VMware Realizes Big Revenues from Virtualization

by Sean Michael Kerner

Virtualization vendor wants users to 'pay by the drink' as new pricing model set to take hold.

The virtualization business is big business, just ask VMware.

VMware reported second-quarter fiscal 2011 earnings late Tuesday with revenues coming in at $921 million. The second quarter revenue tally is a 37 percent year-over-year increase. Net Income was reported at $220 million, or $0.51 per share, up from $75 million, or $0.18 per share, in 2010.

Moving forward, VMware CFO Mark Peek provided third-quarter revenue guidance to be within a range of $915 million and $940 million, or a year-over-year growth of between 28 percent and 32 percent.

One of the key drivers for VMware moving forward will be its new vSphere 5 product line, which was announced earlier this month. With vSphere, VMware is expanding the performance, scalability and storage options for virtualization.

The other big thing that vSphere 5 introduces is a new pricing approach based on the amount of pooled virtual RAM used in a deployment. Rival virtualization vendors, including Red Hat, have accused VMware of raising the price of virtualization by as much as 300 percent as a result.

"There has been a fair amount of debate and comment on this since we announced vSphere 5 last week," Paul Martiz, CEO of VMware said on the company's earnings call. "A lot of it stems from the confusion that physical RAM, which is fixed and which we do not use as a metric, with pooled virtual memory that varies with load."

According to Maritz, under the new model, 95 percent of VMware customers will see no change to their licensing costs.

"It's only as customers move to very high levels of consolidations and start driving their infrastructure to high levels of utilization, deriving the associated incremental value, that licensing costs will commensurately scale," Maritz said.

Maritz stressed that VMware is working closely with customers to explain the system and get feedback.

"What we're trying to do is to gradually shift to using metrics that reflect the actual value and usage that the customer's getting out of the software, as opposed to just how much hardware they packed underneath it," Martiz said. "And that is the whole direction that we believe the cloud in general is leading us, that it's "pay by the drink" rather than necessarily having to overprovision everything upfront."

Sean Michael Kerner is a senior editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.

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This article was originally published on Wednesday Jul 20th 2011
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