VMware is at an interesting crossroads of its existence. The company has been around for 15 years and has evolved dramatically from the company that filled a niche in the market for non-mainframe server virtualization. In those early days, VMware was small and unintimidating and pretty much the only game in down. Over the next several years it evolved into a powerhouse in server virtualization – in essence owning the market. The company was sold to EMC in 2004 and three years later, EMC took the company public with 15% of the company’s shares. Today, VMware stands at an important transition point. There are three elements to this transition:
- VMware’s strangle hold on the server virtualization market is being challenged by Microsoft’s HyperV and KVM, the open source hypervisor. This will both challenge its leadership and its pricing flexibility.
- VMware has built a broad set of offerings that augment server virtualization. However, as the server virtualization market matures, it needs to create a bigger footprint for its customers. It has selected expanding virtualization and cloud computing.
- VMware has the task of convincing customers to expand their share of wallet with VMware in both cloud and new areas of virtualization including networking and storage.
Can VMware do it?
These are big challenges for VMware. First, the individuals who are in charge of server management dominate its client base. VMware management would like to leverage its core strength in virtualization to capture a bigger share of the IT market. VMware was lucky in that it came out with server virtualization at the right time. It filled a void. Under Paul Maritz’s tenure as CEO, the company explored new markets such as collaboration and big data analytics. Today VMware is getting more focused on its traditional strengths. The new CEO, Pat Gelsinger, is taking the company on a new path – selling off collaboration assets and moving data analytics products such as SQLfire into the new Pivotal organization. Gelsinger’s strategy is straight forward: focus on adding new offerings that leverage VMware’s beachhead in virtualization and its strong customer base that understands that cloud services are the next stage after virtualization.
Therefore, the focus for VMware moving forward is on the Software Defined Data Center (SDDC) and on Hybrid cloud services. The SDDC is, in effect, adding virtualization to networking, storage, and applications. In essence, VMware management is hoping that the company will be able to gain ownership of the infant SDDC market as it did with server virtualization. In the meantime, it is anticipating that its customers will leverage its newly announced public cloud services in combination with private cloud offerings. It hopes to gain traction against Amazon in the public cloud market and the myriad of competitors in the private cloud market.
Can VMware leverage its server influence to other parts of the data center?
Ironically, one of VMware’s key strengths also presents a challenge for the company as it tries to expand its offerings. VMware’s most loyal following comes from the server operations side of businesses. These are the operations team that focus almost entirely on the complexities of implementing and manage the server virtualization environment. Typically, those managing networks, storage, and applications are in different departments. Therefore, VMware will have to make inroads with a new set of constituents. The same problem faces VMware in the hybrid cloud market. It will have to convince departmental and the C-team that it is the best partner to bring their companies into the cloud era.
VMware’s business model is quite different from many of its competitors. It is owned by EMC; it partially owns collaborative companies including VCE and Pivotal. At the same time, VMware has to keep its partner ecosystem happy since as much as 90% of its revenue comes from partners. Therefore, VMware is in a delicate position. The company needs to expand into new markets because there is so much pressure on its server virtualization revenue. However, new markets such as networking put the company on a collision course with Cisco – an important partner on several fronts. Likewise, the hybrid cloud market – including cloud management may put the company at odds with key partners such as HP, IBM, and BMC.
Maintaining momentum in a complex market
VMware has set an ambitious agenda for the next stage in its evolution. Will the company be able to translate its lucky start with server virtualization into another big win? I suspect it will be much harder this time around but not impossible. In my book, Smart or Lucky? How Technology Leaders Turn Chance into Success, I point out that many innovators in the computer industry have been at the right place at the right time. These companies grow arrogant and do not change fast eouugh to overcome competitive threats.
VMware’s strong partner ecosystem will be instrumental to its success. It has a jump-start in initiating the market for the software defined data center. Its cloud strategy is off to a good start but needs time to mature and evolve before it can claim leadership. VMware will have to navigate an increasingly complex and competitive environment. I suspect that we will know how well VMware will make the transition from a dependence on server virtualization within the next two to three years. It will be an interesting transition that we will all be watching.