Assessing VMware’s ongoing reinvention

Virtualisation mainstay VMware wants to build and manage multi-cloud infrastructures… and so much more as 2019 kicks into gear
Pat Gelsinger (CEO - VMware)

Pat Gelsinger (CEO - VMware)

VMware’s introduction of x86 server-virtualisation technology was a game-changing event in the history of enterprise computing.

But if you look at the vendor's corporate messaging today, it’s almost as if server virtualisation has been scrubbed from the lexicon.

Instead, VMware highlights its multi-cloud strategies, software-defined data centres, networking, hyper-converged infrastructures, security, SD-WAN, containers, blockchain, the Internet of Things and more.

So, what’s going on with VMware? If you created a nearly US$6 billion industry, had more than 75 per cent market share and did’t really face much in the way of direct competition, why not just keep doing what you’re doing?

Is VMware just trying to latch onto all the latest buzzwords, or is there a method to the madness?

According to analysts, it’s been clear for some time that the server virtualisation market is approaching a saturation point.

Gartner reported that license revenues for x86 virtualisation declined for the first time ever in the first quarter of 2016, with most enterprises reporting data centre virtualisation levels of 75 per cent or higher.

And by 2017, Gartner declared the server-virtualisation market so mature that it stopped doing its annual server-virtualisation Magic Quadrant reports altogether.

Meanwhile, the threat to VMware goes beyond companies having virtualised pretty much every workload that can be virtualised.

In a bid to reduce capital expenditures and increase business agility, organisations are trying to downsize their data centres and shift existing workloads to the cloud, either on SaaS platforms or cloud infrastructure from AWS or Azure.

And as companies decide to go cloud-native for all new applications, they are turning to cutting-edge approaches like containerisationmicro-services and serverlesscomputing, which don’t require a traditional VM.

In short, VMware is a classic case of a company facing the “innovator’s dilemma,” according to Jason Bloomberg, president of the analyst firm Intellyx.

The decision boils down to whether to just keep milking the cash cow, or whether to try to catch the next wave of innovation and expand into new markets, even if that might mean cannibalising the primary revenue stream.

VMware, through a clever combination of targeted acquisitions and internal product development, has taken the innovation route, Bloomberg says, putting together an overarching “VMware everywhere” strategy with a broad product portfolio designed to help companies write, secure, manage and optimise applications wherever they are located.

Or, as Chris Wolf, vice president and CTO, global field and industry, at VMware puts it: “Applications and data are becoming increasingly distributed, with organisations operating across a number of data centres, public cloud providers, branch officesedge locations, and more.

"Our strategy focuses on ensuring consistent infrastructure and consistent operations anywhere apps and data may reside and doing so while preserving a native developer experience."

VMware expands virtualisation in the data centre

Having pioneered x86 server virtualisation, VMware set its sights on a broader range of virtualisation opportunities in data centre infrastructure. “After software-defined compute, it was clear to us early on that the rise of software-defined storage and network virtualisation were only a matter of time,” Wolf says.

The company introduced vSAN storage virtualisation in 2014, then used vSAN technology as the core of its VxRail hyper-converged infrastructure (HCI) appliance. VMware leveraged the acquisition of Nicira into its NSX network virtualisation and security product.

Armed with a fully integrated stack of virtualised compute, storage and networking technologies, VMware layered on management, automation and orchestration capabilities to create what it calls a software-defined data centre.

This is a highly automated data-centre-as-a-service offering that can be deployed in a private-cloud, pubic-cloud or hybrid-cloud scenario.

But VMware wasn’t done there. It bought AirWatch to extend application and data management, as well as security features, to end-user’s mobile devices.

It bought SD-WAN vendor VeloCloud to bring software-defined technology to branch offices that needed to connect to the cloud. It enhanced its cloud management capabilities with the recent purchases of CloudHealth Technologies and Wavefront, which monitors cloud applications running in containers.

And it recently purchased Kubernetes player Heptio as part of its strategy to enable DevOps teams to write applications on the platform of their choice.

Forrester analyst Chris Gardner gives VMware high marks for “not sitting on their laurels.” The move into hot new markets is showing results, he says, noting that the NSX business is already a major contributor the company’s revenue stream.

And he said that VMware’s recent partnership with Amazon to offer software-defined data centres on AWS is an exciting development with strong growth potential.

With VMware Cloud on AWS, companies can migrate and extend their on-prem VMware environments to the AWS bare-metal cloud infrastructure.

Gardner does caution that in its push to develop new offerings, VMware sometimes goes a bit too far.

“They tend to have multiple solutions to every problem,” he says, which can be confusing to customers. “We believe software vendors need to be opinionated, to come to the table with a recommendation, not a Cheesecake Factory menu,” Gardner says.

VMware has other challenges as well. By expanding into new markets, VMware faces entirely new sets of competitors. It’s going up against Nutanix in the HCI market, Cisco and Silver Peak in SD-WAN, Cisco again in the software-defined networking (SDN) market, and Microsoft and IBM in cloud-system management.

In addition, analysts say VMware has been a little late to the cloud and containerisation parties, and its strategy has not always been clear and consistent.

For example, VMware at one point tried to offer its own cloud platform but torpedoed that effort and more recently teamed with Amazon to offer software-defined data centres on AWS.

This enables companies that have a VMware-based data centre or private cloud to extend that enterprise-grade environment to the AWS bare-metal cloud infrastructure with no heavy lifting.

Similarly, VMware wants customers to run containers inside its own virtual machines, arguing that it can provide a development platform with the security, orchestration, integration and management features that organisations are accustomed to.

Customers who spoke to Network World say they are taking a pragmatic approach to VMware’s rapidly expanding product lines, evaluating each new VMware offering on a case-by-case basis.

They seem generally pleased, even surprised at how well VMware has been able to anticipate their evolving needs, and they say VMware’s ability to integrate its products gives it a leg up over point solutions.

VMware customers grow into vSAN, NSX and SDDC

Ryan Fay, executive vice president and global CIO at ACI Specialty Benefits, began using VMware’s virtualisation products in the early 2000s when he was at a different company. “It’s been exciting to see what VMware has been able to do,” he says.

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The company stuck with its core competency but continued to innovate into new areas at the same time, he says.

In 2009, Fay was hired at ACI, a provider of corporate-benefits packages, to lead a digital-transformation initiative. ACI had recently acquired four companies, its data footprint was growing at 300 per cent a year, it had security, compliance and data governance issues, and the data centre needed modernisation.

The first step was a basic server hardware consolidation effort that led to the creation of 40,000 virtual machines, a move that saved the company an estimated 30 to 40 per cent in CAPEX costs per year and helped with HIPAA and PCI compliance efforts.

When Fay wanted to automate data centre functionality, VMware was there with its software-defined data centre.

When encryption for sensitive customer data became a priority, VMware had just released a new version of VSphere with built-in encryption. When his software developers wanted to move to containers, VMware had its Pivotal Container Services product.

And when VMware bought SD-WAN vendor VeloCloud, it just so happened that Fay was already a customer. At one point, Fay says he went with another vendor for hyper-converged infrastructure but switched back to VMware because its platform was the most mature and had the most functionality.

Fay says he appreciates other aspects of his relationship with VMware. There is no vendor lock-in in terms of the underlying hardware. For example, NSX plugged directly into his Cisco networking gear.

The result: “You can have network functions virtualisation pushed over any content-distribution node you want, anywhere in the world. That was a paradigm shift, because you’re no longer just managing the network, you’re using it to drive innovation.”

Fay says he is keeping his eye on VMware’s cloud offering on AWS. The only thing holding him back right now from a full production deployment is the lack of availability zones. And he’s looking forward to other VMware initiatives in areas of blockchain, edge computing and 5G.

Similarly, Adam Alicea, director of enterprise engineering at VITAS Heathcare Corp., began his relationship with VMware through a server virtualisation project.

Eight years ago, when he joined the largest hospice care company in the U.S., VITAS was moving its data centre from Miami to Smyrna, Ga., and his task was to migrate the company’s 70 applications onto virtualised servers.

After a 17-hour day, about 80 per cent of the company’s applications – many of them mission-critical apps related to patient records – were running on the virtualised infrastructure, he says. And the company’s footprint had been reduced from nearly a full cage in a colocation facility to 11 server racks. Today, that’s down to six racks.

Four years ago, when the in-house electronic medical records system was pushing the company’s SAN to the limit, Alicea switched to a VMware vSAN. Latency dropped from seconds to microseconds and the company realised a nearly 50 per cent reduction in storage-hardware-acquisition costs.

“Everybody was wowed,” Alicea says, and he was given the green light to develop and implement a five-year plan that included deployment of a full software-defined data centre.

On the networking front, Alicea began re-designing the core network, moving from Cisco gear to white-box switches running the Cumulus Linux OS, boosting the network backbone from 10Gps to 40Gps and adopting a spine-leaf architecture for increased resiliency.

The next step was adding VMware’s NSX, which integrated with the storage- and server-virtualisation systems to provide a single view of the entire data-centre stack. In addition, NSX provided network micro-segmentation for security, as well as load balancing. “It all made sense,” Alicea says.

He is working with VMware in other areas as well, implementing virtual desktop infrastructure with VMware’s Horizon View technology on NSX clusters. But he’s also sticking to the best-of-breed approach. For example, after evaluating VMware’s SD-WAN technology, he decided to stick with his current implementation.

VMware's Dell EMC connection, future plans

No discussion of VMware can be complete without mention of its somewhat convoluted ownership situation. Storage vendor EMC bought VMware in 2004 for $625 million and sold 15 per cent of the company to the public via an IPO.

In 2016, Dell, which was then privately held, borrowed $67 billion to buy EMC in a deal that stands as the largest ever in the industry.

As part of that transaction, Dell issued something called “tracking stock,” a separate stock based on VMware’s performance. Then, in December of 2018, Dell announced it was going public again and bought back the VMware tracking stock.

None of these machinations seem to have had much impact on the ground, according to both analysts and customers.

Any efforts by Dell to increase synergies between the companies can only be good for customers, and these corporate changes haven’t slowed down VMware’s continued push into new markets. For example, Dell just announced an aggressive product roadmap for its HCI product line that features VMware’s VxRail technology.

And at the latest VMworld conference, the company announced several new initiatives. Project Dimension is a managed service that will bring software-defined data-centre infrastructure- and hardware-as-a-service to on-premises and edge locations.

Project Magna is aimed at leveraging artificial intelligence and machine learning to build self-optimising virtual infrastructures. And Project Concord is VMware’s blockchain initiative.

But there is always a concern that if debt-laden Dell hits a few rough quarters, it might scale back new technology investments at VMware.

So far, however, the overall strategy seems to be working. Revenue for the latest quarter was US$2.2 billion, up 14 per cent from the same quarter of the previous year, and the company increased its full-year revenue projections to nearly US$8.9 billion.

Quarterly earnings of US$1.56 a share beat analyst estimates. And VMware stock, which dipped to a low of around US$50 a share in 2016, is now above US$150 a share.

Industry analysts are impressed. Forrester listed VMware’s HCI offering as one of the leaders in the fast-growing “data centre in a box” market. IDC says VMware is the market leader in cloud management software at more than US$900 million in annual revenue, and is the market leader a new category called IT automation and configuration management.

And Gartner puts VMware in a leadership position in WAN edge technology.

Wolf, not surprisingly, is bullish on VMware’s future: “We will be global leaders in infrastructure, networking, data management, end-user computing, and we will revolutionise how applications and data are secured.

"We will empower customers to take open source projects into production, providing the reliability, scalability and operational consistency they require. Finally, we expect to continue to be a major force in cloud operations and management."