VMware CEO Raghu Raghuram is ready for more SaaS: Are his customers?

VMware's new CEO is focused on accelerating the company's SaaS and subscription business -- the hardest part may be accommodating the customers taking their time moving off premise.
Written by Stephanie Condon, Senior Writer

Ninety days into his new role as CEO of VMware, Raghu Raghuram has spoken with nearly 200 customers to make sure the virtualization and multi-cloud company is on the right track. 

"In my prior role, obviously, I did speak with a lot of customers, but this was an opportunity to approach my new role from the outside in," he told ZDNet. "And the great news is, it reinforces a lot of what we are planning to do."

That comes down to VMware's goal of becoming the multi-cloud platform provider of choice. And in order to do that, "we have to accelerate our transformation to a subscription and SaaS business model," Raghuram said. "So those are the two things that I'm focusing the company on doing."

The company on Thursday published solid second quarter results, with total revenue growing 9% year-over-year. Subscription and SaaS revenue grew 23% year-over-year, while subscription and SaaS annual recurring revenue (ARR) grew 26%.

It was a strong showing, though subscription and SaaS revenue still accounts for just 24.7% of total revenue, as it did the previous quarter. For the full fiscal year, CFO Zane Rowe said VMware expects subscription and SaaS revenue to account for more than 25 percent. 

"If you step back, and if you actually look out over the next year or so, we are very bullish about the overall subscription and SaaS portfolio," Raghuram said on Thursday's conference call. 

However, in the moment, he said, "it turns out that in certain geographies and in certain verticals, given the choice, customers prefer a licensed software business model over subscription and SaaS business model." 

That was particularly true in Q2 when it came to Horizon, VMware's virtual desktop infrastructure (VDI) and Desktop-as-aService (DaaS) platform.

"We also saw it a little bit with Cloud Universal," Raghuram said -- VMware's new subscription option, "which was off to a good start." Many customers using the option, he said, "start their cloud journey on premise."

That means VMware has to keep those customers top of mind. 

"We are committed to customer choice, giving customers choice and flexibility," Raghuram told ZDNet, "which means we've got to be great at providing and servicing customers through a perpetual business model," while also building out the SaaS business.


To make sure the subscription and SaaS business continues to grow, the company will be building more programs like Cloud Universal. Additionally, Raghuram said all of VMware's new product and innovations will come to market with a subscription and SaaS business model. The company is also taking all of its existing perpetual license software products and making them available in a subscription business model, including products like vSphere. 

In addition to building new products, VMware is expanding its partnerships with hyperscalers and others. VMware Cloud on AWS had a strong second quarter, with revenue increasing nearly 80% year-over-year. 

"The past two, three, four years, we've been partnering pretty closely with all of the hyperscale cloud providers," Raghuram said to ZDNet. "And not only the major ones in the US but internationally as well. And so we continue to develop the partnerships, we continue to go to market with them, we continue to co-innovate with them."

Meanwhile, VMware's spin-off from Dell should make it easier to pursue other partnerships, 

"We have got a great relationship with Dell, obviously," he said, noting the many partnerships VMware established while under Dell's control. "However, the fact that we are now going to be a standalone, independent company allows certain other companies that have been historically reluctant to partner deeply with us... now to partner more strategically. And so we have been engaging in those sort of conversations, and you'll see a lot more of them."

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