The Industry Response to VMware’s vTax Increase

Author: Jimmy Chang

Publish on: May 12, 2016 6:00:00 AM

What's the brouhaha with VMware vTax?

A few weeks ago, we wrote a series of articles about the latest vTax increase—essentially what it includes and how you can avoid it. It’s a topic that’s getting a lot of attention lately as I work with my customers, so I thought I’d keep you updated on how folks in the industry are responding.

Insights about the vTax Increase from the Q4 Investor Call

If you read our previous articles, you’ll recall that the main driver for VMware’s vTax increase is the rapid decline of the vSphere business. We’re not the only ones to have pointed this out. In a recent March 2016 blog post VMware has passed 'Peak vSphere' in Scale Computing, Alan Conboy found some great quotes in the transcript of the Q4 call and provided some insightful commentary. Here are some highlights:

"'[We] are seeing strong growth across our full portfolio of emerging products. We’ve recognized that our blockbuster compute products are reaching maturity and will represent a decreasing portion of our business going forward[…]’

Translation - We have passed the peak of the legacy vSphere based approach and our newest bits – vSAN, NSX, and AirWatch are what is providing our growth.”

Alan distills another enlightening quote:

"'[For] a number of years we’ve been expanding our product portfolio outside of compute, and it’s been a big strategy of ours to sell no more naked vSphere as we got into these new products and we’ve talked about a transition that would happen. It wasn’t a matter of, it was a matter of it, it was really about when we’d start to see our newer products offset some of the decline we saw in our compute business…. [The] ongoing deceleration standalone vSphere was a little bit more pronounced in Q4[…]’ (Carl Eschenbach, page 11)

Translation – The servers+switches+SAN+hypervisor market approach is dying. The stand alone vSphere market is dying, we have to move to the new hyperconverged future and leave the past behind.”

Basically, VMware needs to reinvent itself for a market that is changing all around it or it faces irrelevancy. Essentially, it has come to conclusion that we’ve come to—that cloud and hyper-converged infrastructure is the future because companies are evaluating their options.

vmware's vtax no-more-vtax.png

Apple and Intel both dumped VMware to avoid paying the vTax

Successful businesses constantly optimize their IT operations. Apparently, Apple and Intel have both come to the same conclusion that a lot of companies are arriving at lately: there are alternatives to VMware with lower cost options.

According to Business Insider, Apple’s four-year licensing deal with VMware came up for renewal last October. The cost: $20 million for two-years. Instead of renewing, Apple decided to ditch VMware’s server virtualization software, ESXi, and go with a free hypervisor, KVM “that does largely the same thing”. The article also highlights that VMware’s licensing fees pose a budgetary headache - “With the rise of smartphones and cloud computing, data centers are growing ever-larger to meet swelling demand. That means licensing fees like the kind VMware demands can become a headache…”.

Intel has been working on ditching VMware for years. Back in 2009, it began working on switching to the cloud. To do so, it used OpenStack to deploy its own private cloud and during that period, it moved 17,000 servers off VMware, which saved the company $21 million to date.

Converged / hyper-converged infrastructure is growing and growing

Much of the bad news for the existing vSphere product is due to the introduction of hyper-converged technologies. By 2019 a large chunk of revenues will move from traditional servers and storage to converged and hyper-converged infrastructure. Today, the converged infrastructure market size stands at $5 billion, while hyper-converged stands at $1 billion. In four years, these figures are projected to jump to $30 billion and $10 billion, respectively. With the market moving away from the legacy data center technology and onto hyper-converged, does it make sense to invest in a VDI solution that extends investment in the VMware stack?


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