for a total enterprise value of $2.7 billion. Pivotal’s publicly traded life now ends where it began five years prior, under the wing of parent company VMware. Namaste.