VMware announces vSphere 4.0 pricing and RTM date, investors are not impressed

Posted by virtualization.info Staff   |   Monday, April 27th, 2009   |  

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Last week VMware announced for the third time its upcoming platform vSphere 4.0, that will replace VMware Infrastructure 3.5.

The company already announced the platform at VMworld 2008 in Las Vegas and VMworld Europe 2009 in Cannes, providing a huge amount of details about the new features and components on stage and on the corporate website.
Nonetheless, VMware decided to announce the product a third time with an on-site and online launch party, despite the actual bits are not yet available for download or purchase.

A very few amount of things were communicated during the on-site and online announcement (the recording is available here): the new product tagline, the pricing and the availability.

Let’s start from the new tagline: the company marketing decided to drop the Virtual Data Center Operating System (VDC-OS) label, revealed in September 2008 with the first announcement, to embrace a much more hyperbolic Cloud Operating System (Cloud OS).
In May 2006 virtualization.info published a piece titled The long chess game of VMware, suggesting that the virtualization vendor may want to move away from a direct competition with Microsoft as soon as the software giant would be able to compete on virtualization.
The article pictured a scenario where VMware moves in a direction where Microsoft may not follow for several years: the general purpose grid computing space.
Here we go. Exactly three years later, VMware prefers to call the architecture cloud computing instead of grid computing (the technical differences between the two approach are not relevant in this discussion) but the strategy is being fully executed.

Nobody believes that cloud computing is something that will go mainstream today. Not even the VMware CEO, who said that cloud computing will become a concrete things no earlier than late 2010.
Despite that the VMware marketing is firm in promoting the new Cloud OS as a technology for the SMB market.
It sounds a paradox but the company really believes that this is the long-awaited answer to the many critics received in the recent years about its strategy for the small business.
Trying to make the platform more attractive for the smaller customers VMware is now behaving like Microsoft, offering a plethora of vSphere editions that reminds the Windows Vista packaging:


(for a more detailed breakdown of the features available with each version you may want to check this VMware document)

The pricing has been modified accordingly to this new segmentation despite but once again the SMB portion doesn’t seems particularly aggressive:

vSphere_SMB vSphere_pricing

Additionally, the appearance of the new Enterprise Plus license seems to have unpleased a number of enterprises as well.

It’s clear that VMware will continue to consider its product the Rolls-Royce of virtualization and sells it accordingly, despite its closest competitors offer a significant part of their portfolio for free and despite the down economy.
Citrix, which now offers the hypervisor and a big part of its management stack for free, will be particularly happy to compete here. Microsoft will join the party in early 2010, when it will finally have that live migration (available for free as well) that customers perceive as a mandatory feature of every hypervisor.

During the presentation Dr. Stephen Herrod, the CTO and VP of R&D, announced that vSphere 4.0 is gone gold, but the company will not sell it before May 21.
The reason for such anticipated party is not exactly clear. Probably VMware is trying to pre-sell as many licenses as possible during this quarter. Possibly, the company was trying to impress the investors that didn’t attend its technical conferences before releasing Q1 2009 earning reports (it didn’t work, more about this below).
For sure, the party allowed Paul Maritz, the former Microsoft execute that became VMware CEO in July 2008, to show a new confidence in his role. He still talks about VMware as a company that is managing and not yet owning, but with the new leadership team that he’s building it’s clear that VMware is taking the shape he wants and that he’s very pleased about that.
Unfortunately the launch also gave the opportunity to an endless number of VMware partners to spam customers, analysts and journalists about the fact that their products will support vSphere 4.0, on May 21 or at the end of the year. An information totally useless that we’ll receive another two times for sure (at the launch of the actual product and at VMworld 2009). It’s unbelievable how the marketing industry still feels effective this kind of effort.

At least the occasion was useful to celebrate the effort of thousands of employees, which is the most concrete thing in this launch.
It’s more than clear that vSphere 4.0 will be significant milestone in the history of this company. The commitment of the company to deliver a cu
tting-edge product with first class technology is evident and not under discussion. Every competitor should acknowledge that.
The ones that dismissed this release as a simple product upgrade have to look at the big picture that will be come evident over the next 18 months, when VMware will release all the vSphere modules.

But as usual this is not the VMware weakest point and certainly not where VMware is losing ground.

The demonstration comes from the investors’ reaction after VMware announced its Q1 2008 financial results, one day after the vSphere launch.

During the earnings call the company reported a 7% increase in in revenues, a number below the analysts expectations, but the most relevant information is that an increasing part of this revenue come from professional services instead of product licenses.

Specifically, the services revenue grew 48% from last year.
The company total revenue depends on services by 45% compared to just 33% one year ago which means that VMware licenses revenue declined of 13% from a year ago.
If VMware would ever decide to answer Citrix and Microsoft with significant free offerings, the decline may become significantly bigger.

This may be the reason why VMware expects that revenues for Q2 2009 will be flat or even down compared to Q2 2008.

The investors didn’t react well, and decided to not trust the upcoming vSphere 4.0:


Is this a sign that VMware has to significantly change its strategy despite the high quality products it offers?

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