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Why VMware isn’t flinching as Amazon’s cloud keeps growing

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Transcription details:

Date:

19-Jun-2013

Input sound file:

1006

Transcription results:

Session Name: Is The Future Software-Defined Everything?

Announcer Om Malik Pat Gelsinger

Announcer 00:04

Just a quick recap: we’ve had Microsoft, we’ve had Facebook, we’ve had Google, we’ve had Savis, we’ve got Amazon later, and to complete the set of industry leaders that are here on stage at GigaOM Structure– before I do that, would be people standing against the wall please come in and sit down, because otherwise I have to go back again and they make me accost you, and it’s kind of irritating for me, thank you. Hi, would the people against the wall please move in and take a seat? Hi, would the people against the wall please move in and take a seat [laughter]. There’s all these great seats up here where you can have a front row look at this.

Announcer 00:49

As I was saying, we’ve got Om, who’s going to have a fireside chat with Pat Gelsinger, CEO of VMware. This should be pretty exciting, too.

[applause]

Om Malik 01:03

Thanks, Joe. I’m back again [chuckles]. Pat, good to see you.

Pat Gelsinger 01:09

Good to see you, also.

Om Malik 01:11

Last time I saw you, you were still at Intel.

Pat Gelsinger 01:12

That’s been a few years.

Om Malik 01:13

Yeah. You know what’s going to happen to that whole PC thing?

Pat Gelsinger 01:16

The whole PC thing? Well, generally, the world is moving from client server, where heavy applications sitting on the PC played a critical role to back-end, to largely in-data center, in-building, and the world has moved to Cloud Mobile. So, all the action that used to be on the server side has moved to Cloud-based scalable infrastructure, and all the action that used to be PC based has moved to mobile multi-device delivery. That is a secular trend, and the action has moved to the edges as a result. We’re off building the Cloud infrastructure and there’s lots of people building the mobile apps, and clearly we don’t see this coming back.

Om Malik 01:59

So, what happens to all your friends from the PC business?

Pat Gelsinger 02:03

Well, I’d say, invest in that server business. It’s a really good business, and go pursue the mobile space aggressively. The PC business is not going to go away overnight, but nobody is developing applications for the PC; they’re developing applications for a multi-device mobile driven Cloud service infrastructure layer, and that’s not going to come back, and that’s affecting obviously the Dells, HPs, etc., of the world. It’s affecting the Microsofts and the Intels of the world, and it’s not coming back.

Om Malik 02:31

Do you see a little compression going on in that industry? I mean, from a revenue standpoint? For a long time, all these companies got really hefty because of the demand for PCs and PC servers. Do you think Cloud actually starts to act like a diet pill for these guys?

Pat Gelsinger 02:51

They will have to adjust to the new reality where that is a consolidating industry where you’ll see the PC consolidation occur, server consolidation, you’ve got a handful of big players at this point. One of the things, Om, I lived and worked in Boston for three years at EMC. From the EMC boardroom, I could look out over the carnage of the mini computer industry. We could see the facilities of Data General, of Deck, of Prime, etc. These waves of change as we’re going social-mobile-cloud-big data – my favorite short single word – as those waves of change come on, not all these companies are going to make it as we go forward. There will be that set of carnage.

Om Malik 03:36

Do you want a handicap who doesn’t make it?

Pat Gelsinger 03:39

Absolutely not [laughter].

Om Malik 03:40

Come on [laughter]. Nobody is going to say anything to those guys.

Pat Gelsinger 03:46

[laughter] Amongst my nearest friends, no. It would be tweeted before I’d even finish the sentence [laughter].

Om Malik 03:54

No, you guys are not going to tweet, right [laughter]? So, I was going to do this later, but I can do it right now. Your ex-employer, which is Intel, what kind of role do they play in this changing world? You had a conversation this morning, Andrew from Seamicro was there talking about ARM architecture in the data center, in the Cloud. I asked this same question to Satya at Microsoft, what do you think? Is there a role for ARM architecture in the data center?

Pat Gelsinger 04:30

I gave a talk last year at the Hot Chips conference, and basically said, “The action has moved from client servers to Cloud mobile. The Cloud architecture is X86, and I don’t see that changing. The mobile architecture is ARM, and I don’t see that changing.” So, I guess it upset the ARM guys who were trying to be in the data center and upset the Intel guys who were trying to be in the mobile device. So, it’s sort of equal opportunity that way, but I don’t see that architectural change because you need– my rule of thumb, Om, has always been, if you have less than a 10X shift, architectural changes don’t materialize. There isn’t a 10X advantage in trading off ARM verses X86 in the data center, likewise, there’s not a 10X advantage in trading off X86 verses ARM in the handset. So, those architectural ecosystems become natural flywheels in each of their respective areas, and I don’t see that changing.

Om Malik 05:26

I think that was what I call the “Gelsinger School of Management”, basically make everyone angry and get what you want [laughter]. Talking about this new world, how do you guys fit into it?

Pat Gelsinger 05:38

Well, VMware, we’ve gone through our transitions as we formed Pivotal, which Paul Maritz is leading now – one of the great technology strategists in the industry driving our Cloud and big data effort. Then inside of VMware, we said, “We’re going to do three things.” One is software defined data center, and with that we want to do to the data center what we were successful with at the server and deliver that layer of virtualization software that allows server virtualization, network virtualization, security virtualization, the storage and availability services through a layer of automation and management. That’s number one; deliver the software defined data center, and that’s at the top of the heap of things for VMware.

Pat Gelsinger 06:24

Secondly, we said, “We want to subliminally deliver that abstraction, that virtualization on premise or off premise,” and that’s the thesis of the hybrid cloud. As Kash commented before, we’re off to build that compatible service across the 500, 000 customers who are running VMware today, almost all of those in the private cloud, and give them this compatible set of services into the public cloud that they can essentially burst, test, deploy, have all of the SLA compatibility guarantees that they have on premise, but also have that off premise, as well. We believe that will usher in a new category of applications – hybrid apps – that are truly developed; have part of it in the cloud, part of it on premise, meet on premise requirements for data repositories, all of those kind of things; government requirements, privacy laws, etc.

Pat Gelsinger 07:14

The third thing that we’re working on is, virtualize the device and really satisfy the BYOD devices, deliver the transition technology for those PCs to be managed, deployed as a service, but also then embrace all of the mobile device requirements to really make them suitable for enterprise use cases.

Om Malik 07:33

Two questions I have. The first one is: why not just focus on a couple of things, which is just the back end infrastructure and the data center and the cloud, instead of trying to go on the client’s side. What’s the benefit?

Pat Gelsinger 07:48

That’s a great question, Om. We have a business there. We’re in the VDI business. We have a very successful business in that space virtualizing the PC experience and from that footprint, we’ve really seen that there really is a two horse race in that space today; Citrix, VMware, and then there’s a whole lot of little players who are emerging in this space, and that mobile delivery platform we think is a really big deal and a big opportunity. Since we already have a very substantial position moving into the broader category of mobile devices, it feels like a pretty unique opportunity for us that, we believe, is a multi-billion dollar business.

Om Malik 08:31

So, leaving that aside, you said Citrix and you are basically duking it out. In the Cloud space, who do you think you compete with?

Pat Gelsinger 08:41

Well, for the private cloud, we really compete with Microsoft today. We go toe to toe with them. We have very high market share in comparison, but as Andy Grove – my strategic teacher and mentor – used to always say, “The paranoid survive”. Microsoft has persistence, they have resources, and we believe they’re going to keep coming at this. As we then look to the public cloud, we really see primarily companies like Amazon and Google, and I would say those are probably the big four: Microsoft, VMware, Amazon, and Google.

Pat Gelsinger 09:19

We’re off to uniquely position this hybrid cloud for the enterprise corporate workload, given our strong position, the leadership technologies and software defined data center, and our ability to operationalize it across both, on and off premise.

Om Malik 09:30

Do you think you guys are on par with those three companies just yet?

Pat Gelsinger 09:34

Well, I look at those three; each of us has our respective advantages. I think it’s very hard for Google and Amazon to reach into the enterprise. That’s where VMware has an extraordinary leadership position already. So, if that’s the most important starting point, I’m already at the best place. Conversely, they’re already at scale in their public cloud services; I’m not yet, even though we have substantially deployed our technology through service providers, who’ve liscensed our technology and we actually have a very substantial position through them.

Om Malik 10:07

Don’t the school of thought people say that it is easier to go from where Amazon is into the enterprise versus going from where you are to the public cloud? Because of the sheer scale of the architecture–

Pat Gelsinger 10:21

Yeah, they’ve obviously not talked to an enterprise customer [laughter].

Om Malik 10:26

Well, they seem to be making a lot of announcements quite often.

Pat Gelsinger 10:28

I was with a CIO this morning, and he just happens to be with one of the top ten banks in the world, he would just firmly disagree, that they just don’t get what’s going to be required to deliver enterprise grade services for those customers. It’s certainly not a one-size fits all. There clearly is test and dev going on, there clearly are CTO departments going and kicking tires, but as you go to very large CIO’s, number one, the hybrid message is really resonating with them. That message really works well.

Pat Gelsinger 11:07

Secondly, they say, “Those public cloud guys, I need stuff that runs in my fire wall, in my data centers, in the locations I do it, as well,” and I’m not going to – whether it’s by law, regulation, business requirements, etc. Just move that to a public cloud service. The idea of being able to federate those together in a compatible way is powerful, in that respect. This is going to be a big market. Remember, we’re talking about a 1.5 trillion dollar IT industry that’s going to go through a dramatic transformation, and it’s not like there’s going to be only one winner on the other side of that transformation.

Om Malik 11:42

So, how far do you think you guys are to start making money from all this stuff?

Pat Gelsinger 11:47

Well, I have a very good business already. You might have heard [laughter]? Yeah, we’re nicely profitable [chuckles].

Om Malik 11:53

All this new stuff–

Pat Gelsinger 11:55

Buy VMware, that’s my advice [laughter]. Clearly we have a very substantial in compute virtualization, management technologies that go with that is a good business for us today. We’re the fastest growing management software vendor in the cloud space as well, and our VDI business is a good size business as well. All of the other areas are more speculative. Our networking business is just getting off the ground. The storage products, the V-Cloud Hybrid Service is just getting started, and they’re going to take a couple of years to become material, so we really are opening up the next chapter of our growth in those areas respectively, but they will start to contribute to our growth rate, and that’s the expectation that we’ve set to the street that over the next couple of years we expect VMware’s growth rate to accelerate as those areas begin to continually contribute to our business.

Om Malik 12:50

Are you going to work with telecommunication companies that’s in Singapore or Japan to rollout private clouds or public clouds in that market?

Pat Gelsinger 12:59

Absolutely, and that’s one of the strengths of our strategy, vis-a-vis some of the others that you’ve mentioned in the sense that I’m already licensing software. They’re already, in many cases, running us in their data centers and be able to say to them, “We want to build on,” and we have an asset light strategy. I want to build on other peoples’ concrete, air conditioning, Rack Space, network services; I want to build with them in those areas and I want to do this one thing really, really well: operationalize the software stack, that’s what we’re going to go focus on. So, being able to do that in partnership with the key service providers in Singapore, Australia, Japan, China, etc., we think is a huge strength of our strategic thrust here. How successful are Google and Amazon going to be in China? It’s just not going to happen on their service. They may get little niches of the market, but going in and working with the incumbent national players in those areas is to us, a strategic strength of our approach.

Om Malik 14:03

Is that your target sweet spot? Or is it like banks and big enterprises? What is the sweet spot of market for you?

Pat Gelsinger 14:11

Those aren’t necessarily different markets, Om. Don’t think about it that way, because who is the largest service provider to the banks or the regulated businesses or the enterprise customers in those markets? It’s usually the SP’s; they already have the network services, they’re already doing many things with them, so we see those are very complimentary. Our sweet spot is really building on the enterprise customers we have; VMware, the enterprise commercial customers, business workloads. We have about 40 million VM’s that run on the VMware software today. We want to continue to grow that, but give those VM’s a good opportunity to build into a public cloud, or hybrid cloud service, as we call it.

Om Malik 14:58

I want to shift gears and talk to you about the networking part of your business, and who’s the competition there for you guys?

Pat Gelsinger 15:06

In many ways we would say, nobody is. We’re establishing a new category. There is no independent virtual networking layer in the industry today of any substance. If there is one in use, it’s ours. Today we have the position that VMware is already in that business for a couple of years now. In that sense, it’s establishing this new layer – just like the virtual machine layer. Who did the virtual machine layer compete with when it came out in the compute space? Largely, it was just a sliver that sat between the OS, abstracting the OS middle ware and apps from the underlying hardware. It didn’t replace the hardware, and it didn’t replace the operating system; it was a new layer that enabled agility, flexibility, capital efficiency, as well as operational efficiency.

Om Malik 15:54

You don’t think Cisco and Juniper are competitors in that market?

Pat Gelsinger 15:58

I think everybody in the world is anxious to figure out how they’re going to position themselves in the context of virtual networking. Will Cisco, Juniper, etc. say, “I want to be the delivery of that independent layer that sits above the networking infrastructure?” Absolutely. Do we expect that any one of those will become the layer in it? I don’t think so.

Om Malik 16:21

Cisco is doing the whole end to end hardware, right up to the management layer, so I think they have a better shot at kind of running away with the market, especially with some of your target customers.

Pat Gelsinger 16:36

I think they have absolutely have a strategy in this space, just like Juniper is introducing capabilities. What we would say is that it’s very early. In a baseball game, the national anthem hasn’t hit the high notes yet. We’re still very early in the discussion of how this is going to evolve.

Pat Gelsinger 16:58

Secondly, our approach is very clear. We are going to work and deliver this extension of the virtual machine layer to support these networking abstraction functions. We’re going to work with and compliment what the hardware guys are doing. You still need a network to run packets; we need to get them from here to there, but there’s an awful lot of value of network tromboning, of virtualization of services, of being able to provision in the virtual domain that we think, “Hey, given the position that we have, we think that this is a very reasonable thing for us to be offering to our customers.” A quick quiz question for you, Om. Who has more network ports by port count in the industry today? VMware. If I count virtual ports, we’re the largest provider of ports today from our virtual machine platform as well. We’re already in the virtual networking business at scale today, now it’s a question of how we can deliver value of routing functions, abstraction functions, management and provisioning in that virtual domain, and will work with the entirety of the networking industry, not just layer two and three, but also the layer four through seven guys and how they abstract and deliver their services up to that new virtual networking layer.

Om Malik 18:12

Before we go, I know we’re running out of time, how do you guys fit into the whole EMC game plan? There is Pivotal, there is you guys, and then there is EMC. Who’s controlling who? Who’s independent? Tell me a little bit about that [laughter].

Pat Gelsinger 18:29

Well, VMware hasn’t bought EMC yet. That was a joke, just to let you know. As we call it, as Joe likes to position it, strategically aligned and loosely coupled. I have an independent board of directors, I have independent shareholders, I’m accountable to those. When you have one independent shareholder, you have independent shareholders; that’s just the way it works. In that sense, I do have a big shareholder in EMC and we do work to align our strategies, but since the beginning, EMC has governed well. I was at AT&T Park the day I took over at VMware with my new best friend, Tom Jorgens – the CEO of NetApp. Unfortunately, a picture of me with my NetApp shirt got tweeted to the EMC Sales Force on the day I took over, and I was now called a traitor by hundreds of our sales team at EMC. To us, this is a horizontal play; we’re not trying to build a vertical ecosystem. We believe in these open interfaces, and the corporate structure that we’ve established reinforces that to the industry and how we operate internally.

Om Malik 19:42

Is Paul getting a traitor t-shirt too, because he was dealing with Amazon yesterday.

Pat Gelsinger 19:49

I was a little bit upset with that [laughter].

Om Malik 19:50

You should have a little chat with him.

Pat Gelsinger 19:52

I will. I’m going to talk to Warner here in a little bit [chuckles].

Om Malik 19:58

Thank you so much for making time for us, and hopefully–

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