Eric Gales on building VMware opportunity

VMware has undergone significant transformation over the past year. Under the leadership of Pat Gelsinger, appointed CEO in September, 2012, the company has streamlined operations, assembling its most popular tech capabilities under three banners: software defined data centre, end user computing and hybrid cloud services. In addition, VMware has shed companies that were peripheral to these three key areas, reduced headcount (by approximately 7 percent) and engaged in management change throughout the organization. At the same time, VMware has engaged in significant product development – in SDN, software defined storage and cloud management, for example – innovation that was highlighted at VMworld 201, this year’s instalment of the company’s popular end user conference.

Introduced at corporate, these efforts to recover revenue and stock value have reverberated at the regional level, with regrouping and rethinking the means to evolve new opportunity a critical exercise for country managers across the global business. At VMworld 2013, Eric Gales, VMware Canada’s recently appointed country manager (Gales took up the new post in November 2012) discussed VMware penetration in Canada, new services and technology on offer, as well as Canada’s unique market environment with editor, Mary Allen. An edited version of this conversation follows.

Mary Allen:  When I spoke to your predecessor at VMware Canada, he claimed that market penetration for VMware was phenomenal — over 90 percent in government markets for example. Is this still the case in Canada or have some of the competitive hypervisors made some inroads?

Eric Gales, country manager, VMware Canada
Eric Gales, country manager, VMware Canada

Eric Gales:  I’d say in general that in our core business we still enjoy very high market share, but also that over the course of the last few years the portfolio that we have to sell to our customers has gone up. You can see that this week [in VMworld 2013 announcements]. With our core hypervisor, we’re lucky to have a very high penetration in target customer markets for that solution set. But in many cases, those installations don’t have good management suites: customers deploy a lot of vSphere but don’t necessarily have management tools. So there’s a lot of upside potential. If you were to look at the hypervisor layer, we enjoy good market share. If you extrapolate away to address the other layers of software that we now provide that go all the way to helping a customer deliver a private cloud, then there’s a huge amount of growth potential on that continuum.

Allen:  I’m glad you brought up this question. You have been in the Canadian leadership position for about eight months and it would seem to me that one of the things that you need to do is to demonstrate growth. But if VMware has market dominance, what is the source of this growth? Many of the solutions that I heard about over the last day or so are well formed, complete solutions but it’s going to take some time before there’s market traction for these, especially in Canada which has always been a little more conservative in terms of advanced technology adoption.

Gales:  We see a continuum. At one end of the spectrum there are still virtualization customers out there. I was with a customer last week which has a big installation of x86 computing, but is only are 40 percent virtualized. So there is tremendous potential just on block and tackle where we can deliver a huge amount of CAPEX and OPEX savings to customers through deployment of more of our core technology.

There are also customers out there who are more highly virtualized, in the range of 70 – 80 percent virtualized. Though these might have highly virtualized environments, they are not well managed. As a result, these customers are probably over provisioned and spending more than they need on capital expenditures, hard drives and computers etc. We can help them to save a lot of money by layering in great management tools that enable better management of those environments.

And finally, there are customers who have virtualized all of their mainstream applications but they haven’t yet virtualized their tier one applications. When they do that, they want to make sure that they can adequately secure them and provide DR capabilities.

So there’s a huge amount of growth available in helping every customer advance down that maturity model before you even begin to look at the more sort of evolutional, or more leading edge solutions like network virtualization. There’s plenty of growth potential within the core solution set as it has evolved, and now you’ve got new things coming on stream such as storage virtualization, net virtualization and end user compute as well, which has really gone from a VDI play into something that’s much more profound. Again, there’s growth with VDI but also a lot more potential around the idea of abstracting absent data away from device and doing that in a different way. So I think there’s no lack of market potential: our job is to help our customers understand what is possible and to create competitive reasons for them to spend more time and energy with VMware and with deploying our suite.

Allen:  Your example of the customer that’s only 40 percent virtualized is inconsistent with what I have been hearing about over the last couple of days at the conference. Is this characteristic of the Canadian market — in comparison to the U.S. for example?

Gales:  It’s really highly variable. In certain markets and in certain jurisdictions the rate is slower or faster depending on the nature of the competition, depending on how much cost pressure a company has been under, or depending on how progressive their IT organization is. I would say the incidence of a customer being below 40 percent virtualized is increasingly quite rare, most are past that point. But they still exist and in certain jurisdictions — depending on how companies have grown, have come together, what kind of pressures they’ve been under — in certain environments, the wheel has turned a little bit more slowly.

Lots of the larger customers that have been on a journey for a while are trying to reduce the number of platforms that they have: they’re trying to get down to ‘we have some mid range that I’m going to carry and I’ve got a mainframe but x86 is my target platform’ – it’s actually becoming the target platform of more and more workloads. This again provides an opportunity for us to help them ensure they optimize that environment by virtualizing as many workloads as possible. And as you do that, as you have more dependency on that environment, you need to secure it and you need to make sure you have DR capabilities. This offers new opportunity to us because we have some very extensive capabilities around building the most robust virtualized environment which extend beyond simply virtualizing your instances. This introduces quite a lot of competitive differentiation because when you start to get to that more complex virtualized environment, our differentiation becomes more acute.

Allen:  I’m curious about cloud because I understood that VMware was not particularly keen on developing a public cloud or VMware Hybrid Cloud Service (vCHS) as you’re calling it now, but that you were asked to do so by customers who had that expectation. Is there the same circumstance in Canada? Are Canadian customers looking to VMware to provide that public cloud service?

Gales:  I think there’s a lot of interest in Canada in being able to leverage public cloud capabilities that are rendered out of Canada. The unique opportunity we have, which is why there was sort of a catalyst to look at this even in the U.S., is that most public cloud instances are typically of a different technology footprint from what the customers are using. You can’t run Azure in the data centre and you also can’t go the other way. So the appeal of having a public cloud outside your firewall that runs the same technology, that you can wrap the same management tools and security around, is what exhibits itself in Canada. Of course it can be rendered with a partner as well as through the work that VMware is doing. I think this new service will help us to learn how to build that capability in a more profound way because we’re running it ourselves.

Allen:  Are you running it yourselves? I thought it was provided by Rackspace?

Gales:  In the U.S., vCHS is that capability which is VMware software on VMware architecture running in a data centre. We use a third party for the data centre, but as far as the implementation of this solution is concerned, the architecture is VMware. We also have the VSPP (VMware Service Provider Program) partners. As I explained earlier, I think the work we’re doing with vCHS is actually going to serve as an umbrella for our VSPP partners that will allow them to differentiate when they take their solutions to the customer because the solution platform they have is vSphere with all of our tooling. So it’s a VMware Cloud. I think the marketing and the awareness that we’re going to drive around why a VMware Hybrid Cloud is interesting and different from the competition’s will have a halo effect on partners that we’re working with such as RackForce Networks. The vCHS is going to help us in Canada, I believe.

Allen:  You mentioned the data location issue, which may be more perceptual than real, but still has to be addressed. For example, I was talking to the head of Shared Services for the federal government and he stated that for the government to use public cloud, the data centre would have to be in Canada. So what are the prospects for vCHS here?

  On the first part of your statement on the data proximity issue, I would say it’s political, it’s regulatory, it’s perception. There’s a range of perception that begins with “there’s legislation that means you can’t do it,” to “I don’t really like the idea of it,” to “politically I wouldn’t want someone to find out that I have my data in the U.S.”  There’s a kind of a continuum there. But this means that there is certainly enough interest to say a Hybrid Cloud Service is more appealing to many customers if it’s in Canada.

I think there’s definitely that demand. I don’t know yet what the plans are to expand, beyond what was indicated today, which is that we do have plans to expand. We are testing a franchise model with Savvis that could provide a logical way of kind of taking this to other partners. But that capability is already available through third parties, like RackForce for example. So having this dialogue with more customers is going to open up more opportunities for our partners who have the capabilities that they’ve built out through deployment of our vCloud Suite. I think this is going to be very good for us because much of our competition don’t have that [flexibility]; their public cloud capabilities are unique and they only live in the U.S. right now, so it’s very difficult for them to stand that up in Canada.

Allen:  When I was listening to the presentations on the Hybrid Cloud Service, it reminded me of the approach taken in Canada four years ago by IBM which established some public services, but only for its own client base. IBM was targeting existing customers rather than the entire community and I picked up similar messaging here — that vCHS is really a service designed to retain the loyalty of VMware’s customer base as opposed to reaching out beyond that.

Gales:  The obvious place to start is with our existing customers. One of the services that was announced this morning was ‘DR-as-a-service’, which I think is going to be very appealing to a lot of customers, especially as it may be used a third site. Some of our customers have very robust DR capability, but the two sites are two miles apart, so having a third option [is important]. We are going to make capabilities available that will allow the customer to think about three sites, so I think that DR capability is a very interesting and potentially appealing opportunity for some customers. Parameterizing it that way — where instead of ‘assemble yourself’, it’s plug in to our DR capability — will drive some interesting opportunities.

In the case of the IBM operation, whilst it was Canadian domicile data, they didn’t have a legal construct around it that would isolate it from reach of the Patriot Act, for example. In some of the jurisdictions in Canada, you have to have clear water; it’s not just Canadian data on Canadian soil, you need to have a Canadian construct around it. So having Canadian partners that have Canadian data and Canadian directors is the way to provide the most protection from the legislation of the countries that you don’t like.

Allen:  You know there’s a reciprocal agreement between Canada and the U.S. which means that we’re obliged to allow access to data in response to the U.S. government subpoenas?

Gales:  Yes, though I think when the federal government looked at it, they wanted to provide as much legal protection as possible. If it’s an issue that you care about, you want to create enough legal protection and therefore having hurdles such as, it must be a Canadian entity or in order to get access to information you have to go to the government to make a request, present some barriers that make it more difficult than it might be for an American company that’s obligated to respond to a subpoena directly.

Allen:  Delivery through partners is different in Canada since we have different types of providers. We do have some service providers but also a lot of what we used to refer to simply as ‘telcos’ that are entering the Canadian cloud market. De you know what kind of organization are you going to target with this vCHS federated model?

Gales:  That strategy is now owned by Bill Fathers [SVP and GM, vCHS] and he’s driving that evolution first in the U.S. He mentioned yesterday that the work that we do there will create a halo or umbrella that we will seek to expand more broadly, but I think we will do that in a way that is sympathetic to the environments that we’re going into and to the local partner ecosystem that we have. We want to keep the traction that we’ve developed with our VSPP partners and really use this initiative as an opportunity to open up the market even more widely since in many cases these partners offer a broader range of services than we will provide. So there’s room for both of us to coexist.

Allen:  To use RackForce as an example, I’ve talked with the company’s CMO, Brian Fry on a few occasions about his plan to develop, distribute and reach out to people with RackForce’s own cloud services. Since these are all based on the VMware platform, in a sense he acts as a channel for VMware. But he described his value add as a lot of experience with the networking piece of data centre operation, which may now be in less demand since VMware is going to provide that too [in its NSX SDN platform]. How do you maintain your ecosystem of partners when you take over some of the expertise and the capability that partners have built their businesses on?

Gales:  I think if you look at the early adopters of the networking technology, they’re all large scale cloud services. So our capabilities are very appealing to large scale, low cost providers and therefore the capabilities we have are going to be really useful to businesses like RackForce since they actually facilitate the relationship the provider has with its customers. There’s a lot of potential there to leverage VMware capability in relationships with customers because the [data centre] environment is still not simple; it’s a different way of doing things and the relationship between the physical network and the virtual network is still very important. What we’re doing there is more opportunity than threat and there’s a lot of potential to help our customers make that transition. In any change there are dollars to be added and value to be added to customers. So we are looking for early adopters and proponents of what we’re doing, and I think there is a great opportunity with these partners that we’ve had a long relationship with to say “between us, what can we do with this technology to attract more customers?”

Allen:  So is it fair to say on the question of distribution channels that for some of the cloud services you will look to the service provider community? What about some of the private cloud software defined data centre products that you’re evolving right now — is that a traditional channel play for you or do you have to develop new kinds of partnerships with people who have the expertise and can understand the technology?

Gales:  I think it’s both. We want to take as many of our partners on the journey because our portfolio makes the most sense to customers when it is viewed together, and we want to take customers on the journey but there are some very specific technology areas that need to be addressed. So for example in the area of security, our virtualized environment allows you to approach security in a different way but it’s still about the security and all the things that matter in the security domain. So appealing to the experts in security with a new means of customer delivery would be a new opportunity for us that may involve different partners. So it’s both take the partners we have on our journey so they can tell a story to our customers, and in some specialist areas it’s look at appealing to partners with a lot of traditional expertise with a new approach to see what can happen. Security is a great example because we would argue that there is the potential to simplify and drive costs out and have a more secure environment when you move that security paradigm into software, but it’s the security principles virtualized and we got to bring those two things together.

Allen:  This is a speculative question, but I’m interested in the cloud tipping point. CEO Pat Gelsinger delivered a convincing argument yesterday about how the majority of workloads are still deployed in private cloud, but since you are investing in public cloud services now, I’m wondering how long you think that’s going to be the case?

Gales:  In my personal view, every customer of size is going to end up with a hybrid environment. To me it’s fairly obvious that there are workloads that you want to wrap your arms around and there are others that you are happy to either push to the cloud and have them run by someone else, or you’re happy to pay for that to be delivered as an application. Or you may want to do your test and dev on the cheapest platform you can, but you would never run production there — you want it back in-house. So I think every customer is going to end up with a hybrid. If we don’t embrace that hybrid model, then yes, some revenue opportunity will shift into that space. But if you can put your arms around both [public and private cloud], then you can delve in both domains which I think are going to exist forever.

I was with a CIO recently who said “I will never put a production workload in the cloud that is core to our business because I know that if it ever fails guess where they’re coming? They’re going to come to me.” So there are different philosophical views, but there’s room for both. With DR capability, for example, the traditional way will stand up as a very expensive, exact copy of what you had here and you may only use it once every ten years. But if you make that capability available in the public cloud, it becomes very cost effective. Do we want to be the agent of delivering that? Yeah. I think we want our cake and to eat it too — and we think that’s possible.

Allen:  What of the issue of siloed information and applications which can happen in a hybrid approach? Hybrid sometimes can mean “I’ll deploy some SaaS, and I think I’ll have some workloads in a private cloud…”

Gales:  What I often remind CIOs is that all the lessons we’ve learned to date still apply. In the ‘70s and’80s, every application drove a platform and that’s how we ended up with 20 platforms in the data centre. We don’t want that again.

This [proliferation] can happen in a distributed environment with multiple clouds. I can have the same problem now as I’ve got multiple passwords, I’ve got multiple databases, I’ve got a bunch of APIs. So approach cloud with these lessons [from the past] in mind. These still apply in this new domain, but you can also take advantage of evolving opportunities that offer more choice and different costs.

Allen:  And perhaps new ways to manage and simplify IT?

Gales:  Yeah, that’s why the tooling is important because the tools of the past were not built to manage this contemporary world. You may have tools that are built to manage the client server world, but you don’t have tools that were built to manage this new hybrid.

Allen:  So what’s the biggest opportunity then in Canada for you? Is the audience ready for software defined networking?

Gales:  I think taking every customer on the maturity journey to build IT-as-a-service is the biggest opportunity. They will go at different speeds: we can take those that are fairly mature to virtual networking because they are mature enough; others who are still 40 percent virtualized, or those that have a highly virtualized not well managed environment represent another kind of opportunity. We’re uniquely positioned to help IT deliver that vision of IT-as-a-service, and be the broker of the services within an organization.




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