UPDATED 17:00 EDT / AUGUST 23 2019


The 5 best predictions we got right about VMware, and one we got totally wrong

Ten years ago a startup obsessed with enterprise computing and cloud-native broadcast media invited some friends to geek out at VMworld, discussing technology’s biggest trends at a tiny news desk in the lobby of Moscone West conference center in San Francisco. 

VMware Inc. was founded more than two decades ago, but its annual VMworld conference was in its early years circa 2010. That was a big year for the virtualization leader, and a big year for SiliconANGLE Media Inc. While VMware was going through a transformation to support the mega trend for cloud computing, SiliconANGLE found its voice as a broadcast media company. VMworld 2010 was SiliconANGLE’s first major production at an enterprise computing trade show, setting in motion 10 years of real-time analysis and exclusive interviews from the industry’s most influential conferences.

As SiliconANGLE and its livestreaming studio theCUBE head out to San Francisco for our 10th year of live coverage from VMworld, we reflect on our analyst team’s best predictions about VMware, its ecosystem of partners and developers and broader market influences. 

Picking the right products

Acting as something of an operating system for on-premises data centers, VMware found initial success in virtualizing physical components of on-site servers. Yet the company would soon face the challenges of public cloud computing, a wave that ushered in new players and new business models for a software-driven world. Already established in on-prem environments, VMware sought opportunities in bridging the gaps between public and private cloud. This emerging hybrid terrain saw a multitude of opportunists, and VMware would be tested time and again to provide value in virtualization services by addressing two of the cloud’s biggest pain points: storage and networking.  

Enter software-defined networking. If VMware could succeed in this area, it could better prepare for the hyperconverged infrastructures that would make cloud computing more scalable and cost-efficient. To that end, only a handful of players were exceeding in software-defined networking, including Nicira Inc.  

In 2011, our analysts predicted Nicira’s success in software-defined networking, an expectation validated after it was acquired by VMware for $1.26 billion. Nicira’s technology was integrated as a crucial component of vSAN, VMware’s hyperconverged, software-defined storage. The acquisition made VMware a proactive forerunner in network virtualization, opening up new market opportunities while then market leader Cisco Systems Inc.’s strategy kept its networking silos intact. 

The resulting vSAN was a product of VMware’s focus on the future of computing — hyperconverged infrastructure. Our analysts also predicted the rise of Server SAN architecture to support HCI configurations, and VMware’s early work here put the company in a good position for market leadership. vSAN saw the largest increase in platform revenue in 2016.

We predicted vSAN would make VMware a formidable force in the storage market, thanks to competitive storage costs and high functionality for storage services. We were right. VMware became a leader in the Server SAN market, with vSAN driving a 126% increase in platform revenue for the company in 2017. Its propensity for partnership across infrastructure providers, such as Dell EMC, made 2017’s vSAN growth the largest increase in platform revenue that year.

Hit the ceiling reaching for the clouds

Since 2009, cloud computing has gone mainstream, with hyperscalers Amazon Web Services Inc., Google LLC and Microsoft Corp. emerging as key players. Their ability to scale public cloud infrastructure services was unmatched, and anyone hoping to compete would need help doing so. Our analysts predicted tighter VMware integration with its closest partner, storage behemoth EMC, in an effort to combine their hardware and virtualization capabilities. It’s a strategy that came to fruition under new leadership, as Pat Gelsinger moved from chief operating officer to executive in 2012.

“Let’s face it, VMware is already the default platform for the data center; it’s theirs to build upon. And if EMC plays their cards right, they can operationalize their server and storage business to support both legacy scale-up data centers as well as the emerging scale-out data center. If they build a best-in-class services team behind it, they control how quickly they have to eat their own dog food,” said John Furrier, co-founder of SiliconANGLE, in a 2012 analysis of Gelsinger’s takeover.

Months after Gelsinger’s promotion to CEO, VMware became an original member of the EMC Federation, alongside security company RSA Security LLC and application manager Pivotal Software Inc. The federated approach allowed for the development and ability to attract and retain talent, outweighing the problems associated with capital structure, cash flow, and balance sheets, according to David Goulden, the president and COO of EMC in 2013. And as a member of the Federation, VMware would launch a series of initiatives dedicated to cloud computing, from vCloud Air — a public cloud-computing service built on vSphere — to the open-source-friendly Cloud Foundry. 

Despite VMware’s foresight into cloud trends, the EMC Federation never gained enough traction to ward off AWS’ rapid rise to the top. It was this fierce competition from AWS that our analysts predicted would defeat VMware’s disaggregated attempt at cloud, and it even contributed to EMC’s industry-shaking merger with Dell Technologies Inc. This market disruption and consolidation only made the future more uncertain for VMware.

In 2015, Furrier stated that AWS was indeed a serious threat, asking the question, “Does VMware have to become more vertically integrated to survive?” With the explosion of developer operations and a highly fragmented market, he saw VMware “groping for a solution” in a cloud-native future. With the field still wide open at the time, clients needed reassurance that making the choice to develop new customer-facing applications on vCloud Air would pay off in the long term. 

Using the metaphor of vCloud Air as a boat sailing on the ocean, Furrier said, “If the winds shift, they could go in the wrong direction.”

When VMware announced its own public cloud, we said they’d never be able to compete with AWS. Dave Vellante, co-CEO of SiliconANGLE Media and co-founder and chief analyst at Wikibon Inc., pointed out in 2013 that Amazon was already the gold standard of public clouds, pondering how VMware planned to compete. More specifically, Vellante asked what aspects of their public cloud strategy were merely functional and which features could be added later.

At the time, VMware was all in on the cloud game, especially hybrid, according to Gelsinger in a 2013 interview with theCUBE, SiliconANGLE Media’s mobile livestreaming studio. From our perspective, this effort was all about stopping AWS. “Amazon is the only company that can take down the Federation’s dominance,” Furrier said.

Integrate to dominate

With a fumbled cloud play, our analysts predicted VMware would need to become even more integrated into cloud infrastructure and data center hardware with strategic partners, from AWS to IBM Corp. Years after Gelsinger called out AWS as a mortal enemy, VMware entered a landmark partnership with AWS in October 2016. The joint effort produced VMware Cloud on AWS, allowing VMware users to move computing jobs to AWS’ cloud for more flexible, lower-cost storage and computing services.

In fact, AWS has become a most important partner for VMware, as indicated by the close engineering work between the two companies. It’s a necessary level of integration, marking the cultural shift toward mutually beneficial collaboration across multicloud, and sometimes rivaling environments. 

Just as VMware kept close ties with on-prem server manufacturers in the early 2000s, the virtualization specialist seeks the friendliest of terms with all of today’s major cloud platform providers. Aside from AWS and IBM, VMware works closely with Microsoft Azure and Google Cloud Platform, tying its on-prem services to any preferred public cloud.

“We felt it was good for us to focus and get VMware Cloud and AWS to be the best hybrid cloud option. Give that a couple years, rather than trying to do everything and do it poorly, when you peanut butter your approach and try to do a lot of things with various different,” said Sanjay Poonen, chief operating officer of VMware, in 2018. “So this is why we put a lot of special attention on VMware Cloud and AWS. We have an offering with IBM. We announced something with Alibaba. In due course, VMware will need to have multiple cloud offerings. But I feel like this partnership and the specialness of this has really benefited both sides.”

Our bad, maybe?

In 2010 our analysts also predicted VMware would push EMC’s market cap to $100 billion. That didn’t happen, but there’s still time. A new federation of sorts is happening under Dell EMC, where VMware maintains the freedom to partner with Dell rivals and act as a bridge between popular public clouds and necessary on-site data centers. 

This year’s VMworld will be abuzz regarding VMware’s recently announced and very pricey acquisition of Pivotal Software, which would reunite the now publicly traded company with two other original members of the EMC Federation. 

Yet as AWS layers in more and more services, such as Outposts, to migrate and manage applications, VMware still faces the ongoing challenge of not owning enough of the application space.

“Today in 2019, if you look at where VMware is going — the changes happening in containerization, the changes happening from the application down — they need to come together. The Achilles heel I’ve seen for VMware for a long time is that it doesn’t have enough of a tie to or help build the applications,” said Stu Miniman, principal analyst at Wikibon and co-host of theCUBE, in an analyst segment ahead of next week’s VMworld conference. 

Beyond Pivotal, VMware is looking to acquisitions to bring even more together at the application layer. Following the money, VMware is interested in machine learning and security applications, to name just two market opportunities for deeper vertical integration. 

“It’s not surprising to see VMware make some acquisitions in this space, because it’s not something where they had a lot of depth in their bench,” Miniman said. “With many of these acquisitions, you get the software and you get the team, and that can help you ramp up much faster in the AI and analytics space.”

With the independent software vendors owning the bulk of the applications for multicloud management, and the major platform providers such as AWS and Microsoft Azure adding in their own applications, VMware looks back to Pivotal for support. While the early attempt at a federation was more like a collection of misfit toys, today’s pursuit should focus on better integration at both the engineering level as well as the financial level. Should the initiative finally succeed under Dell EMC, VMware’s cloud-bridging efforts could indeed drive Dell’s market cap to $100 billion.

There’s much more to learn from SiliconANGLE’s and theCUBE’s coverage of VMworld this coming week.

Image: Dollar Gill/Unsplash

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