VMworld Retrospective: Betting on Hybrid Cloud, but do VMware’s Customers Care?

By | September 10, 2015

The news out of VMworld 2015 was less significant than its overarching theme of hybrid cloud. My summary of the news, along with a photo album, are available here. Although there were plenty of announcements, indeed one analysis contends VMware is trying to do too much, other than the Photon container project (which is still experimental) they were mostly small-ball upgrades: more evolutionary than revolutionary.  gelsinger-VMword-sqThat’s understandable given VMware’s dominance and enterprise IT (read, conservative) customer base, but the contrast with the weekly barrage of new cloud services and price cuts from AWS and Google is striking. Furthermore, there were hints at behind-the-scenes executive repositioning as unlike in prior years where CEO Pat Gelsinger kicked things off with the show highlights, that role belonged to COO Carl Eschenbach as Gelsigner was relegated to the day two cleanup position, closing out things with a survey comprehensive, if not pedestrian survey of industry trends.  Nevertheless, the less than earthshattering news didn’t bother investors as VMware stock has outpaced the broader market by 4% in the days since VMworld.

VMware stock vs S&P 500 post-VMworld

In VMware’s vision, hybridization means tightly coupled public and private clouds in which applications seamlessly migrate between the two. Yet this could be a strategic mistake, since I think VMware overestimates the utility of a tightly coupled hybrid design, while underestimating the implementation complexity for the majority of companies that don’t buy into its vCloud-everywhere approach. Organizations clearly like the idea of cloud heterogeneity, but realizing VMware’s vision entails embracing vCloud everywhere. Although the company insists the public IaaS vCloud Air service is doing just fine, a Wikibon estimate puts the run rate at under $100 million, or about 1-2% those of AWS or 2-3% of Azure: hardly a ringing customer endorsement for a product entering its third year of general availability.

VMworld-keynote

The Curse of Legacy IT?

Ironically, VMware’s prior success popularizing enterprise server virtualization and the resulting legacy customer base may be hampering its ability to contend with agile and innovative public cloud services. Seeing the thousands of hands-on practitioners lining up for sessions on the intricacies of the latest vCenter update or how to configure storage volumes there’s a nascent, but noticeable disconnect between the uber-virtualized, software defined datacenter message VMware executives preach and the interests of its installed base. VMware faces a tricky balancing act between satisfying its traditional customers largely still using virtualization to consolidate legacy client-server applications (what IDC calls the 2nd Platform) while keeping pace with the breakneck developments by hyperscale cloud services built for the cloud native (3rd Platform) world. Indeed, I wonder whether VMware’s own customer base is hampering its ability to build cloud technology and services by steadfastly holding onto an outmoded IT operational model. If so, it’s to the ultimate detriment of both since technology waits for no man.

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Having finally lost the argument that public clouds are inherently less secure, lack sufficient management controls and deliver inconsistent, unpredictable performance, legacy equipment vendors like EMC/VMware have changed tactics. One rationale for VMware’s hybrid strategy focuses on operational practicality, namely enterprises want a public cloud that looks, works and is managed just like its private infrastructure. This ignores the fact that IaaS success stories like AWS are different for good reasons of efficiency, automation and scalability. Another hybrid argument contends that public clouds are more expensive than private infrastructure once workloads get to a certain size and predictability. Not only do financial arguments tend to minimize the TCO of running and owning infrastructure, they also ignore the opportunity costs of tying up resources on IT operations that could be better applied to revenue building digital business projects.

It will be interesting to study the contrast in messaging and attendee profile between VMworld and AWS reInvent (October 6–9) to see how much ground VMware has to make up and whether the hybrid cloud message resonates in an environment of cloud-native architects and developers.

See my original column for additional insights.

VMworld Hang Space: a place for information conversation and relaxation amidst the conference chaos.

VMworld Hang Space: a place for information conversation and relaxation amidst the conference chaos.