VMware Takes on Microsoft to IBM With New Products

VMware Inc. is boosting its push into the $440 billion data-center market long-dominated by the likes of Microsoft Corp., Cisco Systems Inc. and International Business Machines Corp.

The Palo Alto, California-based company, which previously hasn’t had a comprehensive range of tools for data centers, is unveiling a new line of all-in-one products and related partnerships, aiming to become a bigger player.

The initiatives, being announced today at the VMworld conference in San Francisco, position VMware as a provider of cloud-computing software for running all the hardware -- servers, data networks and storage -- needed to operate data centers. If successful, the strategy would move VMware further away from parent EMC Corp., which owns 80 percent of VMware and is the world’s biggest provider of storage computers. That could bolster the case made by Elliott Management Corp. -- which last month said it amassed an active stake of more than $1 billion in EMC -- that VMware should be spun off.

“VMware’s strategy would commoditize some of what EMC does,” said Jayson Noland, an analyst at Robert W. Baird & Co. “Neither one will admit it, but they’re heading right at each other.”

At stake is a piece of the data-center industry, which Gartner Inc. projects will climb 11 percent to $488 billion in 2015. VMware’s main virtualization market, where it’s the biggest developer of software used to make server systems run more efficiently, is much smaller, with revenue predicted to climb to $7.42 billion in 2018 from $4.37 billion this year, according to researcher IDC.

VMware, EMC

Jeremy Burton, president of products and marketing at Hopkinton, Massachusetts-based EMC, said that any threat to the company’s storage business is overblown.

“The idea that because VMware builds out a little bit of functionality will have a massive negative impact on EMC’s storage business is just speculation at best,” Burton said. “And at the end of the day, VMware is part of EMC, so all of their revenue goes to us.”

About 75 percent of VMware’s sales are from virtualization software, according to Noland. Revenue at the company are projected to grow 16 percent to $6.03 billion this year

“VMware and EMC share a common vision for software-defined storage,” Raghu Raghuram, VMware’s executive vice president of Cloud Infrastructure and Management, said in an e-mailed statement. “VMware is working with EMC to provide customers with choice and complete end-to-end solutions.”

EMC, Dell Inc., Fujitsu Ltd. and other hardware makers will partner with VMware for the all-in-one data-center software, which is called EVO: RAIL. While EMC would benefit from sales of the product, VMware’s broader strategy is aimed at letting other companies reduce the total amount of storage they need.

One-Stop Shop

VMware Chief Executive Officer Pat Gelsinger is betting on customers like Columbia Sportswear Co., which is adopting VMware’s NSX networking software so that its internal network can more easily adapt to changes in data traffic.

Suzan Pickett, manager of systems engineering at the Portland, Oregon-based company, is considering VMware’s year-old cloud service to add extra capacity for its order-taking applications this shopping season. She’s also looking at mobile-device management software from AirWatch Inc., a company that VMware acquired in February for $1.55 billion.

“There are very few VMware products we’re not using,” Pickett said. “I think of Microsoft, Cisco, EMC and VMware as our strategic partners, but if I had to choose one super-strategic partner, it would be VMware.”

Cloud Standards

While VMware is developing new cloud-computing products, it’s also making sure that freely available software technologies won’t encroach on its opportunities. The company has announced a partnership with an initiative called OpenStack, a set of standards for running cloud-based data centers. VMware also said today it’s collaborating with Docker, a standard for software that can operate on multiple computers and networks.

Companies such as Wells Fargo & Co. and Nippon Telegraph & Telephone Corp. are using OpenStack to develop computing networks to make their applications run faster with less expensive hardware.

While many companies are experimenting with OpenStack, only a small percentage use it to run live applications, according to Steve Mullaney, general manager of VMware’s networking and security business unit. He equates that minority to people who choose to build their own barbecue grills.

“Have you ever built a gas grill?” Mullaney said in an interview last month. Mullaney will leave VMware next month.

Hardware Partners

By entering the data-center market, VMware will face far more competition than when they built their dominance in server virtualization, according to Al Gillen, an analyst at IDC.

“They don’t have a wide open greenfield the way they did with server virtualization,” Gillen said. “When you start to talk about software-defined data centers, there are plenty of other big players. VMware is going to have to fight a lot harder.”

VMware has also been lining up hardware partners that want to sell machines to its data customers. The company recently partnered with Arista Networks Inc., and today Dell Inc. said that it would also run VMware’s software on its switches.

All told, Gelsinger said that VMware has finally assembled a broad enough set of technologies to be considered a competitor to larger enterprise companies such as Microsoft, Cisco and IBM.

“That’s pretty rarefied air, and we want to be a bit humble because there’s plenty of things we’re not trying to be. We don’t do hardware or application software, for example,” Gelsinger said. When it comes to data center and cloud infrastructure, “we’ve earned at least the right for us to look at us in this new way.”

(An earlier version of this story corrected the spelling of the Columbia executive’s name.)

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