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VMware vCloud Air barely registers on the Gartner and Forrester cloud meters.

Nevertheless, the VMworld show in San Francisco this week is about everything from end-user workspaces to VMware's offerings in the public cloud. Between the lines of the announcements is the message: Virtualization is the key to the secure digital company of the future.

Indeed, it's clear from this year's VMworld that VMware has passed beyond server virtualization the way an F-16 breaks the sound barrier. It hits it and just keeps going faster. VMware is now telling customers to convert their VMware virtualized servers to VMware virtualized networks, which are tied to VMware's Virtual SAN (VSAN) storage.

The fully virtualized data center then is a natural fit with the vCloud Air public cloud. If there are benefits to vMotioning or live migrating virtual machines within the data center, think what you might do once you can vMotion between data centers.

Disaster recovery or simple system recovery becomes a no-brainer for many more systems; duplicate VMs are stored at an alternative site. Cloud bursting, in which the public cloud subs for a further buildout of the data center during short periods of peak demand, is also no-brainer.

During his Tuesday, Sept. 1, keynote, CEO Pat Gelsinger told the 23,000 attendees in San Francisco's Moscone Center that small companies in the digital economy can disrupt large, established ones because they can move faster. The way an established company should respond is not to try to lock in customers but to learn to move faster itself. Virtualized servers, virtualized VMware NSX networks, and virtualized storage, all tied to a public cloud service, will help them do that, he said.

Figure 1:

VMworld 2015

(Image: Charles Babcock/InformationWeek)

"Innovate like a startup. Deliver like an established company," he advised during his keynote.

Asked during a Q&A session whether VMware, as an established company, was moving fast or slow, he declined to say it was moving fast enough. His firm had just launched release 6.2 of its ambitious virtual networking, NSX; release 6.1 of its complex configuration and capacity manager, vRealize Operations; upgrades to its vCloud Air public cloud; and a Photon Platform for running containers. Gelsinger nevertheless responded: "Are we slow? No, I don't think so. Are we as fast as we need to be? No, I don't think so. I think we need to go faster."

Some customers are finding the pace at which VMware is moving is almost fast enough. One of its customers' top requests is to make vSphere version upgrades less challenging and less time-consuming. Most are using physical networks; VMware is urging them to convert to virtual nets on the strength of its newfound expertise there. Virtual storage is less of leap because storage management systems have been pooling resources for years. Nevertheless, VMware urges customers to adopt its VSAN.

[Learn more about VMware's plans. See VMware Advances Hybrid Cloud At VMworld.]

Gelsinger and COO Carl Eschenbach were asked in a post-keynote Q&A session how VMware was going to gain traction in the public cloud, as it aspires to, when Amazon Web Services, Microsoft, Google, and IBM services are all growing much faster than it is.

Eschenbach responded that VMware already had significant traction in "hybrid cloud" computing, where much computing is still done on-premises, but cloud data centers take on large tasks, disaster recovery, and "bursting" out of the enterprise data center when traffic demands it. The current implementation of long distance vMotion, a function familiar to the virtualization manager inside the data center, will greatly increase use of VMware's public cloud, he said.

Saying cloud-related revenues represented 7% of revenues in the past quarter and probably 10% in the current one, Eschenbach said: "It's the most rapidly growing piece of our business."

That's less than obvious to a casual observer.

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Amazon in particular appears to be running away with the public cloud market, with VMware left far behind. Amazon, Microsoft, Google, and IBM were reported by Synergy Research in July to own 54% of the market, with VMware not found among the top 10 public cloud suppliers.

But Ajay Patel, VMware senior VP of cloud services, explained in an interview at VMworld Sept. 1 that a large share of VMware's public cloud operation lies beyond the view of market analysts such as Gartner, Forrester, and Synergy. In addition to its 11 data centers in North America, Germany, the UK, and Japan, VMware has 4,000 regional service providers offering their own infrastructure running vCloud Air software or reselling the VMware service.

Two examples of regional suppliers are Bluelock in Indianapolis and Peak in Denver. Their revenues don't get counted in the assessments of public cloud services. Likewise, VMware-related revenues generated by OVH, Navisite, or CenturyLink, who also operate vCloud Air services as part of their service, never show up in a column with VMware's name at the head.

"If you add up all their revenues, VMware becomes the second-largest provider of vCloud Air public cloud," said Patel. In other words, over half of vCloud Air's presence is invisible to public cloud market analysts. Granted, that presence falls into a special category, where VMware provides the cloud software and operating expertise to regional suppliers. It supplies the facilities and manpower to provide the service. It's not as if services provided directly by VMware are being missed.

Nevertheless, Patel said, "We provide them with our IP. It's a deliberate strategy on our part" to let third parties provide much of the vCloud Air public service. "We succeed as they succeed. Collectively, we're a large public cloud provider."

Even the Synergy Research report by chief analyst John Dinsdale seemed to offer some hope that regional suppliers may still succeed. "The good news for the plethora of small-to-medium-sized cloud providers is that there does remain a wealth of opportunity for those that are focused on specific market niches or local geographic areas," Dinsdale wrote. The vSphere virtualized data center is potentially a huge, specific market niche. Nevertheless, as direct cloud revenues are counted, VMware makes it only into the top 20 suppliers, not the top 10, Dinsdale wrote.

VMware is still early in the process of accustoming its customer base to think about NSX virtual networking and other major components of a virtualized data center. Compute, storage, and networking must all be virtualized if they're to operate together like a software-defined data center (SDDC). With those resources pooled together, they can be subdivided for individual servers via software instructions, explained Raghu Raghuram, executive VP for the SDDC unit. (He was credited with coining the term in VMworld's opening keynote Aug. 31.)

The SDDC needs to be in place for a VMware customer to realize the benefits of the "unified hybrid cloud" or an SDDC working cooperatively with a public cloud. VMware is touting the hybrid cloud as the operational arrangement that leads to greatest customer benefit.

Raghuram was asked in an interview how many customers are just running virtual servers, as opposed to buying into the software-defined data center approach? He responded that VMware has 2,000 customers who have adopted VSAN, its storage virtualization. It has 700 customers who have adopted its NSX virtual networking, and many of those customer sets overlap. In the overlap area is the part of the customer base that has taken important steps toward an operational software-defined data center, he said.

VMware is also the beneficiary of cloud activity elsewhere. Shadow IT groups often start a project on Amazon or another public supplier, then ask IT to bring it in-house and make it secure and enterprise-ready. Oftentimes, the IT group does not have a private cloud environment on which to run an important new customer-oriented application, and will move it into a vCloud Air facility as an IT-friendly site.

VMware can win many of these fresh, "cloud-native" applications in the long run because they need to connect to the legacy systems already virtualized but still on-premises.

[Want to learn more about VMware's new approach to containers? See VMware Goes All-In On Containers.]

At VMworld, VMware appeared confident of its future as a supplier of hybrid cloud services. As if to advertise the fact, it put Microsoft corporate VP Jim Alkove onstage to talk about and laud VMware's capabilities in deploying Windows 10. Microsoft is arguably the vendor most likely to directly compete with VMware as the supplier of hybrid-cloud services, and no Microsoft executive has ever been asked to address VMworld before.

Either VMware is a serious laggard in the race to gain a share of public cloud revenues, or it's already further down the path to commandeering a larger share than even many knowledgeable observers realize. VMware's always bet that the way to best use virtualization is as a springboard from deep inside the data center. It's still playing that bet -- but hoping the spreading wave of virtualization will carry it all the way to the cloud.