VMworld 2012: Has VMware Peaked?

Licensing, partnering, customer loyalty...can VMware maintain momentum and advance its customer base?

IT is funny. They want all the features, functionality, and richness of software, but no one seems to want to pay for it. On the flip side the licensing models, schemas, and tracking methods require a full-time job in some cases just to make sense of the complexity and make sure the licensing police are not going to come knocking on your door.

So let's look at server virtualization for a minute. It has been wildly successful and there is no debating the fact that VMware has been the dominant leader in the market. According to ESG's yearly IT Spending Intentions research report, server virtualization remains a number one priority, but lack of budget tops the list as the factor that is preventing further adoption.

When success is easily measured and economic value is easy to communicate, pricing and licensing are not met with much debate, but introduce other market competition and value claims and suddenly you end up with an exponentially growing IT budget line item and you are fraught with attention. This is clearly the current status of VMware.

Whether they admit it or not, VMware foresaw this and tried to get ahead of it with a more advantageous (to them) pricing model. But customers were faced with their own budget crises and increasing hypervisor alternatives. It caused great fodder for the media, but most customers I spoke with seemed complacent or unaware of the potential impact -- or ready to embrace an additional hypervisor.

Now the pressure is about to get turned up with Microsoft Windows Server 2012 RTMed on August 1st and GA September 4th. Windows Server 2012 ships with the third release of Hyper-V and makes it easy for IT to implement and quickly achieve value. VMware will be increasingly challenged by Microsoft with improving functionality and a lower price point that IT will not be able to ignore.

What will VMware do? I'm confident that Hyper-V is going to be successful and is already showing initial signs of cutting into VMware's market share. I'm not saying that customers are going to throw out VMware all together, but a multi-hypervisor strategy is becoming even more common. Given the growing competitive threat posed by Microsoft and other vendors, here's what I am going to be watching out for at this year's VMworld:

  1. How will VMware guide customers that want to deploy Microsoft Hyper-V, and ultimately what will VMware do to slow or stop Hyper-V adoption while navigating a positive revenue trajectory.
  2. Will VMware make any drastic licensing changes that could help nudge Hyper-V packaging and pricing modifications to include more management functionality? This may not be enough since many customers fail to see the value and/or are not ready to adopt these features.
  3. How is VMware planning to diversify outside the core vSphere product line? How strong is its end-user computing business unit and what are its revenue generation plans for application platform?
  4. Will VMware build or partner? More and more indicators look like VMware is in build mode. Speculation on project Zephyr is a good example. Partner satisfication may be at risk and it will be important to observe this year.

VMworld 2012 also brings Pat Gelsinger to the stage. VMware faces the challenges of any big company and is about to go through a shift in management team with Gelsinger taking the helm September 1, 2012.

VMware has flattened the server stack with the hypervisor, clearly looking to do the same with the networking stack and its acquisition of Nicira. Gelsinger is likely to amplify VMware's focus on storage and while this is absolutely an important aspect of server virtualization, it will primarily only be geared towards more advanced VMware users and still opens the door for Microsoft to broaden its footprint. Add to it VMware's parent company EMC with a nonchalant attitude towards Hyper-V and wow, are we about to see some market re-jiggering about to spark up.

VMware has had great success and is currently the reigning Olympic champion, although maybe not the gold medal winner they once were.  New competition and a few false moves, though, could drop them out of medal contention, while the right moves could vault them back to their gold-medal glory. Here's hoping we see some moves at VMworld 2012.

Editors' Picks
Join the discussion
Be the first to comment on this article. Our Commenting Policies