VMware analysis and strategy


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Boston University School of Management, Strategy Team 9.
Gian Calvesbert, Kobi Magnezi, Will Reid, Sarah Rubinton, Abhishek Sinha

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VMware analysis and strategy

  1. 1. VMware: Strategy, Analysis and RecommendationsTeam D9:Gian CalvesbertKobi MagneziWill ReidSarah RubintonAbhishek Sinha
  2. 2. 2AgendaIndustry Terminology and BackgroundIndustry AnalysisVMware History and Current PerformanceCurrent Corporate StrategyRecommendationsForecast and Predictions
  3. 3. 3What is Virtualization?: The Traditional Server ConceptWeb ServerWindowsIISApp ServerLinuxGlassfishDB ServerLinuxMySQLEMailWindowsExchange
  4. 4. 4What is Virtualization?: The Virtual Server ConceptVirtual Machine Monitor (VMM) layer between Guest OS andhardware
  5. 5. 5From Virtualization to CloudVirtualization• Not bound tophysicalhardware• EasilyscalableAutomation• Getless/moreservers asneeded• No need tomanuallyinstall orconfigureCloud• Economy ofscale• No CAPEX• Pay per use• OPEX candirectly linkwith demandThe global cloud computing market isexpected to grow from $37.8 billion in2010 to $121.1 billion in 2015
  6. 6. 6All servers are virtualand run inside acompany using a cloudautomation product (likeVMware vCloud)Servers maintainedby other companyand offered throughpay-per-use pricingSome servers run inside theorganization and some runoutside in the public cloudHybrid Cloud Computing
  7. 7. 7RivalryBarriers toentryBuyerPowerThreat ofsubstitutionSupplierPowerIndustry AnalysisHigh R&D CostsCompanies need to offermultiple productsFunctionalalternatives exist.High cost fortechnology changeHigh attrition ratefor ITprofessionals.Patents protectfirms.High switching costs.Business customersmaking large purchases.
  8. 8. 8Breaking the Old Guard, Hybrid CloudTimeROIVirtualizationHybrid Cloud12Hybrid cloud isdisruptingcomputingstructuresTie with public andprivate cloudCustomers WTPto manage bothprivate/publiccloud
  9. 9. 9VMware: Corporate Background1998200420072009FoundedAcquired by EMC for $635MIndependent subsidiaryEMC 2012 Revenue: $21.7 BillionEMC owns 80% of VMware Class AStock and 100% of Class BIPOIntroducing vCloud Suite,integrated productsto automate and managecloud-based data and networks
  10. 10. 10VMware: Current Financial Performance0%10%20%30%40%50%60%70%80%90%100%0500,0001,000,0001,500,0002,000,0002,500,0003,000,0003,500,0004,000,0004,500,0005,000,00004 05 06 07 08 09 10 11 12$ThousandsYearRevenue and ChangerevenueRevenueChange$4.6BRevenue84.3%Grossmargin$745MNetIncomeROE14.19ROA7.74Stock Performance
  11. 11. 11VMware: Current Corporate StrategyManagement has defined 3 pillars for continued growthSoftware-defineddata center• Virtualizedinfrastructure isautomaticallymanagedHybrid cloudcomputing• Virtual machinescan move fromprivate to publiccloudsEnd-usercomputing• Focusing on themulti-device era
  12. 12. 12Competitive PositioningCost Leader DifferentiatedNarrowBroad
  13. 13. 13Sustainability and Best PracticesVMwareMicrosoftOpenStackValueHighHighLowLowPrice
  14. 14. 14Sustainability: Change in VMware Value CaptureWTPWTSWTPWTSTotalValueCreatedVMware Value ShareOld Market Model Current Market Trend
  15. 15. 15Need For ChangeRevenue growthhas flattened offPricing model is toovolatile and too highFierce industrycompetition,customers wary oflock-in with any oneservice providerR&D expendituresnot matched withevolutions in marketdemandVMware has a superiorunderlying foundation.Reallocation of resources isrequired to successfullymatch resources to markettrends and demands.
  16. 16. 16Recommendation 1: Pricing Strategy0500,0001,000,0001,500,0002,000,0002,500,0003,000,00004 05 06 07 08 09 10 11 12$ThousandsYearRevenue ComponentsLicense ServiceRevenue model• Transition licensingrevenue fromVirtualization andHybrid Cloudproducts focus toservice-basedrevenue focus• 45% of currentrevenues fromlicensing, 55% fromservicesProduct price• Reduce price onVirtualization productto increase adoptionand ongoing servicerevenueMarket penetration• New Hybrid Cloudproduct set to enterthe market in late2013, take on anearly adoptionstrategy through alower initial licenseprice point
  17. 17. 17Recommendation 2: Shift R&D Focus“VMware still depends on vSphere revenueas it expands into higher-level managementand automation software”Gartner Magic Quadrant forVirtualization Infrastructure.June 2012Focus R&D on buildingtop-end inter-operablehybrid cloud platform
  18. 18. 18Founded in 2009, VCE (Virtual ComputingEnvironment), is a joint venture among EMC,VMware and Cisco.Recommendation 3: EMC & VMwareCloud Security
  19. 19. 19Recommendation #4: End User Lock-in via Apple PartnershipApple vs. Microsoft• Apple’s advanceddesktop OS• Microsoft stilldominates theenterprisedesktop OSPersonalVirtualization• Transfer entire PCto Mac• Leverage currentWindowsinvestment• Seamlessly runWindows on aMacBundling• VMware & MacOS X• Lower switchingcost• Lower the barrierto enter• Increase marketpenetration• Increase brandawareness• New source ofrevenue
  20. 20. 21EpiloguePricing• Licensing contributes 45% tocurrent revenuesFocus• Choose which customers toserve, and which ones not to• Constantly innovate and servethese customers extremelywell• Vulnerable to competitorslocking-in customersBundle• Customer may dislike this new“lock-in” feature that Appleintroduce.• "lock-in" bundle may besubject for United Statesantitrust lawTheres no such thing as a free lunch
  21. 21. 22EpilogueBut there is a way to match market demands and trendsOver the nextthree yearshybriddeploymentswill make up60% of alldeploymentsThe market willballoon to $3.3billion by 2016
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