Uncommon Wisdom

Jul 18 2011   4:23PM GMT

VMware’s new pricing strategy; who’s driving the cloud?

Tom Nolle Tom Nolle Profile: Tom Nolle

In yet another price change that angers customers, VMware announced a new pricing strategy for its vSphere 5, and the new pricing could create significant increases in license costs for some customers—as much as 4x. Our model suggests that the typical user will pay less than 20% more, but it’s pretty likely that the move is a response to a gradual saturation of the virtualization opportunity base. Companies all over tech (and elsewhere, of course) are trying to earn more revenue, and if you can’t grow your user base or add features, you have to increase pricing.

It’s hard to say whether the move will have a major impact on VMware’s market share. Yes, companies could in theory adopt Microsoft’s or Citrix’s solutions, but they could have done that from the first and elected not to. Will the price change be enough to change their minds? If so, then why not adopt “free” virtualization from Microsoft or from an open-source provider?

I think it’s possible that VMware is looking ahead to a shift in virtualization growth—from success in the enterprise to success in the cloud. Cloud adoption of virtualization is a service-industry application, and VMware may be rightfully unwilling to subsidize someone else’s business model by sustaining a pricing policy that encourages an explosion in the number of virtual machines per host. One could argue that the enterprises most likely to be hit by the changes are ones doing relatively simple server consolidation to address an explosion in independent server deployment that should never have happened in the first place.

Also to address cloud computing and data center evolution, Cisco, at its Cisco Live event, announced some interesting enhancements to its UCS portfolio. While what it did in terms of capacity changes was again valuable in an evolutionary sense, but its moves lacked the big strategic sweep that would have benefitted the company’s positioning.

There are two roles a company can play in the cloud: driver of the cloud or supplier to the cloud. Cisco offered some credentials in the latter role, but it’s the former role that needs to be filled. Remember, someone has to drive a strategic enterprise project. Whoever does that will likely deploy all their own gear where they have it and let the masses scramble for the scraps. IBM, HP and Microsoft are driving most of the cloud, and none of them is particularly friendly to Cisco’s interest. Two have their own data center lines, in fact.

I think vendors are missing something important in the enterprise space, just as they are in the service provider space. There was a time when network technology was almost a mandate; we knew we had insufficient connectivity to support optimum employee empowerment. Today the low productivity apples have been picked, and companies need to understand the business value behind proposed tech changes.  Ten years ago, perhaps, the trade publications would have filled this need with long-ish insightful articles on adoption and benefits. Today, all anyone wants to publish is a snappy title on a vapid article that elicits a click-through and generates ad revenue. Nobody is offering the buyer the guidance they need, and so they move more slowly

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