Google just bought a startup that was once a key part of Microsoft's cloud strategy (MSFT)

Google Cloud CEO Thomas Kurian at Google Cloud Next 2019

Google has bought a startup called CloudSimple for an undisclosed sum.
This smart acquisition comes as no surprise to anybody watching Google Cloud CEO Thomas Kurian and his strategy.
Interestingly, CloudSimple was originally a crucial part of Microsoft's cloud ecosystem — until Michael Dell brokered a peace deal between VMware and Microsoft.
Now CloudSimple stands as a symbol of how important VMware has become to all the major cloud players.
Read more enterprise tech stories on BI here.

Google announced on Monday that it was buying a startup called CloudSimple for an undisclosed sum.

To anyone watching Google Cloud CEO Thomas Kurian and team try to build Google Cloud — which lags behind Amazon Web Services and Microsoft in market share — into a fiercer enterprise competitor, this acquisition is a smart one that comes as no surprise.

But the backstory as to how CloudSimple came into Google's hands is an interesting one: CloudSimple was originally a crucial part of Microsoft's cloud ecosystem. It was founded by Guru Pangal, known for selling his startup StorSimple to Microsoft in 2012 and staying on for the next four years to work on the Microsoft Azure cloud. When he left to launch CloudSimple, he immediately landed funding from Microsoft's venture fund.

CloudSimple became an authorized VMware partner. Its goal was to allow VMware customers to be able to easily "lift and shift" from their own data centers straight to the cloud. Lots of companies — including most of the largest in the world — use VMware's products to run some of their most important applications such as financial software and databases. VMware counts some 500,000 companies as customers.

Microsoft knew that the fastest way to turn Azure into a global cloud computing giant that could rival Amazon was to grab as many VMware customers as quickly as possible.

But VMware and Microsoft were long-time rivals and VMware had partnered with Amazon Web Services, declaring it as its preferred cloud partner.

With Microsoft as an investor, the first cloud that CloudSimple's software supported was Azure. Microsoft planned to use CloudSimple to bring VMware's software to Azure, with or without VMware's permission.

VMware was unhappy at first, until Michael Dell, CEO of the eponymous company, entered the picture. Dell's company owns a controlling interest in VMware, but Dell built his fortune selling Windows PCs and has close ties to Microsoft. He brokered a peace in which Microsoft obtained formal permission for Azure to run VMware's software using CloudSimple as the middleman.

But he also slipped another Dell-owned company into the mix: Virtustream, a competitor to CloudSimple that was named the favored method of moving VMware software to Azure.

Google enters the picture

Google Cloud CEO Thomas Kurian also knew he needed to grab as many VMware customers as possible if he hoped to grow the unit to be as big as AWS or Azure.

And so, in August, Google struck up a partnership with the spurned startup, CloudSimple. The talk around town was that Google should cut to the chase and buy CloudSimple. It wasn't clear if the delay was because Google didn't realize it needed the startup, thinking it could do the years-worth of engineering work by itself.

But clearly with this deal, Google has decided that owning CloudSimple, and its talent, is a shortcut into the lucrative world of VMware customers — especially those who are using VMware on Microsoft Azure, where CloudSimple made its name.

Meanwhile, VMware spent much of 2019 showing that it's changed its mind about its cloud strategy and is now happy to have its software run on all the major clouds.

While AWS is still VMware's "preferred" partner — the only cloud that has a dedicated engineering team from VMware and joint sales teams — it is not pretending the relationship is exclusive. VMware COO Sanjay Poonen has now brokered partnerships in one form or another with all six of the world's biggest public clouds.

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