Friday, February 25, 2011

VMware as an acquisition target?

Back in 2009, I proposed that VMware (or more importantly its master EMC) would eventually divest itself of its virtualisation business. The reason for my thinking was as follows :-
  1. Whilst the majority of VMware's revenue was based upon its virtualisation technology, this was an area that was ripe for disruption through two points of attack - open source systems such as KVM and the formation of marketplaces offering utility based virtual infrastructure. The latter almost certainly requires open source reference models to avoid issues around loss of strategic control and when combined with aggressive service competition around price, this doesn't leave much room for a license based proprietary technology.

  2. A dominant position in the enterprise is no guarantee for future success - see Novell Netware and the IPX/SPX vs TCP/IP battle. Critical in such battles is the development of wide public ecosystems and inherently open source has a natural advantage. However, given the revenue position of VMware, it could not afford to undertake this route.

  3. The obvious route for VMware would be to develop a platform play, most likely an open source route with an extensive range of value add services - from assurance to management. The current business would be used to fund the development of this approach until such time as the company could split into two parts - virtualisation & platform.

  4. Given the likely growth of private clouds as a transitional model in the development of the cloud industry, VMware would position the virtualisation business in this space for a high value sale, benefiting from its strength in the enterprise. This is despite it being unlikely that VMware would become the defacto public standard, that the technology was likely to be disrupted, that hybrid clouds are a transitional strategy superseded by formation of competitive markets and that many "private clouds" would be little more than rebranded virtual data centres.

  5. During this time, there would be signals of confusion over the VMware strategy precisely because it would be using a time limited cash cow to fund a new venture whilst preparing to jettison the cash cow prior to disruption.
Given the confusion over cloud, the often central (but ultimately misconceived) role that virtualisation is given in the industry, the generally disruptive effects of this change and the wealth of many competitors then in my opinion with luck, timing and good judgement a buyer could be found.

So, in my opinion:
  • For VMware, it would mean creating a strong platform business funded by its current revenue stream before jettisoning the virtualisation business at high value prior to its disruption.

  • For the buyer, it would mean ... whoops ... well that's capitalism for you. Next time, pay more attention.
Of course, this is just my opinion but I haven't changed my view over the years. I'm expecting to see an increasingly clear division within VMware between platform and virtualisation in the next year or so.

I'm hence curious to know what others think? Do you believe that VMware would sell its virtualisation business?
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