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How VMware's Partnership With Amazon Could End Up Backfiring

Customers try the cloud through AWS, but Amazon has a history of competing with its best partners
Andy Jassy, chief executive officer of web services at Amazon.com Inc., speaks during the Amazon Web Services (AWS) Summit in San Francisco, California, U.S., on Wednesday, April 19, 2017.

Andy Jassy, chief executive officer of web services at Amazon.com Inc., speaks during the Amazon Web Services (AWS) Summit in San Francisco, California, U.S., on Wednesday, April 19, 2017.

Photographer: David Paul Morris/Bloomberg

VMware Inc. stock has gained almost 50 percent since last October, riding a wave of optimism about a partnership with Amazon.com Inc. that was meant to save the software maker from oblivion as customers shifted more of their systems to the cloud.

The accord was announced with fanfare last year as a way for VMware to keep close ties to clients even as they move to internet-based computing – a business Amazon dominates, and one where VMware lagged. It was seen as a win for all parties. Customers that rely on VMware’s software for making servers more efficient could move some of their applications – for whatever the task, be it billing, payroll or email – over to Amazon’s cloud service without having to completely rewrite them. The resulting product, VMware Cloud on AWS, was released on Monday, with VMware Chief Executive Officer Pat Gelsinger and Amazon Web Services CEO Andy Jassy touting the release at VMware’s big annual conference in Las Vegas.

Here’s the problem: there's nothing keeping Amazon from developing its own competing set of products down the road. Should that happen, VMware would be poised to lose customers – including some that it helped introduce to Amazon Web Services through this partnership.

"We'll have to see how this relationship evolves over the next three to five years, but that is the thing that VMware will have to navigate very carefully,’’ said Abhey Lamba, an analyst at Mizuho Securities USA Inc. “At least in the beginning it seems like a symbiotic deal.” Though Amazon wants a bigger share of the computing and infrastructure markets, it would take the company time to develop mature products in VMware’s space, he said.

Gelsinger, for one, is “absolutely not” worried he’s given Amazon the keys to lure away his customers.

“Customers -- if they just wanted to move to the Amazon service, they would have,” Gelsinger said in an interview. “It's not like the Amazon service just appeared yesterday. It's been around for a decade-plus now.” It’s just too hard to move these already-built-with-VMware applications to Amazon’s cloud without this new blend of the two company’s programs, he said. “We now give them the `easy’ button.”