VMworld is like the World's Fair for all products and technologies related in some way to data center and cloud infrastructure. So finding common themes from the hundreds of vendors, presentations and private meetings is difficult and necessarily subjective. Still, it's VMware's show and they drive much of the agenda including having the two most visible and well-attended speaking slots in the keynotes opening the first two days.
That visibility can be either a blessing or curse depending on what they announce and how they execute, but this year VMware didn't help themselves. My colleague Den Howlett summed it up best:
VMware missed an opportunity to energize the opening day crowd with a keynote that contained nothing particularly new and a series of on stage appearances that had little of substance.
Some of that is due to style. If CEO Pat Gelsinger were running for President, a certain candidate might describe him as 'low-energy'. More significant is the substance offered. Here I would offer nuance to Howlett's summary — the problem wasn't a dearth of substance, but the fact it was solely focused on VMware's legacy customers working in traditional IT departments, not winning over those building digital business apps, developers creating new products and services or organizations modernizing existing workloads for public cloud deployment.
VMware seems more intent on keeping existing customers happy with what disruptive innovation theory terms sustaining innovations, rather than breaking new ground that might stem the tide to AWS, Azure, Google, OpenStack and the SaaS products built on top of them. VMware is playing prevent defense, not wide open offense.
By doing so, it is turning into this era's IBM — the safe, established incumbent that never cost an IT manager their job.
Selection bias is clouding VMware's worldview
Focusing on existing customers is natural, but risky in a discipline as dynamic as IT and in a business environment in the midst of digital disruption. In particular, it creates what statisticians term selection bias when collecting data and other inputs that influence one's worldview and strategic decisions.
Such bias or cherry-picking was on display in the first section of Gelsinger's keynote when he summarized data supposedly about IT use of cloud infrastructure gleaned from analyst research and VMware's internal customer metrics. VMware's analysis showed that adoption of public cloud services was still small, amounting to 15% of total workloads this year, doubling to 30% in five years. Not until 2030 will the public cloud be home to most IT workloads, according to this analysis.
In light of triple-digit cloud growth at Microsoft, AWS blowing past $10 billion in revenue far sooner than anyone imagined, almost weekly announcements from big companies like GE ditching huge chunks of IT infrastructure for cloud services and the explosive growth of born-in-the-cloud companies like Netflix, Airbnb and Uber, VMware's numbers look preposterous. Indeed, on the last day of VMworld, 451 Research released survey data from 32,000 senior IT professionals showing that:
41% of all enterprise workloads are currently running in some type of public or private cloud. By mid-2018, that number is expected to rise to 60%, indicating that a majority of enterprise workloads will run in the cloud in the near term.
A former colleague now working for another IT analyst firm told me in a sidebar conversation that its internal surveys show public cloud adoption already higher than the numbers VMware cited — and it grew far faster than the firm anticipated after its last survey.
A growing chasm between tech innovators and enterprise
VMware is taking a gradualist approach to the cloud, with product enhancements designed to maintain its place as the core enterprise application platform, keep IT execs in the driver's seat for technology decisions, and not upset existing IT admins having a significant personal investment in building VMware expertise.
Unfortunately, transitions catalyzed by disruptive technology are seldom gradual — yes, they start slow, but ramp with exponential ferocity. By the time incumbent technology players realize the threat, it's usually too late to counter — just ask Blackberry, Blockbuster and taxi companies. By positioning public cloud services as a poor stepchild to on-premise VMware infrastructure — useful primarily for ancillary tasks like backup, disaster recovery or temporary capacity expansion — VMware is perfectly playing the role of established incumbent, but is also repeating mistakes that have led many precedents from market hegemony to roadkill.
During the show, I met with some tech execs turned venture capitalists and several startup founders and it's apparent that there's a growing chasm between traditional enterprise IT — that is, VMware's core customers — and cloud-native startups or even line-of-business execs needing IT-based innovation to counter competitive threats and increase growth. Indeed, at an IDC briefing on IT trends, the firm identified a growing aversion by business execs to owning IT infrastructure.
Rather than updating internal systems, business leaders see that they can innovate faster, react to changing competitive threats and reduce costs by replacing them with PaaS and SaaS. IaaS, with its focus on low-level infrastructure services, is turning into a platform for legacy applications or SaaS providers, not a permanent destination for business applications.
Sadly, the innovation gap won't be apparent to many in traditional IT, or VMware execs if that's all they listen to, until we have a chasm-crossing moment when much smaller, cloud- and API-native companies exploiting asymmetrical technological advantages begin regularly killing large incumbent business. It's already happened in retail, but with the digitization of all business, expect to see repeats across all industries.
VMware's announcement that IBM will be the first adopter of its Cloud Foundation infrastructure platform and release cloud services based on core VMware technology is the perfect, cautionary metaphor. A former IT titan whose best (or at least, most dominant) days are behind it embracing the new incumbent that is racing into middle age and trying to fend off public cloud up-and-comers threatening its very existence.
IBM isn't necessarily a bad role model for VMware since Big Blue has demonstrated that it's possible to keep an IT aircraft carrier afloat for decades even when it's taking on water. However, choosing that path means running a different kind of business, one focused on incremental, evolutionary sustaining improvements, stable cash flow and generous dividends, not technology innovation that might cannibalize an existing cash cow.
Legacy IT conservatism surely isn't the message VMware meant to convey at VMworld, but the low-key, predictable announcements were in stark contrast to the vibrancy from infrastructure-free companies that use cloud services to build products that amaze even seasoned tech VCs. VMworld showed a company dedicated to keeping its base of traditional IT execs and admins happy even as traditional IT risks becoming irrelevant to tomorrow's fastest growing businesses.