VMware’s(s vmw) core server virtualization business is under pressure in the cloud computing era — and the changes at the top — most notably the ascension of Pat Gelsinger to CEO and the sidelining of Paul Maritz, may have been made to address that situation.
From the time EMC(s emc) bought VMware in 2003, there has been a worry that the giant storage company would big-foot VMware’s red-hot virtualization business. Things appeared to be largely copacetic, however, with the glaring exception of EMC’s firing of Diane Green, VMware’s co-founder and president, five years later. EMC CEO Joe Tucci replaced Green with Maritz.
With businesses moving more computing load outside their own data centers — where VMware is typically a standard — into the cloud — where it may not be — VMware is at a crucial juncture. Businesses are loathe to lock into a single vendor for too much of their work — whether that vendor is Amazon(s amzn) on the public cloud infrastructure side — or VMware. That’s a tricky passage for Gelsinger to navigate.
EMC ties could bind
The new-look VMware under Gelsinger must guard against favoring the products of its parent company over those of its competitors. There’s always been a nagging fear that VMware would work better with EMC storage than storage products from Hitachi Data Systems or NetApp(s ntap), analysts said. “Virtualization is such a broad platform that VMware has to be agnostic and make sure it works with everyone’s stuff,” said IDC virtualization analyst Gary Chen.
The need to balance these competing interests is one reason EMC, Cisco(s csco) and VMware formed the VCE alliance a few years ago to push a Vblock bundle of their respective hardware and software into data centers. That could also be the motivation for a proposed cloud spinoff comprising VMware’s CloudFoundry platform as a service.
One VMware insider said there was always debate at the company about how closely it should hew to the parent company’s agenda. Should VMware, for example, bundle RSA Security products and services with its own? “I’m not sure why the hell not, but not everyone agreed,” this insider said. EMC bought RSA in 2006. EMC, for all it software know-how, still wants to sell high-margin hardware and that’s not a good fit in the webscale universe.
“We need to compete with Amazon, which abstracts out all the underlying hardware from the user. EMC is good for the Gold data center, but [VMware] needs to be in the silver and bronze data centers too,” this insider said.
By almost any measure VMware has had a good run under Maritz with the notable exception of the vSphere price hikes last year. Customers are still angry about them — angry enough to give Hyper-V or Xen or KVM at least a look. And that’s the real challenge Gelsinger faces, despite all the future-sounding talk about software-defined data centers that highlighted Tuesday’s conference call announcing the management shift.
The pricing move “was the one big blemish on Maritz’s record,” said IDC’s Chen. Overall, VMware — for all the noise around Microsoft’s progress in the core hypervisor business — has done fine, in his view. In 2008, Microsoft had 20 percent of the hypervisor market in units and has 28 percent now, according to IDC numbers. VMware’s share in that time went from 62 percent to 56 percent. “When you start with that big a lead, you’re bound to lose share and six points in four years isn’t much,” Chen said.
Needed: more focus
That price hike, and the fact that it caused customers to reevaluate their reliance on VMware, still reverberates. Last year, the competitive products — Microsoft Hyper-V, Xen and KVM — weren’t really good enough to sub in for VMware, but they’re improving rapidly. Red Hat(s rhat) is pushing KVM hard and Citrix(s ctrx) is fully behind Xen. Some customers also complain that VMware has become arrogant and inflexible, which makes it easier for them to think about switching.
Microsoft’s recent announcements around Azure and Windows Server’s ability to support non-Windows virtualization brings Microsoft’s server OS into direct competition with VMware, said Current Analysis senior analyst Charlotte Dunlap. Although vSphere still leads in market share, many of the thousands of Microsoft customers will at least try out Microsoft for virtualization given the price advantage.
Work better with others
Given that more heated competition, VMware under Gelsinger would be well served to focus more on its crucial and foundational virtualization business and the higher-end management tools that flow from it rather than chasing desktop applications and email (which VMware bought into with Zimbra). And on being nicer to customers and partners.
“You have to focus on the core business — that’s your cash cow. VMware has been doing too many things outside that and the puzzle pieces weren’t coming together quickly enough to justify the sprawl,” said Paul Santinelli, partner at North Bridge Venture Partners, a venture capital firm. “You’ve got to perform … it’s not just a technology playground. They have a not-invented-here mentality and I think people were a little tired of that. Gelsinger will do a much better job figuring out who and what to buy vs. build. I think that was a core reason for the change.”