Will VMware Challenge Amazon Head On?

VMware announces Hybrid Cloud Services unit. Does that mean VMware IaaS, competing directly with Amazon, or continued reliance on partners?
To establish a Hybrid Cloud Services division within VMware, VMware has hired Bill Fathers, a veteran of Savvis, as senior VP and general manager. "With his expertise and proven ecosystem mindset, VMware and its partners will deliver the richest set of complementary cloud offerings," Gelsinger said in an announcement Wednesday.

That announcement set off another round of speculation that VMware was becoming a provider of its own infrastructure as a service. Two weeks ago in Las Vegas, Gelsinger told partners: "We all lose if they [enterprise customers] end up in these commodity public clouds. We want to extend our franchise from the private cloud into the public cloud ... Own the corporate workload now and forever."

If anyone was in doubt about who was meant by "commodity public cloud," VMware COO Carl Eschenbach soon explained: "I find it really hard to believe that we cannot collectively beat a company that sells books," he said. The comments have been widely interpreted as indicating VMware is bent on keeping its customers off public clouds by launching its own cloud infrastructure as a service, something it has declined to do so far.

Such a move would entail risks. The extensive network of partners that VMware has spent years building up would find itself competing with its advocate and benefactor. VMware-compatible cloud suppliers could decide the cost of competing with VMware, when providing a compatible environment, is too great.

Gelsinger, and the man he hired to build out the VMware-sanctioned hybrid cloud, Fathers, are both advocates of and builders of ecosystems around a core product line in their previous jobs. Gelsinger built a reputation for doing it at Intel. Despite critics' speculation, it's unlikely that Gelsinger and Fathers have decided ecosystems don't count.

What's more likely is that VMware has built a hybrid cloud test bed, or potential application developers' cloud, and is test driving it with the help of selected outsiders. VMware needs to learn more about what distinguishes a cloud application from the enterprise legacy applications that it has so efficiently been virtualizing so far.

As the owner of a significant piece of open source code, the Spring Framework, and successful host of the open source Cloud Foundry, there's no question VMware could provide infrastructure for software developers, who would one day deploy applications to one of its partner environments, or to VMware itself. That may be the surprise coming in the second quarter.

VMware's aggressive projection that it would realize 20% revenue growth as a result of these moves after 2013 bolstered its standing in the market. Its stock, which had suffered a 20% decline after its fourth-quarter earnings report, regained 8% by the close of trading Wednesday.

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