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Pat O’Day
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VMware Vs. Cloud Partners: Think Hunger Games

Now that VMware is a provider of its own vCloud service, where does that leave third-party providers? Pat O'Day, CTO of Bluelock, shares his take.

Editor's note: This commentary is from an early leader in VMware-compatible IaaS. Bluelock operates cloud datacenters in Indianapolis and Las Vegas. We asked O'Day to describe how vCloud-based third parties compete with the new VMware.

Earlier this year, VMware announced publicly that it was going to become a vCloud service provider from its own datacenters. Given that I'm the CTO for a major vCloud provider, Bluelock, I received inquiries about this move from the media and analyst community as well as from my friends inside and outside of VMware. 

Most knew that it would be disruptive but weren't sure whether it meant a loss of business for third-party providers. Or would it force a healthy push toward differentiation? Some believed that VMware's entry signaled the death of hundreds of small, regional providers, and they were hunting for the first dead canary in the mine.

I believe Mark Twain said it best, and to paraphrase on behalf of the vCloud community: "The report of our death might have been exaggerated." I emphasize "might" because there is certainly a lot of change occurring as a result of VMware's entry.        

[ How is VMware staying one step ahead of the commoditization noose? VMware Killed By Commoditization? Not So Fast. ]

In terms of dead canaries, Bluelock is seeing new customers from the closure of what were more fragile vCloud services. They would have had a hard time in the ongoing competition, regardless of VMware's entry. Most appear to have suffered from not reaching a cash-flow-positive status, or they were falling behind the intense pace of adding features and functionality. Others closed up because delivering a "service" turned out to be harder than anticipated and often too far from the company's historical expertise, whether that's co-location, software, or hardware sales.

Some closures, like Dell's vCloud offering, are public, but a lot of this churn is occurring privately. Customers are receiving a notice that their provider is pursuing other interests with a date when workloads must be moved. A few are increasing prices enough to encourage a strong look elsewhere.

There are providers that are leaning in, like Savvis, which will be part of VMware's vCloud Hybrid Service franchise. Others, like Verizon, appear to be leaning away. It is investing in different target audiences and building out more-open, non-VMware platforms based on Xen and Openstack. If you want to see where your provider might be headed, check out this set of cloud provider health criteria that Kyle Hilgendorf at Gartner created in his blog, "Cloud Exit Strategies – You DO Need Them."

The best analogy I've come up with for the vCloud community is probably The Hunger Games. The cloud providers play the role of the "tributes" or contestants, and VMware plays the role of game organizer and contestant sponsor. It provides the multi-tenant vCloud software and structure and standards for the ecosystem and drops resources from the sky in marketing dollars and leads.  

With vCloud Hybrid Service, it has essentially entered itself as a contestant. The traditional word for this is co-opetition.    

Some might be wondering if the co-opetition is tangible yet. I can say with absolute certainty that it is. I've found myself presenting our vCloud offerings directly across the hall from VMware, which was pitching its vCloud service at the same user group meeting.

We've also had both existing and new customers push projects to the next quarter so they had time to evaluate VMware's offering. That offering, oddly enough, was either introduced to the customer by its VMware account team, which was at one time promoting our offering, or its channel partner, which was trying to sell it private cloud hardware the previous quarter. There has even been some talent-pilfering from the ecosystem as VMware builds out its own team.

Some prospective customers have called me after evaluating VMware's offering and asked for my opinion on the VMware service. Tempting though it might be to go there, for ethical and important business reasons I don't. In reality, we've been competing against other vCloud and non-vCloud providers successfully since we founded the company eight years ago. Slinging mud just gets you dirty.

Of course, there will be consolidation and closures in a market with thousands of vCloud suppliers. But what's exciting is the increased profile and amount of innovation for the vCloud platform as VMware increases its investment. VMware's investment in the vCloud datacenters is the first time it has formally acknowledged the importance of the vCloud succeeding. The interest in vCloud and hybrid vCloud has increased over the past months. We've seen this anecdotally, but it also can be seen through Google search tracking. "vCloud hybrid" as a search term was nonexistent before April 2013. Since the announcement, it's grown an average of 164 percent monthly. The key question has evolved from "Why cloud?" to "Which vCloud?"

VMware is and needs to be focused on different things than the rest of the vCloud provider community, including addressing Wall Street, competing with giant non-VMware based clouds, and transitioning its traditional reseller channel from a perpetual to a recurring revenue model.

We've chosen to do what has worked for us each time a big player has entered the market: Listen to our customers and make investments to develop the best possible services for them. To that end, this year we've added additional security services for applications with PII and PHI requirements as well as a recovery-as-a-service offering. It allows VMware users to use our cloud as a disaster recovery site for its vSphere environment.

Like any good war for mind and market share, there are a lot of battles raging. The market changes quickly, and Bluelock is in a place where we need to fight for a foothold in the cloud market. In fact, there's a number of impending battles about to erupt for vCloud market share. In my next article I'll highlight what I believe are the "Top 5 Battlegrounds In The Impending Cloud Wars."

To make it easier to follow this series, I've resurrected and dedicated my old @fathercloud twitter handle to the cause. Follow me there for updates and appearance of the next article. 

Want to relegate cloud software to edge apps or smaller businesses? No way. Also in the new, all-digital Cloud Software: Where Next? special issue of InformationWeek: The tech industry is rife with over-the-top, groundless predictions and estimates. (Free registration required.)

We welcome your comments on this topic on our social media channels, or [contact us directly] with questions about the site.
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User Rank: Apprentice
11/20/2013 | 1:45:57 PM
Cost factor
--The key question has evolved from "Why cloud?" to "Which vCloud?"--

Agree with this. Organizations are clearly attracted by the convenience of using public cloud infrastructure but at the same time not clear on the the economic benefits or even the viability of using public cloud offering. This is getting more complex as the vendor choices are increasing. VMware's entry into this space is definitely interesting. Not everybody wants to fly economy, and not everybody can afford a long layover for cheaper flight tickets. This is why I think there is a clear need for expedia like service for cloud shopping.  Yesterday I posted a blog entry on this topic "Do Hybrid Clouds Make cents?" (http://blog.cloudphysics.com/blog/2013/11/18/do-hybrid-clouds-make-cents-free-cost-calculator-for-aws) - Having a easy to use cost calculator is one small step towards this direction, but there is a clearly lot more to do.
User Rank: Ninja
11/20/2013 | 8:12:34 AM
A different Hunger Games
I see the vCloud solutions less like the Hunger Games and more like all of the cupcake shops I've seen pop up and disappear over the past year.  When you have something that is new and trendy you tend to get a lot of people jumping in hoping to ride the wave but for those who barely now how to swim it can be a rough ride.  The shops that tend to close up tend to be either the types that were testing the waters to see if they really wanted to get in deeper like Dell or they were in over their heads from the start like many smaller companies.  Having VMware step into the market only makes the waves bigger and will push the less capable companies out but those with good business plans and solid offerings will adjust and keep on going. As the market matures it will be more predictable but for now anyone in the virtual server or cloud services market is going to have to deal with a constantly changing environment.
User Rank: Apprentice
11/19/2013 | 7:15:19 PM
Re: Undercutting?
Hi Lorna,

Establishing value through differentiation is the best path forward for non-giants as the market for "compute" continues to commoditize and forces prices down.   I believe this is also leading to the resort / hotel / bed & breakfast ecosystem that other posters are describing.  Perhaps more specifically it is helping to mature the large generalist providers and accellerate the evolution of specialist providers focusing on narrow but newer and highly valuable cloud use cases like pay for use Disaster Recovery, PII-PHI compliant data protection, etc..   as was already stated, both developments are great for the consumer!


User Rank: Author
11/19/2013 | 1:31:16 PM
Re: Room for more than VMware and Amazon?
I like the analogy of the big hotels and the bed and breakfasts. Think its very applicable. I don't think VMWare will fail, nor will they dominate.  Some of the smaller providers will fall by the wayside (the 'dead canaries'), though whether its because of VMWare's move or they would have fallen anyway would be hard to tell.
IW Pick
User Rank: Strategist
11/19/2013 | 11:17:05 AM
VMware doesn't do Crazy Eddy prices
Hey,  Lorna, it takes a special business psychology to try to take market share through price cutting.... and VMware doesn't have it. On the contrary, its a premium spread company. VMware is leaving the outlying areas of virtualization to Microsoft and Citrix but dominating the data center and charging a premium for it. It's whole problem with getting into cloud is that it has little experience in operating infrstructure as a service, it's opening its own data centers to get some, but as it learns, Amazon and Microsoft keep pushing the break-even point lower. VMware will damage its quarterly earnings if it tries to compete on price, so don't hold your breath waiting for that one.
User Rank: Author
11/19/2013 | 10:25:38 AM
Room for more than VMware and Amazon?
There is little doubt managing this coopetition relationship will be tricky for both sides. However, the cloud community has shown time and time again that 1. customers are afraid of lock-in and 2. customers know smaller companies can be nimble.

Our contributor, Cloudonomics author and Telx senior VP Joe Weinman used a good analogy with our cloud community editor Charlie Babcock earlier this year: "Will the Marriott, Starwood and International hotel chains exist in the future? Certainly. So will bed and breakfasts," he said.
Lorna Garey
Lorna Garey,
User Rank: Author
11/19/2013 | 9:38:51 AM
Do you get any sense that VMware is (or may at some point) use its size to offer these services at a loss to undercut the competition? Certainly we've seen plenty of tech titans lowball to clear the field of rivals, only to then raise prices once there were fewer options available to IT.
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