As the IT market shifts to meet new customer demands for cloud solutions, containerization and software-defined technologies, VMware builds out a portfolio beyond its slowing server virtualization core.
At VMworld 2016 the cloud vendor displayed its ability to reinvent how it leverages its legacy assets to drive success in the aforementioned growth areas. The cloud market remains at the forefront of VMware’s growth strategy. The vendor has pivoted from struggling public cloud efforts to an approach that leverages core assets such as NSX, vRealize and VSAN in the management layer, enabling flexible hybrid cloud environments with management, orchestration and security capabilities.
VMware’s growing relationship with IBM throughout 2016 also increases brand reputation and opens avenues for growth in the public cloud space without directly competing with market leaders. Building and maintaining relationships with other marquee public cloud vendors such as Amazon Web Services (AWS), Microsoft and Google will be key to VMware achieving its goal of becoming the go-to provider for cloud architectures.
TBR believes VMware faces a critical period through 2017 as the vendor looks to offset declines in its traditional virtualization business by ramping up hybrid cloud, End-User Computing (EUC) and software-defined revenue streams. NSX permeated VMware’s strategy and evolved into the key driver of VMware’s future success. Integration of new solutions across the portfolio and shifting strategies blurred the value proposition of many of VMware’s emerging solutions. We believe investments in clearer go-to-market, sales and marketing strategies will be essential to conveying the value of these new solutions and strategies and driving accelerated adoption. Event overview VMworld 2016 speakers noted that more than 23,000 attendees flocked to the Mandalay Bay Convention Center in Las Vegas to witness and explore advancements around core VMware technologies.
The company’s “Any Cloud, Any App, Any Device” vision was highlighted in presentations throughout the event, providing a high-level framework for the company’s announcements; however, the disaggregated solution announcements and all-inone graphic left messaging gaps as to how the services interacted in the unified graphic, leaving attendees searching for more information on execution plans. Any Cloud Despite navigating a crowded cloud infrastructure market that lacks an addressable market for legacy vSphere licenses, VMware continues to make advancements, most notably with its Cross-Cloud Architecture, which includes VMware Cloud Foundation and Cross-Cloud Services, that help stitch together customers’ hybrid IT environments and appeal to the “any cloud” portion of VMware’s vision.
This and similar actions at least clarify VMware’s cloud initiatives and direction, but TBR believes the value proposition was muddled by incomplete messaging on how the products in each area work together. Fortunately, these products are not yet generally available and VMware can hone its go-to-market messaging in the coming months. VMware executives and management personnel were accessible and transparent and helped clarify the individual service announcements for the analyst community. For example, the concept of Cross-Cloud Services was simplified as “just NSX as a Service, vRealize as a Service, etc.”
Meanwhile, formal announcements position the band of services as a holistic management pane for all IT resources across any combination of traditional public clouds (AWS, Microsoft Azure or Google Cloud Platform) and VMware Foundation Cloud environments hosted on IBM, VMware vCloud Air or another private cloud. VMware executives also explained that VMware Cloud Foundation, an infrastructure platform supported by leading vSphere, VSAN and NSX technologies and aimed at hosting scalable applications regardless of workload distribution across virtual machines or containers, creates opportunities for customers to draw on VMware security and management features in a hybrid cloud environment.
Any App While containers have primarily been seen as a threat to VMware’s traditional server virtualization business, the company continues to invest in building technologies that draw on widespread container usage to drive adoption of integrated VMware technology and enable “any app.” Building on the launch of vSphere Integrated Containers (VIC) at its 2015 conference, VMware used the 2016 event to highlight multiple new features that better serve enterprise IT needs amid developer container use. The modular, open-source components of VIC let users add the services they need to those they might already have, such as a container registry, and concurrently manage both container- and virtual machine-based workloads. VIC is applicable to the majority of environments and most valuable where customers have both containers and virtual machines deployed in their environments, providing a 1:1 container-to-virtual machine mapping. On the other hand, the Photon Platform is a cloud-native platform for new applications that is specifically built for containers and API-driven.
With the large majority of VMware’s customer base better suited to utilizing VIC, Photon was not at the forefront of the company’s messaging, but it is still an integral part of VMware’s push to remain relevant in a shifting IT landscape filled with open-source alternatives to its technology. Any Device VMware Workspace ONE was the highlight for VMware’s EUC business at VMworld 2016, with notable excitement from customers, partners and developers around ease of use and efficiency. Announced in February, Workspace ONE brings together enterprise mobility management, identity management and desktop virtualization capabilities from VMware’s Horizon, Identity Manager and AirWatch solutions to enable users to deliver applications and manage in a digital workplace, providing the “any device” component of the company’s overarching vision.
The vendor announced updates to Horizon and Identity Manager as well as a new unified approach to endpoint management that provides opportunities surrounding Windows 10 migration. The complementary nature of VMware’s underlying Workspace ONE solutions such as Horizon and AirWatch allow the vendor to take a unified approach to market and sell further into IT departments. With this approach, the vendor will likely find increasing success through cross-selling opportunities and attracting net-new customers by offering multiple solutions to satisfy digital workplace needs.
We expect VMware to successfully compete with vendors such as Citrix in the space, driving steady growth in its EUC segment as it aims to grow from $1.2 billion in 2015 to $2 billion over the next three years. NSX will be the bellwether for success of VMware’s long-term goals Increasing customer demand for hyperconverged platforms and software-defined networking led VMware to focus heavily on developing its emerging NSX and VSAN products over the past few years. VMworld 2016 demonstrated NSX’s wide range of applicability and the integration of the solution across VMware’s wider portfolio, illustrating without a doubt that NSX will be the company’s most prized possession moving forward. Customer adoption continues to accelerate with NSX surging past 1,700 customers and VSAN growing customer count to over 5,000 as of 2Q16.
According to VMware, NSX’s ability to provide security and microsegmentation has been a major driver for customer purchasing. TBR believes that while success with customers has been notable, continued improvements to NSX capabilities and messaging will be critical to driving adoption as users still face difficulties putting NSX into operation and require evolving management capabilities due to the complexity associated with Software-Defined Data Center (SDDC) deployments. VMware has focused on addressing these pain points by investing heavily in its services organization and creating specific services offerings to improve implementation and time to market. The vendor’s recent acquisition of Arkin Net also added improved management capabilities to help provide users with greater visibility across the network.
TBR believes the next one to two years will be critical for VMware to drive significant revenue from NSX and VSAN as the hyperconverged and software-defined markets have reached a more mature level in the minds of customers. Impact and opportunities Partners In an effort to enable hybrid cloud, VMware fosters its vCloud Air Partner Network to provide the cloud services around its operations management layer for hybrid cloud environments, and has reached 4,200 vCloud Air Network partners. VMware’s pointed focus on excelling within the operations management layer poses a threat to those partners that have developed competing management and security capabilities, but provides other partners with the opportunity to integrate VMware’s high-caliber management and security capabilities and focus on other aspects of their cloud solutions.
IBM was continually highlighted through the event as the first vCloud Air Network Partner to offer VMware Cloud Foundation as an automated service, and TBR expects VMware to pursue more high-profile cloud providers to further distribute its services. As VMware pushes more of its emerging products, such as NSX, it is focusing on building products specifically for service providers within the network to help with deployment and reduce complexity, ultimately simplifying customer adoption. Furthermore, in the EUC space, VMware offers partners reselling opportunities around Workspace ONE as well as opportunities around custom application development and systems integration. TBR expects the merger of Dell and EMC to expand partner opportunity around VMware’s entire portfolio, as Dell’s strength in the midmarket complements EMC’s and VMware’s enterprise presence, opening new cross-sell and product integration prospects.
We expect VMware to play a key role in the Dell Technologies ecosystem with its virtualization strengths and vCloud Air Partner Network. Customers VMware illustrated its adoption success across SDDC, EUC and hybrid cloud with customer use cases from the likes of Marriott, Citi, Nike and Columbia Sportswear Company, which are benefiting from centralized management and integration of multiple cloud environments, mobile capabilities and new technologies in a digital age. EUC customers, in particular, were excited about the immediate efficiencies that Workspace ONE affords them, enabling them to be more productive in their mobile device use and spurring countless expansion opportunities for managing mobile devices in the enterprise setting, with minimal administration needs. While VMware’s EUC portfolio has a compelling and relatable value proposition on its own because of its close ties to consumer mobile device use, TBR believes that adoption levels across the other portfolio areas will be determined by VMware’s ability to tie each of the layers of its Any Device, Any App, Any Cloud strategy together into an integrated set of products.
Sanjay Medvitz, research analyst and Meaghan McGrath, analyst at TBR
