VMware reported its quarterly numbers, which were light in terms of revenue growth, and this caused the stock to take quite a tumble in after-hours trading. The experience of VMware is interesting, I think, because it illustrates a couple of market realities we forget all too often.
Reality number one is that market segmentation doesn’t create actual markets. Reality, however we divide it up, has to equal the same thing in the end. If we look at virtualization, for example, the reality is that it’s been driven almost totally by server consolidation. The server explosion hurt capital budgets a little but hurt operations costs a lot. Virtualization capitalized on that. The problem is that if you look at IaaS-style cloud computing you find a lot of commonality with virtualization. The top things that drive IaaS project success are low utilization of resources by the target application, and high unit labor costs for support. Those are the same things that drive virtualization.
The server-consolidation market problem is a problem of the past, in a way, and the second problem is a problem of the future. VMware believes that its future success will be driven by the software-defined data center, hybrid cloud deployment, and direct-to-user SaaS services. I don’t disagree, but these concepts aren’t any less interdependent than the virtualization and IaaS markets.
VMware’s purchase of Nicira makes it a natural player in the virtual networking or software-defined data center play. The problem is that this is something most valuable to cloud providers because the primary application of a virtual-network-segmented cloud data center is the separation of tenants. VMware needs an APPLICATION-SEGMENTATION not tenant-segmentation strategy for its data centers, or it can sell its solution only to cloud providers.
Application segmentation plays to hybrid clouds too. If I’m going to hybridize a cloud, I need to decide what resources are public, what are private, and what my strategy for cross-allocation of applications to this dual pool would be. I also have to accommodate the componentization of the applications and the inter-process traffic. That’s a network problem, but also a component addressing and workflow problem. Orchestration of SOA or SOA-like components isn’t part of VMware’s current portfolio.
And direct-to-user SaaS collides with all of this. First, SaaS tends to be sold most to SMBs who lack a strong centralized IT culture or in isolated application areas. The buyers aren’t IT professionals so how do they deal with the issues of hybridization? If they’re going to SaaS because they don’t have centralized IT, what is it that they’re hybridizing their public cloud services with? Are SaaS services easily hybridized in any case? These are all questions that need to be answered for buyers, and so VMware will need to answer them.
Looming over all of this is the Big Problem of the cloud. Why, if the cloud is so wonderful, would we continue to write applications that aren’t cloud-specific? Server consolidation and those basic IaaS-type drivers are valid only for as long as there remain applications that expect to run on single servers. Will developers blindly write for those old server models, and buyers continue to install them, just so they can migrate to virtualization or IaaS? If we know clouds equal sharing of resources in an orderly way, if we know that clouds mean creating distributed resource pools across organizational and public/private boundaries, why wouldn’t we write apps designed for that? And once we did, would that not diminish the value of the cloud and virtualization tools that are designed to fix those old single-server problems?
First and foremost, what VMware needs to have is what everyone in the cloud needs to have, and what I’ll assert none have today. That’s a vision of the cloud AS AN END-GAME. We’re migrating to the cloud, and we’re stuck in how we’re getting there and not what we’ll find when we arrive.