Balancing Out the Hype and Harm for VMware

Thursday May 14th 2015 by Paul Rubens
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VMware is entering a crucial point in its relatively short history, and how it responds will likely shape the company's ability to survive in the future as an independent operation.

Marketing people love to tell you how wonderful their company's products are, but they rarely mention the weak points. And that's fair enough — it's their job to do exactly that, after all.

But it does mean that if you want to get a more balanced view you'll Virtually Speaking generally have to look beyond the company concerned and instead seek out independent opinions.

There are times, though, when companies are forced to be more candid and balanced in the utterances they make about their products. And VMware has just had one of these times, marked by the publication of its annual Form 10-K.

These Form 10-Ks are designed to provide a comprehensive overview of a company's business and financial condition, and for that reason they make very different reading compared to the standard marketing guff that most companies produce.

They contain warnings about everything that investors could possibly need to be aware of, and are often so laden with doom and gloom that they're probably just as unbalanced in a negative way as the messages from marketing departments are in a positive way.

So what does VMware's Form 10-K have to say for itself?

It turns out to make for some rather interesting reading…

The Anti-Marketing Read on VMware

In the most recent Form 10-K report, VMware confesses that its traditional server virtualization business is maturing rapidly, and that it faces strong competition in both the virtualization space and the cloud and software-defined data center (SDDC) spaces. But that much we knew already, even if we are not particularly accustomed to VMware staff saying so quite so explicitly.

Most interestingly, the company appears to concede that it is something of an anomaly: a relatively small entity that must compete with leviathans (like Microsoft , Amazon, Google and Oracle) as well as groups of smaller competitors banding together to oppose it.

Another interesting snippet concerns VMware's core server virtualization products. It's easy to forget that this is VMware's core business, such are the company's efforts to emphasize cloud, software-defined networking (SDN) and storage, and all the rest of its non-core product portfolio. But in its Form 10-K, VMware says:

The large majority of our revenues have come from our server virtualization products. Although we continue to develop other applications for our virtualization technology such as our network virtualization solution, VMware NSX, end-user computing products and hybrid cloud services and expand our offerings into related areas such as our vRealize SDDC management products and vCloud product suites, we expect that our server virtualization products and related enhancements and upgrades will constitute a majority of our revenues for the foreseeable future.

Let's look at those first few words again: "the large majority of our revenues come from our server virtualization products." VMware always has been, and still is, a server virtualization company. Despite its attempts to diversify or move on from this mature area, all the new stuff is not nearly as important to the company as it may like you to believe. It may be good — strategically important even — but as yet, the new efforts are not actually generating a significant proportion of VMware's revenues.

Next Page: VMware Facing Increasing Competition on Several Fronts

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Paul Rubens is a technology journalist and contributor to ServerWatch, EnterpriseNetworkingPlanet and EnterpriseMobileToday. He has also covered technology for international newspapers and magazines including The Economist and The Financial Times since 1991.

Follow ServerWatch on Twitter and on Facebook

Next Page: VMware Facing Increasing Competition on Several Fronts

VMware Facing Increasing Competition on Several Fronts

And VMware goes on to say that it expects increasing competition that could result in loss of customers going forward, highlighting the threat posed by Microsoft, with Hyper-V and its CloudOS private cloud platform and Azure, and from others:

Citrix Systems continues to enhance its end-user desktop and mobility offerings and their networking and cloud platform offerings. IBM, Google and Amazon have existing cloud computing offerings and announced new cloud computing initiatives. Additionally, open source technologies for virtualization, containerization, and cloud platforms such as Xen, KVM, Docker, Rocket, and OpenStack provide significant pricing competition, and enable competing vendors to leverage open source technologies like OpenStack to compete directly with our SDDC initiative.

Now here's where VMware talks about its relatively small stature compared to some of its competition:

Many of the companies driving this trend have significantly greater financial, technical and other resources than we do and may be better positioned to acquire and offer complementary products and technologies. The companies and alliances resulting from these possible combinations may create more compelling product and service offerings and be able to offer greater pricing flexibility than we can or may engage in business practices that make it more difficult for us to compete effectively, including on the basis of price, sales and marketing programs (such as providing greater incentives to our channel partners to sell a competitor's product), technology or product functionality.

Now it's important to remember that 10-Ks offer worst-case scenario warnings, so things almost certainly aren't quite as gloomy as they might sound, and the competition isn't quite so on the ball as these prognostications suggest.

But it does give a nice counterview to that offered by the more upbeat VMware marketing message. When you balance it out, you realize that although VMware is the 800-pound gorilla in the server virtualization space (for now), it may not be so easy to use that market dominance to succeed in the newer markets that VMware is entering, such as the cloud, software-defined data centers, desktop virtualization and even mobile device management.

What's clear is that the company is certainly not sitting idly by waiting to be overtaken by competitors' technologies, but success in the future is not assured despite the company's successful past.

That means VMware is entering a crucial point in its relatively short corporate history that is likely to define its chances of a future as an independent company.

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Paul Rubens is a technology journalist and contributor to ServerWatch, EnterpriseNetworkingPlanet and EnterpriseMobileToday. He has also covered technology for international newspapers and magazines including The Economist and The Financial Times since 1991.

Follow ServerWatch on Twitter and on Facebook

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