The VMware vTax is back and its bigger
More than ten years ago VMware instituted the vTax, which is the nickname the industry coined for licensing requirements and charges created by VMware for the purpose of extracting additional revenue from its vSphere customers and maintaining its market share.
Back then, people may have grumbled but everyone still bought in because it was the only enterprise-ready product that enabled server consolidation in the data center. For many companies, it was a lifesaver.
Over the years, VMware has expanded the vTax to include its end-user computing product, Horizon, and its mobile management product, Airwatch. This year, in response to the weakness in its server virtualization business, VMware has announced yet another vTax increase – one of the largest ever – which it will be adding to its end-user computing and data center portfolios.
This change has serious implications for how IT will choose to operate the data center in the next few years. Not only is there a literal monetary tax, there is also an intangible cost associated with getting locked in to a vendor that does not offer a potentially best-of-breed product outside of its vSphere line.
How can they get away with yet another increase?
VMware leapt onto the market with a very strong position for server virtualization in the data center with vSphere. At its peak, VMware owned nearly 80% of the server virtualization business. Over the years, they have extended their leadership into the end-user computing market by first organically developing a VDI business and later by adding the Enterprise Mobility Management (EMM) business via the acquisition of AirWatch. As of January 2016, the current vTax includes the cost of server virtualization, desktop virtualization, and the EMM suite.
Figure 1. The last vTax yielded much needed revenue to cover vSphere’s shrinking revenue.
VMware has been able to get away with the previous vTax increases because they seemed benign. For many current customers, the previous increases provided workloads to run on the hypervisor. For most organizations, the annual vTax is a necessary cost of running a data center, so the increased workloads of View and Airwatch reusing the existing hypervisor investment was justified as additional “value.” However, back then companies couldn’t have predicted that VDI would become the #1 workload for the modern data center, which thus paved the way for the latest vTax increase.
The new vTax strategy is vertical integration of the entire data center stack
Here’s a list of the new products VMware is introducing for end-user computing:
- Horizon Air Hybrid: A hybrid architecture that enables IT to run virtual desktops on-premises and manage them from the cloud.
- Workspace ONE: A client that enables IT to unify end-user access for all applications, desktops, and data.
- VMware Identity Management: A solution that enables IT to unify identity management for its customers across cloud and on-premises systems.
In the data center, VMware is investing in two existing products:
- NSX: The NSX product line came through the acquisition of Nicira. It is one of VMware’s fastest growing product lines reaching nearly $600m in bookings.
- vSAN: The virtual SAN product line in conjunction with VXRAIL appliance from EMC enables IT to simplify their data center architecture with a converged product.
Essentially, all of these new products and upgrades mean that VMware’s strategy is to vertically integrate nearly the entire data center and end-user computing stacks. By locking out the entire stack from the hardware to the management layer VMware creates a moat around its technology, thus keeping other software vendors out and ensuring its survival in the data center fortress for another 3-5 years.
Figure 2. The current vTax increase is aimed at keeping new data center technologies from unseating vSphere. By pushing down and expanding up the stack, VMware can maintain a hold on the existing data center.
Luckily, new solutions on the market mean that you no longer have to pay the vTax. In our next article, 'Avoid the vTax!', we will explore alternatives to VMware and how to select the one that's best for you.