It is a time of transition for VMware, which is going through both a product line and management restructure. VMware’s recent revenue forecast led Wall Street to believe that the days of hyper-growth are over for the company. While competition is heating up, VMware is taking strong actions to fortify and focus on core positions to prevent any erosion in its market leadership.
Changes
The majority of companies have adopted server virtualization, but room for growth remains in VMware’s core hypervisor business. At VMworld San Francisco 2012, incoming CEO Pat Gelsinger stated that the company would drive the industry towards virtualizing more than 90% of workloads. Additionally, VMware looks to lead the charge in creating the Software Defined Data Center (SDDC), an extension of VMware’s original mission of virtualizing infrastructure to improve efficiencies. The Nicira acquisition sits at the center of the company’s reinvigorated networking and security initiatives.
Removed from the VMware portfolio are the PaaS (Cloud Foundry, Spring, vFabric) and Big Data (Cetas) solutions, which are moving into the “Pivotal Initiative” along with EMC’s Greenplum and Pivotal Labs groups. The removal of these groups lessens the focus on developer communities and open source for VMware.
For the last couple of years, SiliconAngle and Wikibon have likened VMware’s strategy to Microsoft. The hypervisor is the modern operating system and by trying to build a platform (Spring) and corporate applications (through acquisitions such as Zimbra and SlideRocket), the former Microsoft execs (Maritz, Nielsen, Egan) were copying their old playbook. Now that Maritz and Nielsen are with Pivotal and Egan also left the company, perhaps we should look for Gelsinger to follow the Intel playbook. Like Intel, VMware’s success requires a strong ecosystem. Intel has a strong track record of sucking functionality into its solution without losing its partners; VMware needs to follow a similar path.
Competition
VMware’s hypervisor business is under attack from many angles. VMware’s original foothold into enterprise IT was for test and development environments. VMware licensing and maintenance costs have caused many companies to at least shop around for alternatives to save money. Amazon AWS offerings are attractive for short-term test environments as they can be turned on and off without acquiring or repurposing hardware. Another alternative for test and especially development are the free hypervisor offerings, KVM (and the Red Hat branded RHEV).
After more than a decade of development, Microsoft now has a solid competitive offering with Hyper-V 3. While multi-hypervisor deployments are growing, VMware still holds an enviably strong market position. The hypervisor may slowly be commoditizing, but the breadth of the network built around software, solutions and administrators for VMware will remain unmatched for the near future.
While VMware is busy trying to virtualize the remaining applications owned by IT, there is the potential for disruption from modernization of applications (such as with Platform-as-a-Service or PaaS) and hyperscale environments that don’t use a hypervisor. Hyperscale customers are a very small number of companies, but they make up between 20%-30% of hardware purchases. PaaS is nascent and an even smaller portion of the market. If the restructure of the Pivotal Initiative moves VMware away from both DevOps and CloudOps, it could leave VMware unprepared for future shifts in the marketplace.
Outlook
While the initial wave of server virtualization is past peak growth, VMware is well postioned to take advantage of several new waves:
- Converged infrastructure has virtualization as a core tenant; even VCE will support other hypervisors.
- The “Post PC” world of mobile and virtual desktops remains a strong focus for VMware. VDI has seen strong upticks over the last 6-12 months and VMware has been closing the functionality gap with Citrix.
- VMware acquisitions of DynamicOps and Nicira position it for expanding control to heterogeneous environments where the benefits of the full VMware product suite can be strongly positioned.
Action Item: Server virtualization still sits at the middle of modern data center architectures. As budgets are squeezed, IT staffs will look to tactical usage of multi-hypervisor environments. VMware is still a safe and smart choice for deployments. CIOs and administrators should consider alternatives for cost savings when the overall solution can be automated to simplify the complete environment.
