Home > Uncategorized > VMware may be overplaying its hand in shift to clouds

VMware may be overplaying its hand in shift to clouds

Overconfidence is a common affliction among wildly successful companies (a problem we should all be lucky enough to have!).  When your stock is trading at more than 10X revenues, you’re growing at 35% YoY and you are enjoying 80% marketshare in your core market, it’s easy to see how the leadership becomes less prone to self-critique.  And in this danger lurks.  Just ask the good folks at Netflix.

VMware is evolving in a number of ways and much of their strategy makes great sense.  Increasingly, they are becoming an IT infrastructure management company with the vSphere platform as the razor upon which many additional management “blades” can be sold.  This transition is happening quickly as you can see from this chart from their recent analyst day presentation.  Notice that while 74% of Q2 (Enterprise License) bookings came from “infrastructure” software (vSphere), already 12% of (ELA) bookings (light blue, far right bar) in Q2 came from “management” products, up from near zero a year earlier.  So far, so good.

But they might just be assuming a bit too much as a given when it comes to their cloud management stack.  For example, their pricing policies for this class of software are not per socket or per server but per VM.  And if you buy into the whole stack, their own estimates (see chart) tell us that each additional VM will cost nearly twice the cost of the hypervisor.   So, consolidate 10 loads onto one server and your total cost will be about 3X what the hypervisor would cost.  Ouch.

Now think about this.  VMware has made its business preaching the true cost-saving benefits of server consolidation.  But now, by way of their cloud stack, every additional “consolidated” server load is going to rapidly escalate costs such that you can easily get upside down on the “savings”.  Now in fairness, you wouldn’t necessarily adopt Site Recovery Manager (disaster recovery) for every VM and right now, SRM and vCloud Director don’t actually work together anyway.  So à la carte selections may mitigate the total cost impact.  But the presentation tells us the directional intention.

This kind of pricing has the appearance of great confidence that customers won’t look elsewhere for management software or that other choices won’t be viable.  It also places a variable and unpredictable cost into the IT budget for cloud infrastructure long before usage-based chargeback is really feasible or practical.  And so, this strategy creates quite a pricing umbrella to shelter VMware’s cloud management competitors, particularly for those that choose a scheme other than per VM.

And pricing is not the only sign of potential overconfidence.  There is also no support for other hypervisors across any of VMware’s management solutions.  Now with VMware’s dominance, this has a ring of good practical sense.  But the message to customers is, when you buy into the VMware cloud stack, you are also deciding that you will never use other hypervisors in your cloud.  Lockin strategies all but beg CIOs to evaluate other options.

There’s more.  The VMware management stack doesn’t handle nonvirtualized servers (of which there will always be some) and it doesn’t handle physical provisioning (another important part of the puzzle) while a number of the competitive products handle both do.  So really, we’re talking about an immature offering.  An old boss had a great slogan for such a situation:  “You can get better, but you can’t pay more!”

Now the folks at VMware are smart.  I think we are likely to see changes in the above in the quarters ahead.  But in the meantime, companies like Abiquo, DynamicOps and Platform Computing (now IBM) and others with their infrastructure-agnostic cloud management software offerings are surely going to benefit from the current VMware cloud strategy.  From an industry health standpoint, this is probably good news.

Categories: Uncategorized
  1. October 29, 2011 at 10:40 am

    Your notes about “The VMware management stack doesn’t handle nonvirtualized servers (of which there will always be some) and it doesn’t handle physical provisioning (another important part of the puzzle) while a number of the competitive products handle both.”

    Your article is incorrect, VMware vCenter Configuration Manager does do Phyical server management, compliance, and OS deployment. The vCM product is part of vCenter Operations Enterprise, so it is available.

    • October 29, 2011 at 12:06 pm

      Thanks for the correction Brian (updated body). I see in vCM that there is the ability to provision onto bare metal and to provision non-virtualized resources. However it does not appear that the non-virtualized resources become part of the cloud resource pool as is the case with some of the competitive products.

  2. October 29, 2011 at 11:59 am

    The statements about the VMware management stack not supporting physical aren’t accurate. vCenter Operations Enterprise supports monitoring of both physical and virtual, and can be used to monitor non-VMware hypervisors if the customer develops the plug ins. vCenter Configuration Manager supports provisioning, compliance and patching for both physical and virtual. doesn’t seem to make sense for VMware to create management tools for other hypervisors when there are already tools that do that. But if your already on the best/market leading hypervisor you can get access to the best tools.

  3. Blake
    October 30, 2011 at 7:52 am

    I find Brian and Michael’s comments interesting::

    “VMware vCenter Configuration Manager does do Phyical server management, compliance, and OS deployment.”

    “vCenter Operations Enterprise…can be used to monitor non-VMware hypervisors if the customer develops the plug in.”

    How much customization and integrations is really required to make this work in a true enterprise? The way this is worded, VMWare is expecting a company to manage my private / hybrid cloud as a separate part of my infrastructure. This means more people, more costs – definitely not the ideal state.

    It seems clear to me that VMWare is trying to enter a new market of IT Management without damaging their current market space. Understandable, However, note to VMWare – Call the yellow page companies to understand the impact of a new market on your existing business and the catastrophic effects of “failure to change”.

    Charlie here are a couple other key points from our analysis:

    Templates – From what I have seen, to provision all the way through the stack in a multi-tier service, we would be required to use templates. Based on our experience with images, the management process seems really painful long term. I think we counted more than 850 templates to accomplish our first year goals. Also, we couldn’t see how we would automatically transfer the service architectures from templates into our CMS/CMDB for consumption by our monitoring teams. We were told that complex workflows (both scripted and through one of VMWare’s orchestration tools) would be required for this to become a reality.

    Pricing – Even though VMWare rolled it back, the recent pricing changes they introduced caused some serious ripples around our org. Specifically, we have internal MBO’s to move more than 25% of our pre-prod virtualized infrastructure to Xen before the end of our FY.

    All of this said, VMWare is still the hypervisor of choice for our production environments. However, it will be a long time before they are our cloud or systems management provider of choice.

  4. February 15, 2012 at 5:00 pm

    Considering that I didn’t find this article until 6 months after it was written, I still feel strongly enough to comment and hope that maybe VMWare will take notice. As mentioned in the article, they don’t “play well” with other virtualization solutions. While that may be good for the “lock-in” for clients, it may also lead to lock-out from mergers. By that I mean that if a VMWare shop is part of a company that acquires another company which uses some other virtualization solution but has management software which can manage both stacks, then guess which management stack would be retained and which would be given the boot (most other things being equal). They are playing a dangerous game there. If the management stack from the “other” vendors services all the VMs, that would be the manager of choice. Once that decision is made to not be all VMWare, then the other vendors have an “in” to start supplying even more than just the management stack.

    My take-away from this discussion is that VMWare is not going to play well in the mergers and acquisitions arena and is going to start getting left behind because the other players will blend well with companies getting bigger because of acquisitions. Let the revenue growth begin slowing now because VMWare doesn’t play well with others.

  1. October 27, 2011 at 12:18 pm
  2. October 27, 2011 at 12:41 pm

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