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VMware forecast: partly cloudy with chance of market gain

VMware has made significant investments in network virtualization, end-user computing and the cloud. By the first-quarter results, those efforts are paying off.

With the release of its first quarter financial results, VMware hit a milestone of sorts, reporting revenues from...

relatively new offerings had surpassed those of its server virtualization platform for the first time.

The company reported about 55% of its revenues stemmed from its portfolio of newer products and services, including network virtualization, hybrid cloud, and end-user computing, with 45% from its traditional compute business with vSphere, which has long fueled the company's growth.

Forging a path into new frontiers

VMware's transition into new areas reflects its users' growing interest in migrating on-premises applications to the cloud -- and validates the company's push for the software-defined data center, which began in earnest in 2012.

"We are in a massive paradigm shift in this industry and so you have the old way of doing business and now the new way," said Andrew Smith, a software analyst with Technology Business Research, Inc. (TBR) in Hampton, N.H. "Every single company is taking their cash cow, such as vSphere, and flipping it over to the cloud as a way to extend into new areas."

The revenue changeover is a healthy sign, according to Smith, because it indicates the company is not clinging to the past. He said the stronger emphasis on expanding deployments will change how VMware goes about signing enterprise licensing agreements (ELAs) with large corporate accounts.

While VMware hasn't given many specifics about how they will charge customers for some of their latest offerings announced earlier this month, users hope the company can adjust its thinking there, particularly when it comes to containers.

"If they are smart, they will charge you just for the connection point," said Scott Gottesman, an IT professional and VMware architect. "Right now, you get charged on a per-socket or per-core licensing basis. They should allow you to have as big a box as you want but if you want to run one container, then it should just charge you for one container."

Gottesman said VMware's expansion into new areas burnishes its image as one that can fulfill all of an IT department's needs. He hopes the company takes the next step in that evolution and completely sheds its reputation as a proprietary supplier by democratically supporting forward looking technologies.

Every single company is taking their cash cow, such as vSphere, and flipping it over to the cloud as a way to extend into new areas.
Andrew Smithsoftware analyst, TBR

"They are heading in the direction to be a full-service IT supplier, but the question becomes whether they can make themselves agnostic enough in that role," Gottesman said.

VMware forecast: More services on the horizon?

TBR's Smith expects VMware to remain focused on enhancing its cloud products and services as well as its integration and branding. Specifically, he expects the company to continue to expand vCloud Air's platform features and services, such as when it partnered with Google to add database technologies.

VMware is expected to spur the continued migration of users onto vCloud Air by enticing them with features expanding beyond the core functions of vSphere.

"VSphere coupled with Air Watch, NSX and vCloud Air is an arms-dealer play that allows solution providers to build out the same technology layer that is the standard in [on-premises] environments," said Geoff Woollacott, a principal analyst and practice manager with TBR, Inc. "The hope is this protects the legacy investment in VMware and keeps the company relevant on the next [cloud] platform."

VMware, of course, is not the only vendor trying to gain traction with its cloud. Both Smith and Woollacott point out that Microsoft is essentially doing the same thing by extending Office to a "low-cost" Azure development platform.

"When you are developing on Azure, it is the same as developing on Windows Server and SQL Server, which helps defend the installed base of those products, but at the same time you are also driving your users up to the cloud," Smith said.

Another charge on the cloud front

Another example of VMware changing with the times were the announcements it made late last month, rolling out two open-source projects and, for the first time, its own customized version of Linux tailored to run container-based applications. The announcements added more checks in VMware's ledger, showing corporate users that it is serious about its move to the cloud.

What made the open source-related product support surprising is VMware has long been criticized for being too proprietary in its core products. While there is some validity to this argument, VMware has been an active member in the open-source world and one of the largest contributors to the OpenStack project.

"[VMware] have been less visible because Red Hat and KVM became the Linux virtualization standard," Woollacott said. "But they have always had a presence and a play in that space."

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