Wall Street talks VMware down, key executives exit and industry pundits continue to pile on the criticism. But VMware can bounce back from this down cycle, if it focuses on its identity as a supplier of fundamental data center software.
EvercoreWealth Management analyst Kirk Materne recently downgradedVMware's target stock price from $85 to $75 because of uncertainty over VMware's ability to compete with Amazon Web Services, Microsoft Azure and OpenStack.
It wasn't so long ago that VMware posted a price of $103. In a year when technology stocks are generally up, VMware is down 25%.
Comments in the general press on VMware's future are also more skeptical, when they aren't downright dubious, such as this recent GigaOm article, "VMware's Hot Seat Getting Hotter By The Minute."
I'm not immune to the signs that spur these comments. But I'm going to say, with no claim to omniscience, that they're potentially overwrought.
The view behind many of them is that lower-priced substitutes for VMware are now readily available in the enterprise, while its efforts to move out into the cloud are sputtering or going nowhere.
Reviewers are confusing the slow progress of VMware's overarching ambitions with the core strength of the company. To me, VMware can fail at becoming a public cloud supplier and still remain a strong software supplier. There are people inside VMware who would disagree with me on that. But right now, the financial community and the press are simply taking VMware too much at its word that it must be a dominant player in cloud computing.
They also take it at its word that it needs to become a software-defined networking vendor, that it needs to produce the software-defined data center -- and do so immediately. We're trying to convert what should be a marathon into a 100-yard dash.
What's the worst that can happen if VMware only begrudgingly succeeds, or perhaps fails, at providing the software to power dozens or hundreds of public cloud data centers? Will its whole vCloud Hybrid Service initiative collapse, along with its prospects for the future? Not necessarily.
VMware may want to "own" the enterprise cloud compute task the same way that it dominates the heart of the virtualized data center. That is, if its products are managing the job inside the enterprise data center, then those products should follow when the job moves to the cloud. This is the thinking that builds software dynasties.
One only needs to think about Microsoft's expansion from owning the desktop operating system to owning the desktop application suite, or Oracle's move from owning the database to owning the applications that use the database. Every software company believes it must expand relentlessly from its core to more and more of the customer's infrastructure ... or what? It will wither and die? In this sense, every software company is an empire builder.
If it's true in business that good health is associated with expansion, there's no truth whatsoever -- in business or anywhere else -- that the wrong kind of expansion is associated with agility. For VMware, agility in capitalizing on its ownership of data center virtualization is what's called for now. VMware owns 80% of the market among those serious about virtualization, according to this analysisfrom Core Equity Research.
VMware's recent product moves show it has a lot of potential left for managing that new environment. Sliding a hypervisor in between the operating system and hardware converts the data center into something that it wasn't before. Each device, instead of being a concrete block, becomes a fluid, mercurial asset that can be reconfigured on the fly by software. Get enough operational intelligence into the software, and the device will start being utilized at 60% or 70% instead of 15%. The whole data center starts to hum.
VMware may want to follow the workload outside the enterprise data center, but it doesn't have to. If it focuses inside the data center, that doesn't mean its customers will have nowhere to turn for cloud computing. It means only that the workload will be converted from a VMware virtual machine file into someone else's, a perfectly plausible, logical way for the end user to navigate the movement into the cloud. That means, of course, someone else's virtual machine formatting and hypervisor will be used once the workload gets there. So what?
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