Does AWS’ Stealth Attack on VMware Beckon the End for the King of Virtualization?

Although Amazon recently launched an AWS management console that will make it easier for VMware users to shift workloads to AWS, this might not materially affect VMware.

Jun 18, 2014 at 4:00PM

Amazon (NASDAQ:AMZN) recently launched an AWS management console that is supposed to make it easier for users to port VMware (NYSE:VMW) virtual machines into the cloud. Customers who use VMware infrastructure can install the AWS Management Portal for vCenter as a plug-in and use it to manage their AWS infrastructure. The management console includes support for Amazon EC2 as well as VM Import.

The AWS management console is a thinly veiled attack on VMware, which went down in history books as the first company to successfully virtualize x86 architectures. The current situation is, ironically, eerily reminiscent of how VMware pushed its way into enterprise data centers using its ESX Hypervisor some years back.

So, what does Amazon's move mean for VMware, and does it threaten its existence?

Attack on VMware's private cloud
The upshot of the new AWS tool is that it will now be easier for organizations to try out hybrid data centers, and the reduced friction of shifting virtual machines to AWS's EC2 might entice companies to consider moving to the cloud. VMware has its vCloud Hybrid Service, or vCHS, which does, more or less, what AWS's management console will do, the big difference being that it's directed to the private cloud.

If VMware will be negatively affected by the new AWS tool, then Microsoft (NASDAQ:MSFT), by extension, will also quite likely feel some heat as well, as it is widely regarded as an alternative to VMware for commercially supported hypervisors. Microsoft has a robust hybrid cloud strategy, while AWS is still seen as a laggard, since its Direct Connect cloud service has yet to gain traction.

Not surprisingly, VMware provided a quick rebuttal. VMware CTO, Chris Wolf, pointed out the flaws inherent in the new software and advised users not to be ''fooled by import tools that are disguised as hybrid cloud management tools.''

According to Wolf, hybrid cloud architectures require minimal variations because, the more varied the architecture, the more costly it becomes to scale out. He also pointed out that moving workloads from VMware to AWS will be a complex process. AWS suffers from limitations such as lack of granularity, compared to VMware. The service primarily ties CPU to memory, which makes it wasteful to shift certain VM workloads to AWS.

Server virtualization still going strong, but slowing
A server and virtualization study done by 451 Research late in 2013 found that, although spending on server virtualization projects (VMware's forte) is still strong, 41% of respondents said that they will spend less in 2014. Infrastructure spending will also decrease, with attention shifting to software-defined data centers. Another key finding of the study was that VMware will increasingly face more competition in virtualized data centers, hybrid clouds, and private clouds.

But, perhaps the most important takeaway was that only 2% of respondents planned to spend money on public clouds due to issues such as lack of technology readiness, compliance, and regulatory issues.

According to a Gartner report, close to half of all large organizations will use a hybrid cloud strategy by 2017. Microsoft's cloud is the fastest-growing of all clouds, and the company's new cloud vision includes a willingness to maintain a vendor-agnostic position that allows other vendors to connect to Azure. The company's recent cloud deal with Salesforce.com was one instance of this.

It's very likely that Microsoft's hybrid strategy is one of the major reasons the company is growing so fast. Hybrid clouds are a combination of public and private clouds. Using this strategy, workloads that are not very security-sensitive are moved to the public cloud, while more sensitive data remains in the private cloud.

There is little doubt that the future of the cloud is hybrid, and AWS understands this. Meanwhile, VMware has a huge partner ecosystem of more than 55,000 companies and organizations. The company is still going strong and recorded a solid first quarter in 2014 that beat both top and bottom-line estimates.

VMware is seeing strong demand for its vCloud software suite, a tool that helps virtualize networks and associated security services, as well as servers and storage space. About half of the license deals signed in the first quarter included the product. License revenue accounts for 25%-33% of VMware's revenue.

Plenty of room to run
VMware's cloud service is classified as a niche player, which eliminates a lot of direct competition with other top players. Forrester Research predicts that businesses will spend $72 billion on cloud services this year, and that figure will grow at a CAGR of 21.4% through 2020 to reach $230 billion. So, there is still plenty of room to run for the cloud leaders.

Although VMware and AWS might be on a collision path as far as cloud management tools are concerned, there is no reason to believe that this will materially affect VMware. A little competition is, after all, healthy for customers, as it might force the two companies to develop top-notch hybrid cloud products.

Are you ready for this $14.4 trillion revolution?
Have you ever dreamed of traveling back in time and telling your younger self to invest in Apple? Or to load up on Amazon.com at its IPO, and then just keep holding? We haven't mastered time travel, but there is a way to get out ahead of the next big thing. The secret is to find a small-cap "pure-play" and then watch as the industry -- and your company -- enjoy those same explosive returns. Our team of equity analysts has identified one stock that's ready for stunning profits with the growth of a $14.4 TRILLION industry. You can't travel back in time, but you can set up your future. Click here for the whole story in our eye-opening report.

 

Joseph Gacinga has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and VMware. The Motley Fool owns shares of Amazon.com, Microsoft, and VMware. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers