March 21, 2013
I wanted to wait a few weeks before commenting on the worst kept secret in enterprise IT, the fact that VMware and EMC are creating a new entity, Pivotal, that is made up of the cloudy assets from both companies. After spending time ruminating on the new setup, I’m still lacking a clear picture of why it has been done in this way so, in the absence of divine guidance, I wanted to get my thoughts down now. Last July I wrote a public post to the new VMware CEO, Pat Gelsinger, with some thoughts on what I’d do if I was in his shoes – it’s worth reading that to get a taste of my thinking
First a recap of what the organizations looked like before, and what they’ll look like post-spin out. Currently VMware, the market leader in virtualization, also has some other assets – end user solutions like Zimbra and Horizon Suite and PaaS offerings centering on Cloud Foundry. EMC dominates in the storage sector, but also has some peripheral offerings like Greenplum and Pivotal Labs. Essentially this new structure sees both VMware and EMC offload their more edgy solutions into a new entity, Pivotal, which will be spun out. Pivotal will also gain 1250 engineers (500 from VMware and 750 from EMC) and will be owned 69% by EC with VMware taking the remaining 31%. The new entity will also have $300M in existing revenue to fuel its growth.
So far so good right? EMC and VMware get to remain in their super profitable existing markets, without having the confusion of disruptive technologies in the fold. At the same time they get to own an independent entity that is immersed in the new paradigm of cloud, PaaS and big data, and get to do so in a well resourced way. A match made in heaven? Except:
VMware and End User Solutions – Ditch ‘Em
VMware focusing on end user solutions just doesn’t make any sense to me. I was pretty skeptical when the company bought Sliderocket and I’m happy to see they’ve recently offloaded it. But they still have the email application Zimbra in-house, seemingly floating along as an orphan. Ditto for social networking solution SocialCast – both solutions that should have either been offloaded or spun out to the Pivotal business. You then have the Horizon Suite – a kind of uber VDI-on-steroids that arguably isn’t a particularly good fit within a company which derives the vast majority of its revenue from core infrastructure.
Those Fighting Word About AWS
At a recent partner conference, VMware CEO Pat Gelsinger came out with all guns blazing about AWS. In a statement that left no doubt in anyone’s mind just how worried VMware is about AWS, he said that:
We want to own corporate workload, 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
Clearly this fighting talk was an effort to rouse their partners and motivate them to get out and fight the risk that AWS poses. But in trying to motivate their own partners, VMware has a real problem:
About That VMware Public Cloud
And this is where it gets really complex. At the same time as it was offloading its more disruptive assets so that it could focus on core revenue, VMware was also preparing to announce its move into the public cloud. The service is designed to compete with all the big names in public cloud provision – AWS, Rackspace, HP etc – but is yet to be fully unveiled. What has been announced is that the initiative will be headed by former president of Savvis, Bill Fathers. Apparently VMware is really committed to this public cloud offering and it will be getting “the level of investment appropriate to that priority and to capitalize on a $14B market opportunity,” according to Matthew Lodge, VP of Cloud Services
While VMware is trying hard to placate the public cloud naysayers by calling this a “hybrid” offering, in reality this has more to do with placating the hundreds of VMware partner who, frankly, are panicking about now that VMware will start to directly compete with its own ecosystem. VMware is always going to be able to offer higher efficiencies in a public cloud than it’s partner ecosystem can do using VMware tools – as such they introduce some fragility into the entire channel apparatus. All of a sudden that idea of offloading the cloudy assets in an attempt to shore up ongoing revenue of core products has been hit a double whammy – the company doesn’t get to bask in the glory that initiative like Cloud Foundry brings, but neither does it enjoy extreme channel buy in that a single minded strategy would deliver.
All of a sudden Gelsinger’s comments about AWS can be seen in their true light – he doesn’t care a fig where workloads are placed – so long as wherever they’re places they’re sitting on VMware solutions – chalk that one up to pure self-interest. But the economics of a VMware fueled public cloud are problematic, as one commentator said on Twitter:
I did a cost analysis for a big [integrator] last week – VMware is $6 per GB ram per month – adds about 30% in some cases to price – and do you think customers care what the hypervisor is? I can’t see how VMware’s core revenue maintains in any shape or form
Predicting What it Means for Pivotal
This entire setup is strange. We now have three operations with significant areas of overlap and sales channels that, to an extent at least, overlap and compete. We have VMware that on the one hand is exiting its Open Source and high-stack offerings, while at the same time is starting to talk a public cloud story. We have Pivotal trying to go it alone, but still having to pursue a strategy that sees it embrace choice and heterogeneity – traits that are toxic to EMC and VMware. The pivotal setup is interesting, but still too confusing – if VMware had put Horizon in with the mix, and not strayed into the public cloud arena it would make more sense. Similarly there was an opportunity to leverage DynamicOps to really deliver a heterogeneous hybrid cloud offering but, again, this is only tenable in a standalone entity. As I said back in July:
(VMware needs to) Create a standalone entity that is focused on cloud infrastructure – include DynamicOps in with this and direct the existing infrastructure business to “play nicely” with the new unit. The new business “VMCloud?” can be a stellar vendor of public and private cloud technologies and the DynamicOps inclusion can mean that the products have a compelling story when seen alongside customer use of existing VMware products and services. In doing so VMware disrupts the IT management and service provision space before other players (BMC anyone?) are able to do so themselves
God, what a tangled mess we weave…. In fairness, the CEO’s of EMC, VMware and now Pivotal have a very difficult job They need to disentangle a vast array of solutions, competing go to market strategies and differing revenue streams, at the mean time keeping up momentum and a positive partner vibe. That’s not an easy task. While there are things I would have done differently in this Pivotal move, overall it’s an interesting play. If these companies can just resolve the issues around channel conflict, this could be an interesting situation to watch.