When VMware introduced its vRAM concept for virtualization server pricing in 2011, there were a lot of unhappy people. VMware backtracked on the concept this year with the vSphere 5 release and so far, it's a strategy that is working out quite well.
VMware reported third quarter fiscal 2012 earnings late Tuesday, showing continued growth at the virtualization vendor. Revenue was reported at $1.13 Billion, which is a 20 percent year-over-year gain. Net income for the third quarter was reported at $157 million, or $0.36 per diluted share.
Looking ahead, VMware COO and interim CFO Carl Eschenbach provided fourth quarter revenue guidance of between $1.26 Billion and $1.29 Billion, which translates into year-over-year growth of 19 to 20 percent.
While there are multiple drivers to VMware's continued growth, Eschenbach noted during the company's earnings call that feedback on VMware's removal of vRAM pricing limits in the third quarter has been overwhelmingly positive.
"The resulting simplification in our pricing practices has made VMware easier to do business with, and removed a potential obstacle in closing deals," Eschenbach said.
The vRAM pricing scheme charged customers based on the amount of RAM as opposed to the more traditional server socket-based model. Eschenbach commented that the feedback from the sales channel was extremely favorable, and it has actually removed a potential barrier to closing deals.
"From our direct conversations [and] interactions with customers, all of them believe we have now simplified the pricing model from VMware, which allows them to more easily secure, consume and deploy our solutions under a common licensing scheme," Eschenbach said. "Where in the past, as you know, we had multiple licensing schemes based on vRAM limitations and based on a per VM charge for our management automation products."
Eschenbach added that, "the customers are excited that they can deploy as many virtual machines per CPU or socket as they want without having to sit back and monitor and manage what they're consuming from a vRAM perspective."
The Software-Defined Data Center
A key push for VMware in 2012 has also been the concept of the Software-Defined Data Center. In the Software-Defined Data Center, it is virtualization software that controls compute, storage and networking components.
In addition to vSphere, VMware's vCloud Suite and its Nicira software-defined networking division are all part of the total solution for a Software-Defined Data Center.
"VMware lit a spark in the industry by introducing our vision of the Software-Defined Datacenter and by acquiring Nicira," Pat Gelsinger, CEO of VMware said during the earnings call. "We see a large part of the company's long-term growth coming from the vCloud Suite as it delivers on the promise of cloud computing for agile, elastic, efficient and reliable IT services by extending the benefits of virtualization and automation to every domain of the datacenter: Compute, storage, networking and management."
The vCloud Suite was recently updated with new cloud automation capabilities for both VMware as well as Amazon clouds. But as VMware continues to expand its cloud virtualization vision, the competitive risks are also mounting.
"We see that the competitive environment, yes, it is one that we always have to be paranoid of, as my long-term strategic mentor Andy Grove would always say," Gelsinger said. "But we feel like the offerings that we have in place and the vision that we've laid out for our multiyear deliveries into the future clearly separates us from the industry, and we expect to see continued long-term success as a result."