It’s a busy time for virtualization giant VMware following Dell’s divestiture of its 81% in the firm to create an independent software firm with a market value north of $60 billion. With the company now steering its own course for the first time in nearly two decades, what comes next?
Two main themes look set to dominate - the importance of the multi-cloud concept and a shift away from licences towards the growth of a subscription/ARR base. At the time of the spin-off back in November, Sandy Hogan, VMware SVP of the firm’s Worldwide Partner and Commercial Organization, said:
As a stand-alone company, we will have a greater ability to grow an even broader, more robust ecosystem across all cloud and on-premises infrastructure vendors…multi-cloud is and will continue to be at the center of everything we do; we expect multi-cloud will be the ubiquitous operating model for digital businesses for the next 20 years. The need for partners and the connected ecosystem has never been greater. As VMware transitions to a customer-first, partner-led strategy, we’re prioritizing the partner experience and we want our partners to be the multi-cloud delivery model. Our goal is to lead the multi-cloud transformation and become the most essential software ecosystem in the world, with our partners leading the way.
So that’s the mission statement. What does it mean in practice? Speaking this week’s Jefferies Software Summit, VMware President Sumit Dhawan drilled down on the direction of travel for the firm, beginning with the multi-cloud strategy. This is driven, he argued, by customers looking for answers as to how to run their workloads from data center through public cloud to edge:
That brings a lot of complexity for customers and they are looking for VMware to extend our trusted platform that's already there for tens of millions of virtual workloads and tens of millions of endpoints, to now be serving and solving the customer's problems on multi-cloud. It's a key priority for us in offering the solutions, as well as helping customers adopt our solutions for both traditional applications and modern applications.
Blind no more
To date, he suggested, customers have been going to the cloud “almost to some extent blindly”. That’s now changing and customers are looking less for ‘cloud first’ and more for what Dhawan called “cloud smart”, pursuit of which exposes that fact that many haven’t modernized their on-premise infrastructure for a long time:
Now they're coming to the realization that they're going to have a cloud smart solution, where they are going to run applications in the right cloud.
That’s the essence of multi-cloud thinking - right place, right time, right environment - driven in turn by a massive increase in the number of workloads that organizations now have to deal with. Dhawan explained:
If you think about the workloads in calendar year, say 2020, we sort of saw workloads of the order of about a little less than $400 million workloads that were split across public cloud, on-premise, little bit on edge, some hosted environments and telcos. If you go forward to calendar year 2024…that workload growth is expected to be going up to a little shy of $600 million workloads.
VMware expects that the distribution of workloads will stay on-premise at around 30% to 35%, public cloud to be 40% to 45%, with edge and telcos growing to a double digit percentage each. But the distributed nature of where the workloads are going to be running will increase, said Dhawan:
If you ask customers today, 75% of businesses today use two or more public clouds, and almost all of them use private cloud and 40% use three or more public clouds. The reason is that customers want to innovate using the best of the best services from different clouds, and they want to avoid lock in. When you look at that kind of an environment, the multi-cloud creates tons of customer challenges, because of all of a sudden, what are the customers options? If they have to run different applications across different clouds, whether it's Oracle, Google, AWS, Microsoft, they have to start building their own practices on how they're going to run these applications, how they're going to operate them, how they're going to develop them, how they're going to network them. How do you secure them? Building a siloed vertical strategy per cloud is not viable from a customer's perspective.
This is where the so-called ‘cloud smart’ thinking comes into play, he added, offering a platform to operate, secure and manage applications across different clouds in a unified fashion and providing a unified experience to developers:
That trend, from our conversations with customers, continues to grow. We think that in 2022, it will only grow in the future, because customers are looking for power of cloud more so even induced by the pandemic, to be embraced holistically. That's what we call multi-cloud.
The second key priority for an independent VMware is growing its subscription and SaaS business. This is an ongoing journey, said Dhawan, not something that’s going to happen overnight:
Our intent is that we give customers a period of time where they get choice, offering both subscription as well as licensed products. Then as we see enough of a trend and momentum, where customers prefer subscription and SaaS through all the incentives that we offer, both in terms of product value proposition as well as in terms of just pricing benefits and other incentives that we offer, then our intent will be to gradually sort of phase out the licence models when appropriate. We have done that with end user computing solutions quite successfully.
As for time scale here, Dhawan was cautious:
We have publicly stated that through the course of the next fiscal year, which is very closely aligned to a calendar year, we intend to move all of our products with cloud-delivered value and SaaS offering. And our strategy, as we have done with end user computing, will be that as customer adoption of subscription and SaaS happens, then we would gradually just offer only a subscription SaaS offering over time.
Now, when those specific dates would be, we would make sure that we do it in when it's appropriate for customers, because subscription and SaaS offerings [are] great in parts of the world and major economies, but…our customers are also there in certain parts of the world where they're still not comfortable getting cloud and subscription and SaaS value propositions. In those specific cases, we may see a little bit of an elongated sort of life of our licensed product. So we will follow when customers are ready.
The first steps on an awfully big adventure for VMware, one with a great deal of potential and opportunity if the strategic theory can be matched by practical execution. This is set to be a pivotal year for a firm that’s been part of the tech landscape in various forms for so long, but is now in charge of its own destiny once more.