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In 2012, VMware accomplished a lot by sketching out a vision of the software-defined data center as the direction it's headed. It sees virtualization not as the one-time technology transition early implementers expected, rather as an ongoing process of applying more automation to all forms of data center operations.
Despite the heavy R&D such a vision demands, VMware is on a path to grow revenue at a rate of nearly $1 billion a year. At the end of 2011, it had revenue of $3.77 billion, and it was on course to achieve $4.5-$4.6 billion in 2012. Its rate of growth -- 20% -- was slowing, but still healthy in the third quarter of 2012. If that growth can be sustained, VMware is well down the path toward becoming one of the giants of the technology industry.
But as the scope of its ambitions have increased, so have its risks and commitments. For example, revenues were up in the third quarter, but net income was down -- $157 million versus $178 million the year before. Its annual report warned, "Our current R&D efforts may not produce significant revenues for several years, if at all." Every company has to include this standard boilerplate in recognition of the financial risks it faces. In VMware's case, the risk remains starkly real.
In the coming year, the reach of VMware's goals will require it to juggle some possibly conflicting options and act on key issues to maintain its momentum. Here are five suggestions for how VMware should proceed.
1. Offer Hypervisor Performance Information (Users: Don't Hold Your Breath)
We need more benchmark information on ESX Server hypervisor performance, even though "performance" isn't the only consideration in installing virtualization. The general virtual machine (VM) management environment is certainly as important as baseline performance. Still, efficient execution of tasks is a leading attribute of software, with varying capability often hidden in a set of similar but competing products. If Microsoft, Citrix or Red Hat can claim a performance advantage over ESX Server, it will speed up the painfully slow inroads they've made in VMware's customer base. I suspect the leading hypervisors aren't that far apart when it comes to performance. Some testing indicates that, while other testing shows performance gaps.
More information is needed because there's not a lot of it available yet. When it comes to something as fundamental to virtualized data centers, private cloud operations and public clouds, you would think hypervisors would be so extensively tested that there's little left to learn. In fact not much is publicly known about how well hypervisors perform with different types of applications.
That's because VMware's end-user license agreement prohibits customers publishing their own ESX Server benchmarks. I'm sure VMware would say that's because it can't vouch for their accuracy. It's also possible that VMware wouldn't be able to deny their accuracy. Take your pick. (Another company that incorporates "no benchmarking" in its contracts is Oracle.)
What we do know is that the SPECvirt_sc2010 benchmark produced by the non-profit Standard Performance Evaluation Corp. at one point recently showed open source KVM winning 19 of 27 benchmarks. What might a different benchmark show, maybe the TPC-VMS standard sponsored by the Transaction Processing Council for database applications? Hopefully that will soon yield publishable results for performance of virtualized databases.
A benchmark published by Virtualization Review in 2009 showed Citrix XenServer, a version of open source Xen, to be "the Porsche of hypervisors," sticking to a fairly fundamental test. Microsoft's Hyper-V was the runner up. VMware dissed the results in a blog on its website, producing this irate and funny response by then Citrix CTO Simon Crosby.
We need more performance-oriented information. We need to know whether the market leader is also a performance leader or lagger under different workload settings. We need to know whether Hyper-V and XenServer shine in certain settings. And we need to know whether KVM's position inside the Linux kernel, using the kernel's scheduler and memory manager, is actually more efficient or just window dressing.
This is number one on the list for 2013. VMware is not in favor of testers other than itself issuing benchmarks. Don't be surprised to find it on the list again when 2014 rolls around.
2. Give The Software-Defined Data Center Software-Defined Networking
The software-defined data center is a magnificent concept. But any practical implementation would have to include software-defined networking as part of the new, programmable data center operations, and we're not there yet. For VMware to provide it, it will need real networking expertise, but until recently it's been fair to ask: what networking expertise?
Most of the existing networking know-how originated down the road from VMware in San Jose, Calif., where Cisco Systems is located. Cisco provided the first hardware complement to ESX Server's virtual switch in its Unified Computing Architecture and Nexus 5000 switch. It also provided the first (and, for a time, the only) practical implementation of VMware's recommended approach to secure VLAN tunnels, with a VXLAN supporting switch. In this partnership, Cisco has been the senior partner, but both have benefited. Consider the example of Vblocks, the Cisco-VMware-EMC design collaborative that offers preconfigured and virtualized racks equipped with servers, storage and networking.
VMware leads in data center server virtualization and, with EMC as its parent company, it has storage virtualization well in hand. But, because it did not have the expertise to fulfill the networking needed for the software-defined data center, Cisco was able to assume the top position.
That's why VMware's acquisition of Nicira is so important. Nicira represents the next generation of virtualized networking based on the OpenFlow protocol. With Nicira, VMware can map out the network virtualization part and build it into its management console. Nicira's leadership in OpenStack's Quantum networking initiative also allows VMware to tap into the expertise contributed to the entire project. VMware needs this project to succeed to allow switching within the software-defined environment to connect to the rest of the world.
Even Nicira's ability to innovate may be too limited to fulfill all the demands of the flexible networks of the future. It certainly won't be able to fill all the gaps as VMware customers struggle to make the transition themselves. In fact, Cisco, Nicira and OpenFlow startups such as Big Switch have important roles to play, but it's questionable to me how long Cisco will wish to participate in propelling the software-defined data center forward. It's preferred baby steps in that direction, ones that don't threaten its switching hardware product lines.
Beyond that, there's the ongoing issue of virtualized resource management. A software-defined data center will have one management console, not a series of separate ones for the server admin, network manager and storage manager. Without commanding more networking expertise, VMware can't build out the software-defined data center's management console. It won't be enough to have adjustable dials for servers and storage, and oh, by the way, consult your nearest network manager if you don't like the network IT pre-assigned to you.
Changes in the virtual machine will require simultaneous changes in the network, just as it does in storage. When the virtual machine picks up and moves, storage has to move with it, perhaps to be reconfigured at the destination. Can networking do the same? Not today.
VMware must cultivate its own networking expertise and build out virtual network management capabilities in order to keep the concept of the software-defined data center alive. If we're talking about a splendid concept -- and only a concept -- five years from now, something will be deemed to have gone haywire.
3. Decide Whether To Concede The Market's Low End
At VMworld, the most persistent complaint I heard was how much of the IT budget VMware was beginning to command. Customers don't say they're dissatisfied with what they're getting. They say they feel a little bit like addicts, hooked on an expensive drug and wondering if they won't wake up one morning and decide they can't afford it anymore.
There has been tangible value in VMware software. But when it comes to a long-term strategy, I don't think VMware wants to give its customers a compelling reason to consider any of the three lower-priced spreads -- Microsoft, Citrix and Red Hat's KVM -- in the market. Many of VMware's customers already have a toe in the water with one or more of the alternatives. It's not uncommon to hear of VMware data centers with Citrix virtual desktop infrastructure. Or VMware data centers with departments basing local projects on Windows Server's Hyper-V and open source KVM.
VMware somewhat defensively says its total cost of ownership is less than Microsoft's. Last spring it produced a study to prove it. But I think the cost issue turns on what type of infrastructure you want. In some cases, Microsoft's approach will yield the lower cost; in others, VMware's. It seemed false to me to assume that everyone using Microsoft's System Center really wanted to use a VMware-style infrastructure.
That said, VMware conceives of the data center as 100% virtualized and managed from that standpoint. Hence, it comes up with an evolving line of products pushing data center operations in that direction. It wants the hardware to be invisible, or barely visible at the fringes. Microsoft, with its own large virtualization presence, is coming at the problem from the opposite direction: it sees the Windows Server hardware first and layers virtualization on top of it. There's a difference.
But is that difference so great that VMware can consistently charge a high premium? I miss VMware's old days, with Stanford professor and chief scientist Mendel Rosenblum and his wife, CEO Diane Greene calling the shots. At the time, VMware showed craftiness at both charging for its hypervisor and offering a low-end version for free, just as Xen appeared on the scene. Imagine that. VMware dominated the high end of the market, and refused to abandon the possibility of playing in the low-end segment as well.
VMware can afford to be the IBM of virtualization and charge substantial prices. But there are limits to how far that can go, as it found out with the charges based on vRAM use (the Vtax). Nor would I underestimate the capabilities of all three competitors -- Citrix, Microsoft and Red Hat -- to start at the low end, then move up, taking over more of the market as VMware struggles to produce the software-defined data center.
If it concedes the low end of the market, as it appears to be doing, I'm not sure VMware will be the type of company it's been so far. Software pricing strategies are notoriously tricky, and underselling competitors is also not the answer, not for a company like VMware. But it needs to keep some elements of that dual approach, the way Rosenblum and Greene did.
4. Give Virtual Desktop Infrastructure A Comprehensive Story
Virtualizing the desktop in one sense is easy. In another it is incredibly hard to do it right. With smartphones and tablets, the nature of end-user computing is changing so fast that it opens up new possibilities almost as fast as it opens up new exposures.
Desktop virtualization author Shawn Bass has written how virtual desktops are no more secure than physical ones and much work remains to be done to make them reliably defended. Citrix Systems has done yeoman's work in this area with the Air Force and Defense Intelligence Agency.
Bromium, a promising startup co-founded by Simon Crosby, former Citrix CTO, is doing additional work in the realm of micro-hypervisors, or microvisors, that isolate end users' risky tasks.
What's VMware's story on this all important subject? It's labored mightily to build out the features of its own virtual desktop infrastructure to the point where they're a match -- or a near match -- to the technical leader in the space, Citrix. But security remains a difficult conundrum. VMware is going to have to provide a leading example of how it solves security for multiple devices to get more lift in this space.
5. VMware May Supply A Magical, "Next Generation" Application
VMware has done two things concurrently in the application space. It's acquired end-user application vendors, such as SocialCast and SlideRocket, and it's built out a developer-attracting platform in Cloud Foundry, where developers may build their own applications.
So is VMware a supplier of infrastructure for next-generation applications -- a virtualization environment with developer platform support -- or is it a supplier of the applications themselves? Maybe both?
Is this issue what the Pivotal Initiative is meant to resolve? VMware is spinning out its Pivotal Labs acquisition, Spring Java framework, Cloud Foundry, the vFabric part of vSphere, and other elements into a new, 1,400-employee business unit. It may end up trying to be an application platform, good for building software to run in VMware's private cloud environment.
If VMware wants to directly supply applications, can it provide the combination of elements that end users can't resist? VMware would like to find a leading application that prompts customers to adopt its virtual desktop infrastructure, and then use apps as a way to capture the next generation of end-user computing.
But think of the competition on that front, the difficulty of displacing Microsoft Office and the speed of end-user computing's evolution. When the market is rapidly moving onto smartphones, tablets and other mobile devices, finding a magic application is not going to be easy. On the other hand, VMware has many elements in Spring and Cloud Foundry and the underlying architecture of SlideRocket that could be put into a developer platform, with virtualization allowing it to display on different types of devices. If VMware can find a way to enable secure application output in that vein, it might have something.