​VMware plays 'value' card as competition intensifies

Analysts warn that VMware will face increasing competition from startups and established cloud players, but VMware CEO Pat Gelsinger says its focus on providing "value" via its products will keep these rivals at bay.
Written by Eileen Yu, Senior Contributing Editor

BALI, INDONESIA--VMware is facing growing competition from startups--namely, Nutanix-- and established cloud players such as Amazon and Google, but the virtualization vendor said its focus on providing "value" via its products will keep these rivals at bay.

Critics say the company's expensive licensing fees, often coined "vTax", are driving customers to look for cheaper alternatives. They add that VMware is highly proprietary and customer risk being locked in to its platform.

CEO Pat Gelsinger said such criticisms surfaced because the company's technologies were well ahead of its competitors, which had resorted to offering substantial discounts or giving away their products and services for free in a bid to "dislodge" customers from VMware,

"So essentially they're buying the customers and the customer has refused to go to the alternative technology. Why? Because we deliver so much more value with our technology. To me, this is always a discussion of value [and] not a price question," Gelsinger said, in an interview with ZDNet, on the sidelines of VMware's Asean media summit held here this week.

"Clearly, some customers are always concerned about price in certain segments of the marketplace," he said. "We're not averse to having aggressive views [about price] as we go into new markets or categories and need to compete with the market dynamics in those segments."

He also dismissed suggestions the company's products were proprietary and forced customer lockin, noting that VMware had taken steps in embracing a broader set of technologies over the last couple of years.

He added that the vendor had participated aggressively and in multiple dimensions to drive innovation around its products. He pointed to the VMware-developed APIs for networking and policy management for OpenStack, called Neutron and Congress, respectively, as examples of its efforts.

In some product categories, Gelsinger said, VMware's offerings were superior and ahead of its competitors, providing features that were innovated four to five years ago.but were still not available in another vendor's products. He suggested this had led to criticisms about proprietary when, in fact, it was more a statement that the vendor was the only one in the industry with the capabilities to offer these technologies.

Gelsinger was in town to speak at the company's CIO Leaders Asean Summit, which was in conjunction with the media summit and had gathered 56 CIOs and 39 partners from the region. Together with other VMware executives, the CEO detailed the vendor's strategy around software-defined data center (SDDC) and cloud, driven largely by its network of partners, which includes 500 vCloud Network Partners in the Asia-Pacific region, including Japan.

Still a virtualization vendor, not yet a cloud contender

While it had been evangelizing its cloud gameplay, industry analysts ZDNet spoke with said VMware was still predominantly perceived to be a virtualization company, and not the kind of cloud services provider typically associated with the likes of Microsoft, Amazon Web Services (AWS), and Google.

Glenn O'Donnell, Forrester's vice president and research director, infrastructure and operations, noted that VMware's success in one thing--namely, virtualization--had typecasted the company and it would be tough to break out of this mold.

He explained that it would prove difficult for VMware to shun a strong installed base that produced a rich source of revenue and the large number of virtualization customers would keep the vendor focused on its past, rather than future.

O'Donnell said: "The trick is to par lay this successful past into a profitable future. That's never easy, but by moving into an adjacent market rather than a totally new one is easier. VMware can do this and that is indeed the plan as it strives to evolve its virtualization base into cloud."

Simon Piff, associate vice president for enterprise infrastructure at IDC Asia-Pacific, concurred, adding that VMware was struggling to assert itself in the mobile and cloud realms. "They have reasonable offerings in both places, but have shot to stardom in the virtualization space that they [now] are having trouble realigning their perception in the market," the analyst said. "They have a good management team with a clear strategy and some aspirational marketing, but they are unable to shake the 'virtualization company' perception."

Asked about this, Gelsinger acknowledged the bulk of the company's revenue today still came from its traditional virtualization compute business, but noted that the vendor had been communicating its growth in new business areas comprising networking, storage, management, and end-user computing.

He said VMware was slowly changing that perception among customers as it played out its one cloud, any application, any device vision, and demonstrated its broader product portfolio.

"When you look at vCloud Air service, [for instance,] that's a fraction of the total VMware base services that we offer in the marketplace," he noted. "I said in our last analyst meeting, if we add up all of the public and managed cloud services running on the VMware software, that's greater than a US$2B business today. And while AWS is the [market] leader, [VMware] clearly is number two. The broad network of partners we're enabling is unquestionably the second largest set of cloud capabilities in this industry."

Compared against its competitors such as Microsoft and AWS, Piff said VMware's cloud strategy was very enterprise focused and it was able deliver on what it promises in this aspect. However, its market play is not as prevalent in the Asia-Pacific region where it has only a small footprint, he said.

O'Donnell, though, said VMware should not be compared on similar grounds against AWS and Microsoft, adding that the vendor would "fail, badly" if it tried to out-compete AWS in the public cloud space. He said each player in this space serves different purposes, and enterprises will need to assess their options and choose the right tool for the job.

"That said, VMware has a lot of work to do to gain market share in the public cloud market, [which are led] by AWS and Microsoft. Even IBM is making good progress here," the Forrester analyst said. "VMware is in a horse race with literally hundreds of other cloud providers for a different corner of the market than AWS commands today."

He also pointed to the potential for collisions in this segment involving VMware and its partners, many of which are also its competitors in the public cloud space. He noted that these partners "are at serious risk" unless VMware clarified its strategy on how it will co-exist with them. This, however, would not be easy since the vendor's partner ecosystem is sizeable, he said, adding that the company "cannot take this challenge lightly".

"Careful" balancing of partner ties

Elaborating on VMware's relationship with its partners, Gelsinger said it required "a careful balance" and agreed that there would be days where its partners would be upset that the vendor was competing with them for business.

Here, again, he underscored the importance of offering value to customers, noting that if partners were able to present their value in areas where VMware had not created a better technology and customers demanded that technology, then its OEM partner should be addressing this and servicing these clients themselves.

"So it's really about striking that good balance. Every once a while, yeh, they might get upset with us one day and we might get upset with them another day, but we keep leaning into those relationships," he said. "We have quarterly business reviews with the partners, so we talk about the business strategy together and constantly move forward."

Gelsinger said he saw Microsoft and AWS as VMware's long-term competitors, adding that it also competed with Citrix.

Commenting specifically on Nutanix, which had been targeting VMware as its main rival, he said the startup's products ran in VMware environments so it was also a partner. He also noted that Nutanix competed mostly in the hardware space, while VMware was focused primarily on software.

"Nutanix obviously worked hard to create a category of converged infrastructure, but the unquestioned leader in converged infrastructure is VCE," he said, referring to the joint venture between VMware, EMC, and Cisco Systems. "The technology industry is well known for 'coopetition'. We compete and cooperate as we're trying to create a whole category of players."

"Nutanix is competing more with EMC, HP, and other hardware vendors, and we're enabling those hardware vendors with our software to go compete in that category of hyper-converged infrastructure. We're quite comfortable that market dynamics would be good one for our customers."

Asked about VMware's recent partnership with Google on enterprise public cloud, O'Donnell said the alliance could bode well for both companies, but presented a risk for the former. The Forrester analyst noted that Google was a consumer juggernaut but had yet to make significant headway in the enterprise market, so tapping VMware's expansive client base in this space would provide a huge boost.

"VMware benefits by tapping more tightly into Google's impressive family of services, but in some ways this is a deal with the devil. Google is already built at web scale, while VMware is just getting started," he said. "There's more to the Google cloud datacenter secret sauce than just software. In the long run, that favors Google more than VMware, unless VMware makes some hefty investments in the physical side of their own secret sauce."

Piff believed the partnership was inked as a "protection strategy" on VMware's part, pointing to how the vendor had also adopted and embraced OpenStack and even Docker, which container business would have been a direct rival to VMware's virtual machines.

"All these technologies have the possibility of limiting the growth of VMware, and so they have a pragmatic strategy to embrace and partner so they don't get shut out of the conversation," the IDC analyst said. "Face it, VMware is a prevalent enterprise virtualization platform, so working with others makes more sense than trying to be all things to all people."

Asked about key challenges the vendor faced moving forward, Piff noted that enterprises' comfort level with public cloud services would likely increase as they deployed and gained more exposure to private cloud technologies.

This transition would place VMware in a more competitive market landscape, though it was still some ways off.

He pointed to OpenStack as a more immediate threat for VMware in Asia-Pacific, especially China, as more vendors moved to support the open source cloud platform. If the software worked and available support was adequate, the open source licensing model would make economic sense to organizations, he added.

"That there is a VMware version; is a defensive play that does not make much sense if [enterprises] are serious about OpenStack," Piff said. "Docker is not really a threat, but it will impact the number of VMs that need to be deployed and other technologies similar to Docker will also likely emerge, which may perhaps remove the need for VMs (virtual machines) altogether."

Explaining its OpenStack offering, Gelsinger said VMware was among the top 10 contributors of OpenStack releases and had contributed open source components to the community.

He added that OpenStack described itself as an open framework for building cloud, rather than an open source open framework for building clouds, and VMware supported this. "But we don't believe the only way for customers to take advantage of those innovation is by having open source components that might severely deprecate their function," he said, pointing to VMware's decision to release its offering based on OpenStack.

He added that success in the cloud realm did not revolve around the amount of capital the market player had invested in the ground or how many network connections it had. Instead, the software stack it built played an important role.

"If we look at the people who are dropping out of the market, they don't have those software technologies [or] put thousands of people developing the software stack to create that cloud environment," Gelsinger said. "And that's what we think is our differentiator for our future is building value propositions for customers."

Based in Singapore, Eileen Yu reported for ZDNet from VMware Asean Media Summit in Bali, Indonesia, on the invitation of VMware.

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