As VMware prepared to enter the Dell Technologies orbit in the wake of the biggest merger in industry history, CEO Pat Gelsinger grappled with weighty decisions that would reshape the destiny of the company. Rarely before had such an established software giant faced disruptive threats of such severity on multiple fronts. Public cloud operators were proclaiming the end of private infrastructure; container enthusiasts were dubbing Docker a VMware killer that would supplant virtualization.
After more than a decade of dominance in the data center, with VMware's core business under siege, Gelsinger knew he and the board faced some tough decisions.
There were seven "final" meetings of VMware's management team, three "final" board meetings, before consensus formed around a bold new strategy: Rather than battle emerging technologies, VMware would embrace them with breakthrough products and partnerships. It would leverage its existing technology to become a connective fabric, the central nervous system linking the heterogenous platforms many expected to undercut its business.
"It's a multi-cloud world and I think we're uniquely positioning VMware to be an enabler in the multi-cloud world that really benefits the core VMware customers," Gelsinger told CRN in an exclusive interview detailing its remarkable transformation. "Any technology company, if you're fi ghting the wave of technology, you're likely to become driftwood. If you're riding that wave of technology, you're likely to become a very powerful and customer-valued entity in the future. You either are on the right side of it or you're not."
Getting on the right side of the public cloud wave, however, posed a daunting challenge fraught with risk. Could VMware partner with Amazon Web Services? Could it trust Microsoft? Would Google emerge as a serious enterprise player? As difficult as those questions were, the private cloud kingpin knew it had to position itself to thrive in an IT landscape increasingly controlled by those companies.
Solution providers say the multi-cloud strategy is a winning hand for them and VMware.
"We are seeing very wide adoption of multi-cloud, public and private, on-prem and off. We're seeing customers starting to embrace it more and more every day," Chuck Farrow, vice president of strategic partner alliances at New York-based Logicalis, told CRN.
"The way Pat's taken the company and acted upon their vision, making that turn, their investments to make them more complete around the data center, tremendous things are going to come from that," Farrow said.
Investors, for their part, also are buying into VMware's transformation story. VMware shares closed trading at $109.20 on Sept. 28 — up 50 percent since Sept. 7, 2016, the day Dell Technologies completed its $67 billion acquisition of EMC and became VMware's de facto owner. That surge has translated into nearly $14 billion in additional shareholder value.
One beneficiary of the soaring stock price has been Michael Dell, who took over as VMware's chairman the same day the deal closed.
"I think Dell EMC and VMware go together like peanut butter and chocolate," Dell told attendees of VMware's annual conference, VMworld, during a question-and-answer session. "We've got a great thing going here. We've talked a lot about revenue synergies. And that was driven not only by cross-selling, but also a deep level of technical integration innovation in creating new products and solutions. We're seeing that in all the things that we're rolling out."
Gelsinger first met his new chairman back in 1986, when the budding Texas businessman looking to get his PC startup off the ground came to Intel for a good bulk deal on microprocessors.
Gelsinger, at the time on the x86 engineering team, remembers legendary Intel CEO Andy Grove giving Dell a shot, perhaps having learned from the mistake a couple years earlier of dismissing "this other young, college, pimple-faced guy named Steve Jobs"(probably resulting in Apple using non-Intel chips the next 15 years), he told CRN.
More than 30 years later, Michael Dell's acumen and expertise are invaluable assets helping shape VMware's future, Gelsinger said. At the same time, the tech tycoon understands that an independent company must have an independent CEO.
"He's involved. He's the chair of the board. He's also an inquisitive, technical guy," Gelsinger said of Michael Dell. "But I run the company."
Partnering With The Enemy
The team here, everybody, Pat, [COO for products and cloud services] Raghu [Raghuram], myself, primarily on the cloud part, began to really hunker down."
Those sessions resulted in Poonen contacting Jassy and opening discussions that led to "some very important engineering investments we made," he said.
When Gelsinger and Jassy stood together on a San Francisco stage in October 2016 to unveil a collaborative project called VMware Cloud on AWS, many in the industry couldn't believe what they were seeing.
VMware had telegraphed a major pivot earlier that year with a deal bringing hosted vSphere environments into IBM's SoftLayer cloud — a surprising alliance given SoftLayer's commitment to OpenStack, a rival cloud-building technology.
But the AWS deal was an even bolder move, leaving no doubt as to VMware's seriousness about partnering with former rivals. "As we went into this, obviously, we didn't start out with the greatest relationship between Amazon and VMware, so there was a bit of trepidation on both sides," Gelsinger told CRN.
But a mutual dedication to quality engineering fostered a highly productive joint development process for VMware Cloud on AWS, Gelsinger said. The hybrid cloud service went live at the end of August. Since first partnering with Amazon, VMware has made deals with Microsoft and Google as well. Each alliance has focused on a technology the cloud partner is best suited to deliver, Gelsinger said. Since most VDI workloads are Windows-based, the Microsoft deal involved hosting Horizon, VMware's virtual desktop platform, on the Azure cloud.
With Google, the world's largest container operator and original developer of the Kubernetes platform, VMware, joined by Pivotal, recently introduced PKS. The Kubernetes service is the latest offering through which VMware has embraced containers rather than taking an adversarial posture to the technology. "As you look at those four [IBM, AWS, Microsoft and Google], we've structured relationships that are very unique and leveraged around the core capabilities of each one of those mega-partners," Gelsinger told CRN.
As VMware continues to expand integrated services with each of those hyper-scale providers, the company's channel, especially partners with multi-cloud practices, are closely watching. "Right now, I see VMware wanting to change. Because they know they need to change," David Klee, founder and chief architect at Heraflux Technologies, Scarborough, Maine, told CRN. "For years they didn't want anything to do with public cloud. Now they want to be the big bad integrator out there between other people's clouds," he said.
Not many enterprises are looking to migrate all workloads to the public cloud, Klee said, but hybrid is becoming "a really big point of discussion" for use cases ranging from disaster recovery, burst capacity, dev/test, and production workloads. "I see [VMware] wanting to be the conduit between all these things," Klee said.
A Cloud-Spanning Portfolio
Underpinning the current cloud strategy are several products that have thrust VMware practices well beyond implementing the flagship vSphere compute virtualization platform.
In addition to software-defined networking, NSX, and storage, vSAN, VMware's portfolio buildout of recent years has introduced tools for multi-cloud, Internet of Things, mobility and endpoint management, as well as unique security solutions.
In the second fiscal quarter of 2018, bookings for all those ancillary products together for the first time surpassed those for vSphere, lifting earnings beyond Wall Street's expectations and contributing to an upward revision of the revenue forecast to $7.61 billion for the year.
If vSphere was the main selling point over the last two decades, NSX will be for the next decade, Gelsinger told partners at VMworld. The network virtualization technology stemming from the 2012 acquisition of Nicira should be an integral component of their practices, Gelsinger said in his keynote.
AirWatch, another acquisition executed in 2014, yielded a highly-regarded enterprise mobile management solution that has become the cornerstone of VMware's Workspace ONE device management platform.
And with vRealize, an evolution of vCenter Operations Management Suite, VMware extended VM monitoring and management capabilities out of the data center and across public clouds. Those tools are meant to do more than make life easier for administrators of VMware environments—they have strategic significance.
"I think what they want to become is a management layer behind application modernization," Klee said. "They want to be at the app layer. I think they want to get out of the data center, or at least try to abstract the data center away and just be a platform." The new products are guiding the multi-cloud evolution of solution providers that have long focused on implementing vSphere to virtualize data centers.
Robert Villalta, a solutions architect at Irvine, Calif.-based Technologent, while attending sessions and walking the exhibit floor at VMworld was struck by the emphasis VMware is placing on extending partner practices beyond its traditional technologies. "It's always been vSphere at the center. It's no longer vSphere. Yesterday, [Gelsinger] said it's NSX for the next 10 years. In the keynote today, Pulse IoT, containers, all these peripheral things, that's what's taking shape," Villalta told CRN.
VMware also wants to see partners focusing on adding security on top of those solutions, starting with using NSX for micro-segmentation of networks, and moving on to AppDefense, a new offering that locks down applications at the hypervisor layer. Brandon Sweeney, who recently became VMware's channel chief, told CRN that partners should be thinking about how they will take advantage of the new products to usher in a wave of data center transformation projects and further monetize delivery of cloud services.
"VMware built an ecosystem based on the hypervisor, and now we've figured out how to extend that across the software-defined data center," Sweeney said.
But some partners want the philosophy extended even beyond VMware's own portfolio.
Klee hopes VMware will eventually commit not only to its own cross-cloud solutions, but to facilitating the many open-source DevOps tools, like Microsoft's PowerShell, through public APIs. "I'd like to see them play a little nicer with open standards," Klee said.
Leveraging The Core
While vSphere might not be the focal point of VMware's new story, it's the linchpin that makes the story possible to tell. "I always think of vSphere as that most-critical foundation we have in the company. It's what brought everyone here [to VMworld]," said Mike Adams, director of vSphere product marketing.
Public cloud started eating market share faster than almost anyone expected, forcing VMware to adapt rapidly, said Adams. But don't discount the core VMware product's continued significance in the modern IT landscape, and the toehold that gives VMware in a market increasingly characterized by heterogenous solutions. "The cloud came in as a disrupter and we knew we had to add capabilities. We are one of the few software companies in the world positioned to tackle these things," Adams said. "At the heart of all that is vSphere."
A hotly debated question in the IT industry is the percentage of workloads that will ultimately end up in hyper-scale cloud data centers, as opposed to remaining either on-premises or in private hosted environments.
Adams — and just about everyone else you ask in the VMware ecosystem — sees an even split down the road.
Launching VMware into that 50-50 hybrid future is the latest release of vSphere, version 6.5, which has seen faster adoption than any of its predecessors. VMware tuned 6.5 to support a cloud delivery model and bridge the public-private divide — it's the only version of vSphere capable of running in an AWS data center.
VMware Cloud on AWS, AppDefense, vSAN, all those disparate products come together at the vSphere layer, Adams said. As do containers, he said, which are "just another object in the environment."
Despite all the talk of competing platforms and disruption, VMware sees a world of harmonious coexistence between virtual machines and containers, and plans even deeper integrations to support popular container tech solutions, like Kubernetes. Ultimately, enterprises will have "pockets of IT," Adams said. "A little AWS, Microsoft, Google." The vendor that triumphs in that market will be agnostic to infrastructure types and providers. "We want to be that connection point, allow people to have a choice. If it's a vSphere environment, great, if it's not, that's OK too," Adams said. "We see our place as bringing all that together. Our philosophy is join them all."