VMware has outgrown its name.
The “VM” stands for virtual machines, and the “ware” stands for the software needed to create them. The original idea, based on research in the 1990s by co-founder Mendel Rosenblum, the husband of founding CEO Diane Greene, was to help companies get more performance out of their computers by setting them up to run simulated duplicates of the underlying hardware. These virtual machines would in turn run all guest programs, masking the details of the hardware and making it easy to run many jobs on one computer, or move them between computers.
It was a brilliant concept that would save organizations billions of dollars over the coming years. It meant companies didn’t have to buy new PCs or servers every time they wanted to run additional operating systems and software.
But in a way, VMware (NYSE: [[ticker:VMW]]) succeeded too well. Just 15 years into the company’s short history, the technology it pioneered has swept through the computing world. Some 65 percent of all corporate servers are now virtualized, more often than not using VMware’s vSphere software. (VMware owns 60 percent of the market; its closest competitor, Microsoft’s HyperV, has only 25 percent.)
By the time Greene left VMware in 2008, it was already clear that the company needed a second act to follow up on the massive success of its server virtualization business. And around the same time, VMware—which has been majority-owned by Hopkinton, MA-based EMC (NYSE: [[ticker:EMC]]) since 2004—found itself facing an existential threat: the cloud computing revolution.
Thanks to the emergence of public cloud resources like Amazon’s EC2 computing utility and S3 storage service, it suddenly seemed that companies might not need to bother with on-premises hardware at all. They could just buy remote computing power on demand, and let the cloud providers worry about managing the bare metal.
Under its second CEO, Microsoft veteran Paul Maritz, Palo Alto, CA-based VMware undertook a number of new product initiatives and acquisitions aimed at expanding the idea of server virtualization. Now the concept embraces entire data centers—that is, the collections of processors, storage devices, and networks that most companies use to run business-critical applications such as e-mail, document sharing, enterprise resource planning, sales automation, and e-commerce sites
And under its third CEO, Intel veteran Pat Gelsinger, the company is focusing on just three of those initiatives, namely the “software-defined data center,” the “hybrid cloud,” and “end user computing” (the company’s label for desktop virtualization, mobile device management, and a few other legacy businesses). To keep corporate customers from feeling like they have to turn to public clouds to get the flexibility they need, VMware has built or bought software that turns data centers into private clouds: pools of resources that can be lined up for specific jobs faster and more flexibly. And to accommodate users who still want to offload certain jobs to public clouds, the firm is also going into the infrastructure-as-a-service business, by offering a vSphere-friendly alternative to Amazon, Rackspace, and other cloud providers.
So, better names for VMware, at this point, might be VDCware or Cloudware—reflecting the new emphasis on virtualization at the level of data centers and clouds rather than individual machines.
“The heart of VMware is trying to take things that live in the physical world and abstract them, allowing us to automate them,” says Nicolas “Neela” Jacques, VMware’s senior cloud strategist. That goes for servers, storage, and now—with the 2012 acquisition of intelligent-networking startup Nicira—networks. In the software-defined data center and hybrid cloud projects, Jacques says, the common thread is “taking the things that allowed us to be successful in virtualization and applying them more broadly.”
The question now is whether VMware’s new collection of data center management tools, called vCloud Suite, and its public cloud offering, the vCloud Hybrid Service, will catch on fast enough to offset an expected revenue decline from the flagship vSphere product line as it approaches market saturation.
Gelsinger is busy streamlining the 14,000-employee company (about 900 layoffs have been completed) in an effort to make sure it hangs on to its current share-of-wallet with enterprise customers, even as some of their developers and IT managers are inevitably lured away by Amazon-style public clouds and open-source cloud management tools like Open Stack.
Gelsinger told a gathering of VMware sales partners in February that if a computing job goes to Amazon, “you lose, and we have lost forever…We all lose if they end up in these commodity public clouds. We want to extend our franchise from the private cloud into the public cloud and uniquely enable our customers with the benefits of both. Own the corporate workload now and forever.”
It’s a true make-or-break moment for the company. In its favor, it’s got deep expertise in separating computing jobs from the underlying hardware, which should serve it well in the cloud era. But there’s still a danger that VMware could end up like Microsoft, whose strong legacy in PC operating systems has been more of a handicap than a virtue as it has struggled to adapt to the mobile- and cloud-computing revolutions.
In an effort to understand VMware’s deeper strategy, I’ve been talking with executives from across the company. They’re realistic about the risks VMware faces, but seemingly energized by the new focus Gelsinger is bringing to the company’s product lines. And they’re hopeful that the company’s big enterprise customers—if they’re offered the right tools—will see the sense in keeping most of their computing in-house.
Gathering an Industry
In an August 2012 press briefing, shortly after being named as the company’s next CEO, Gelsinger compared VMware to an “adolescent who has grown up too quickly.” He suggested the company’s success with vSphere—pumping up its annual revenues to some $4.6 billion by 2012—came so early and so rapidly that it never had a chance to mature into a focused, disciplined technology business.
But if VMware was an adolescent, at least it had the skills of a prodigy. As a startup located in Palo Alto’s Town & Country Square shopping mall—right above Village Cheese House Deli—the company’s first feat, in 1998, was to get Windows running on a virtual machine. (It took 30 minutes to boot.) That led to the company’s first product, Workstation, which
