Boston University School of Management, Strategy Team 9. Gian Calvesbert, Kobi Magnezi, Will Reid, Sarah Rubinton, Abhishek Sinha

1. VMware: Strategy, Analysis and Recommendations
Team D9:
Gian Calvesbert
Kobi Magnezi
Will Reid
Sarah Rubinton
Abhishek Sinha

2. 2
Agenda
Industry Terminology and Background
Industry Analysis
VMware History and Current Performance
Current Corporate Strategy
Recommendations
Forecast and Predictions

3. 3
What is Virtualization?: The Traditional Server Concept
Web Server
Windows
IIS
App Server
Linux
Glassfish
DB Server
Linux
MySQL
EMail
Windows
Exchange

4. 4
What is Virtualization?: The Virtual Server Concept
Virtual Machine Monitor (VMM) layer between Guest OS and
hardware

5. 5
From Virtualization to Cloud
Virtualization
• Not bound to
physical
hardware
• Easily
scalable
Automation
• Get
less/more
servers as
needed
• No need to
manually
install or
configure
Cloud
• Economy of
scale
• No CAPEX
• Pay per use
• OPEX can
directly link
with demand
The global cloud computing market is
expected to grow from $37.8 billion in
2010 to $121.1 billion in 2015

6. 6
All servers are virtual
and run inside a
company using a cloud
automation product (like
VMware vCloud)
Servers maintained
by other company
and offered through
pay-per-use pricing
Some servers run inside the
organization and some run
outside in the public cloud
Hybrid Cloud Computing

7. 7
Rivalry
Barriers to
entry
Buyer
Power
Threat of
substitution
Supplier
Power
Industry Analysis
High R&D Costs
Companies need to offer
multiple products
Functional
alternatives exist.
High cost for
technology change
High attrition rate
for IT
professionals.
Patents protect
firms.
High switching costs.
Business customers
making large purchases.

8. 8
Breaking the Old Guard, Hybrid Cloud
Time
ROI
Virtualization
Hybrid Cloud
1
2
Hybrid cloud is
disrupting
computing
structures
Tie with public and
private cloud
Customers WTP
to manage both
private/public
cloud

9. 9
VMware: Corporate Background
1998
2004
2007
2009
Founded
Acquired by EMC for $635M
Independent subsidiary
EMC 2012 Revenue: $21.7 Billion
EMC owns 80% of VMware Class A
Stock and 100% of Class B
IPO
Introducing vCloud Suite,
integrated products
to automate and manage
cloud-based data and networks

10. 10
VMware: Current Financial Performance
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
5,000,000
04 05 06 07 08 09 10 11 12
$Thousands
Year
Revenue and Change
revenue
Revenue
Change
$4.6B
Revenue
84.3%
Gross
margin
$745M
Net
Income
ROE
14.19
ROA
7.74
Stock Performance

11. 11
VMware: Current Corporate Strategy
Management has defined 3 pillars for continued growth
Software-defined
data center
• Virtualized
infrastructure is
automatically
managed
Hybrid cloud
computing
• Virtual machines
can move from
private to public
clouds
End-user
computing
• Focusing on the
multi-device era

12. 12
Competitive Positioning
Cost Leader DifferentiatedNarrowBroad

13. 13
Sustainability and Best Practices
VMware
Microsoft
OpenStack
Value
High
High
Low
LowPrice

14. 14
Sustainability: Change in VMware Value Capture
WTP
WTS
WTP
WTS
TotalValueCreated
VMware Value Share
Old Market Model Current Market Trend

15. 15
Need For Change
Revenue growth
has flattened off
Pricing model is too
volatile and too high
Fierce industry
competition,
customers wary of
lock-in with any one
service provider
R&D expenditures
not matched with
evolutions in market
demand
VMware has a superior
underlying foundation.
Reallocation of resources is
required to successfully
match resources to market
trends and demands.

16. 16
Recommendation 1: Pricing Strategy
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
04 05 06 07 08 09 10 11 12
$Thousands
Year
Revenue Components
License Service
Revenue model
• Transition licensing
revenue from
Virtualization and
Hybrid Cloud
products focus to
service-based
revenue focus
• 45% of current
revenues from
licensing, 55% from
services
Product price
• Reduce price on
Virtualization product
to increase adoption
and ongoing service
revenue
Market penetration
• New Hybrid Cloud
product set to enter
the market in late
2013, take on an
early adoption
strategy through a
lower initial license
price point

17. 17
Recommendation 2: Shift R&D Focus
“VMware still depends on vSphere revenue
as it expands into higher-level management
and automation software”
Gartner Magic Quadrant for
Virtualization Infrastructure.
June 2012
Focus R&D on building
top-end inter-operable
hybrid cloud platform

18. 18
Founded in 2009, VCE (Virtual Computing
Environment), is a joint venture among EMC,
VMware and Cisco.
Recommendation 3: EMC & VMware
Cloud Security

19. 19
Recommendation #4: End User Lock-in via Apple Partnership
Apple vs. Microsoft
• Apple’s advanced
desktop OS
• Microsoft still
dominates the
enterprise
desktop OS
Personal
Virtualization
• Transfer entire PC
to Mac
• Leverage current
Windows
investment
• Seamlessly run
Windows on a
Mac
Bundling
• VMware & Mac
OS X
• Lower switching
cost
• Lower the barrier
to enter
• Increase market
penetration
• Increase brand
awareness
• New source of
revenue

20. 21
Epilogue
Pricing
• Licensing contributes 45% to
current revenues
Focus
• Choose which customers to
serve, and which ones not to
• Constantly innovate and serve
these customers extremely
well
• Vulnerable to competitors
locking-in customers
Bundle
• Customer may dislike this new
“lock-in” feature that Apple
introduce.
• "lock-in" bundle may be
subject for United States
antitrust law
There's no such thing as a free lunch

21. 22
Epilogue
But there is a way to match market demands and trends
Over the next
three years
hybrid
deployments
will make up
60% of all
deployments
The market will
balloon to $3.3
billion by 2016

22. 24