For VMware, maintenance carries financials in enterprise software 1.0 model

VMware is a cloud enabler, but the business model reflects an enterprise software model of yesteryear that's highly lucrative.

There's a lot to like about VMware.

The company is a virtualization leader, drives the software-defined movement and has a hybrid data center strategy that's an enabler to the enterprise cloud. The company meanwhile is playing the open source game often because it makes sense.

The catch is that VMware's business model is increasingly looking like every other enterprise giant you know. The playbook goes like this: Land the customers, become entrenched and then live off maintenance revenue.

The first quarter results from VMware tell the tale. The company delivered solid results as usual for the first quarter. The outlook from the company wasn't too shabby either. VMware's product cycle is solid too.

What gives me pause is that VMware resembles many of the enterprise software giants from yesteryear. In the first quarter, VMware reported license revenue growth of $576 million, up 3 percent from a year ago. Services revenue, which is barely mentioned in VMware's earnings release or conference call, was $935 million, up from $799 million a year ago.

Do the math and VMware is deriving 62 percent of its sales from services (also known as maintenance), up from 59 percent a year ago.

VMware's outlook also conveniently forgets services sales.

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This formula for VMware, billed as a next-generation cloud company, reveals that the company may be more akin to a last-generation enterprise software vendor. License growth -- 6 percent at constant currency -- is slowing, but maintenance is rocking.

What's somewhat comical about VMware's presentation is that the word "maintenance" is rarely if ever mentioned. In fact, you won't find maintenance in VMware's earnings conference call transcript. Even the term "services" is only mentioned in reference to what the company is delivering and enabling on the product front.

The runaround on terms like services and maintenance actually forced me to look up an SEC filing for VMware. In regulatory filings, VMware detailed what the services revenue line is all about.

In its recent 10-K, the company noted:

"Of our total services revenues in 2014, 88 percent comprised software maintenance revenues and the remaining 12 percent was comprised of professional services revenues, including training."

Fair enough. But VMware's revenue is decidedly "enterprise software 1.0." And who can blame it? The model kicks some serious booty and has landed $7.23 billion in cash and equivalents in the bank.

Actually, VMware customers seem content with being locked in a bit. VMware works open source well, plays with other clouds and is recasting the data center. There's a lot to like. What's surprising is that VMware has to gloss over maintenance revenue as if it's a bad thing. Oracle, Microsoft and SAP have been working the maintenance cash cow for years.

It's not a crime. Maintenance as a term, however, just doesn't play to VMware's core shtick as a cloud player.

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