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VMware strategy tied to networking via vCloud Air partners

VMware's public cloud strategy strays greatly from what most of the market is offering, with a heavy reliance on helping large enterprises through its vCloud Air partners.

VMware continues to buck the trend in the arms race that is public cloud, where there's constant pressure to spend billions of dollars on ever-expanding capacity and capabilities.

VCloud Air has been criticized from the outset as having too few features and too high prices to challenge the likes of Amazon Web Services (AWS). But with talk of competing directly with the hyperscale clouds long quieted, VMware's focus has shifted to the depth -- and not the breadth -- of its customer base, and the vendor sees more growth potential in repackaging its cloud capabilities than selling them directly.

VMware has downsized its ambitions since those early days when it targeted applications and developers, said Melanie Posey, a research vice president with IDC. Instead of competing in the market scrum around general-purpose public cloud, the company sees its sweet spot as its existing data center customers, she said.

In fact, VMware isn't even bothering to compete directly with AWS anymore. Customers that want an extension of their own data center can find value in vCloud Air, but VMware has no play with born-in-the-cloud startups, with a heterogeneous set of cloud application services, confirmed Bill Fathers, executive vice president and general manager of the cloud services business unit at VMware.

"When you walk in the door, you discover that most companies have already got a cloud strategy, and we rarely try to influence that," he said.

Product announcements have been few and far between, and Dell's tentative acquisition of parent company EMC has hung over much of what VMware has done over the past six months. Plans last fall called for its cloud unit to be incorporated into Virtustream, a cloud provider EMC acquired a year ago, but were scuttled amid unrest from investors -- and talk about vCloud Air has been relatively quiet since.

During VMware's quarterly earnings call this week, CEO Pat Gelsinger said vCloud Air met expectations and he was pleased with how the team stepped up, "despite some of the disruptions."

Less-is-more approach to cloud customer base

In the first quarter of 2016, hybrid cloud and software as a service (SaaS) rose 20% year over year and made up more than 7% of the company's total revenue. It's unclear how much of that is attributed to VMware's own public cloud, as the category includes not only vCloud Air, but the vCloud Air Network, as well as SaaS offerings for AirWatch, desktop and vRealize. Most of the growth in that category can be attributed to AirWatch and the vCloud Air Network, according to the company.

VMware said in January it had no plans to extend capital expenses beyond what it has already invested in vCloud Air. And earlier this month, the company unexpectedly eliminated a credit for the independent VMware User Group to use toward the OnDemand service with vCloud Air. The credit was used by only 300 customers.

There does appear to be a de-emphasis on on-demand use, but that fits with the type of customer VMware wants to use its public cloud, said Stephen Moss, president of PCM Inc., a vCloud Air reseller in El Segundo, Calif.

"When you're building environments that are scalable, yet in a highly configurable fashion, you're going to have a tradeoff with a ton of on-demand, walk-up customers," Moss said. "I don't think it's a negative on the platform; it's just a different focus."

VCloud Air is part of a larger cloud strategy that includes VMware's private cloud business and multicloud management tools via vRealize. VMware is counting on a hybrid scenario, where some cloud development occurs in hyperscale public clouds and some happens on a hosted private cloud incorporating a particular virtualization stack. In that scenario, a lot of traditional enterprise workloads would still be attached to a specific platform, so there's plenty of opportunity for VMware in the market, Posey said.

"For as much as people go around saying public cloud is inevitable and every application that will ever be created from now to the end of time will be on AWS, Azure and Google, nobody believes that's going to happen," she said.

Differentiation through vCloud Air partners

A key to VMware's strategy is network partners creating viable cloud environments around the globe for multinational clients. When VMware talks about vCloud Air now, it includes its partner network in the same breath, giving a sense of equity, or at least parity, between what users could find on VMware's public cloud and others that repackage the software. VMware's network now includes 4,200 vCloud Air partners in 100 countries.

VMware has clearly shifted its focus to partners with vCloud Air, but that doesn't mean it's going away by any means, said Carl Brooks, an analyst with 451 Research in New York. VCloud Air continues to work and get new customers, but it doesn't matter much from a financial perspective for VMware at this point.

"Running their own public cloud was a proof point for customers to feel better about it," Brooks said. "If the Virtustream restructuring had gone through, it would be a different story, but nothing has gone off the rails. If anything, the surprise is that they did exactly what they said they were planning to do."

A recent partnership with IBM could foreshadow how that strategy will play out. VSphere users can migrate workloads to SoftLayer, IBM's bare-metal public cloud, where the same preconfigured software components they're accustomed to will be available.

They're just doing service provider on the side as an extension of on-premises data centers, so that doesn't get in the way of getting service providers to adopt their own stack.
Melanie Poseyresearch vice president, IDC

"It's logical to think our customers would want to make [our] software available on all cloud platforms, and that's something we're thinking through in our strategy," Fathers said.

One of the features executives were practically giddy about at last year's VMworld was a demo of cross-cloud live migration with vMotion. This concept has been promised for years, and Fathers said it will be available through 10 different service providers by the end of the year.

It's unclear if there's a huge market for this specific capability, but the broader shift to accommodate vCloud Air partners has been a positive step, Posey said. In the past, VMware would develop its own enterprise software and only after a new release would it be available to network partners. By eliminating that gap, VMware has mitigated one of the major conflicts with its network partners.

"VMware is a software provider and not a service provider," Posey said. "Now, they're just doing service provider on the side as an extension of on-premises data centers, so that doesn't get in the way of getting service providers to adopt their own stack."

Trevor Jones is a news writer with TechTarget's data center and virtualization media group. Contact him at [email protected]

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