VMware: Ecosystem Expansion Strengthens Platform Dominance

Between February 8 and 21, 2011 VMware unleashed a flood of announcements (7 by my count) related to strategic alliances, channel partners as well as offerings that enable cloud computing through partners.  A variety of partner types were highlighted: service providers SOFTBANK TELECOM Corp., CSC and BlueLock, Colt and Verizon announcing availability of VMware vCloud Datacenter Services; Wyse Technology introducing desktop virtualization through VMware View on Wyse clients; and a joint announcement by HP and VMware to co-develop and market security solutions for vSphere-based environments.  At the recent VMware Partner Exchange, Ragu Raghuram, VMware’s senior vice president and general manager of virtualization and cloud platforms called out the cloud opportunity as “many times larger” than the virtualization one.  Channel partners were urged to develop new cloud-related competencies (no doubt by taking advantage of VMware’s recently introduced specializations, certifications and tools) to monetize the cloud opportunity.

Why this flood of partner-related announcements by VMware?  Is VMware playing catch up with archrival Microsoft?  Or is VMware making a full scale ‘assault’ on a broad range of ecosystem partners to carry its message to all corners of cloud and virtualization consumers (i.e. service providers, enterprise and SMB)?  In its early days, VMware single-mindedly focused on major channel partners  HP, IBM and Dell to market its offerings (and less its brand) – much like Intel prior to its wildly successful “Intel Inside” campaign.

To answer the question of “Is VMware playing catch up with archrival Microsoft? “, I researched Microsoft’s announcements related to partners and cloud computing over the last 13 months.  Microsoft and HP made a ‘big bang’ announcement (January, 2010) of a 3-year agreement investing $250M to build solutions for a next generation “infrastructure-to-application” model, advanced cloud computing, and IT management and automation.  By far this eclipsed any of VMware’s announcements with strategic partners, with the exception of VMware/EMC’s announcement with Cisco in the joint venture of Arcadia (now VCE) in November, 2009.  Through July, 2010, Microsoft had made less than a half dozen press releases of partner-related cloud announcements involving government cloud offerings, hosting service providers, CapGemini (helping customers transition to cloud and hosting Microsoft Business Productivity Online Suite)and LG Uplus (offering Microsoft cloud services to subscribers).   To be fair, Microsoft being a “general department store” type of vendor that spans multiple markets and technology domains, is constrained in press releases focused on any one market such as cloud.

VMware had a steady stream of key partner-related announcements throughout 2010.  Last January, VMware, Cisco and NetApp announced a joint offering of a “secure, multi-tenant design architecture” to help enterprises transition to the cloud.  This was a bold move for the triad considering that VMware, EMC and Cisco had just made a significant investment in Arcadia (now VCE).  (NetApp further upped the ante as a strategic ally (and EMC counterweight) to VMware (and Cisco) by introducing FlexPod for VMware, a pre-integrated solution comprising of NetApp, Cisco and VMware technologies that competes head-on with VCE’s Vblock last November.   Vblocks are comprised of pre-integrated Cisco networking, EMC storage and vSphere.)

Subsequent key partner announcements included a joint announcement with salesforce.com on VMforce, an enterprise deployment environment for Java applications running on Force.com last April.  In May and October VMware and Google announced multiple technology collaborations that enable Java developers to build rich web applications using Google and VMware tools, and deploy Spring Java applications on Google App Engine.  By tightly coupling its technologies and tools with those of salesforce.com and Google to equip developers in building, deploying and managing cloud applications and services, VMware is strengthening its position as the dominant cloud platform provider.  These strategic collaborations should help VMware overcome a perceived limitation – the lack of developer support – by winning over developers who are so crucial to platform dominance.  Microsoft’s ability to win the heart and soul of a vast multitude of developers has been a key driver in its success as an industry platform player.  VMware, no doubt is fast catching on.

In the fall VMware made two announcements with major service providers.  On September 1, VMware announced that SingTel and its Australian subsidiary, Opus were the first Asia Pacific providers to join VMware’s vCloud DataService program to offer enterprise-class cloud computing services and interoperable public clouds.  On September 27, Orange Business Services, Cisco, EMC and VMware formed an alliance to deliver Flexible 4 Business managed services, initially aimed at IaaS (infrastructure-as-a-service) and SaaS (software-as-a-service).  Along with recent participation by managed service providers and telcos in the vCloud DataService program and CapGemini’s introduction of VMware-based Virtualization Business Services (January, 2011), VMware demonstrates its ability to gain traction with service providers who are closest to the customer, and well-positioned to influence cloud adoption.  When strategic allies move beyond technology and marketing collaboration, and focus on delivery, this is where the rubber meets the road.

These developments point to VMware’s progress in significantly expanding beyond traditional hardware partners such as Hewlett Packard and Cisco[1], and nurturing an ecosystem of key technology providers, developers, service providers as well as channel partners.  Again, building a broad base of ecosystem partners and strategic alliances is a well-known chapter in Microsoft’s operating manual.  VMware has well assimilated this message through its increasingly broad embrace of partners across the board.

Where VMware lacks are technologies and tools that can help partners leverage high growth markets (e.g. mobility, cloud-based analytics) and cloud solutions for vertical markets (e.g. health care, government).  This is where teaming up with established as well as emerging technology vendors can go a long way in helping VMware to secure platform dominance.  By selecting the right strategic allies (e.g. Google, Cisco), influencing key developers, building a broad network of service providers and channel partners worldwide, combined with a clear sense of the customer cloud adoption journey, cutting-edge technology roadmap and flawless execution, VMware can stay well ahead of the game.

[1] VMware also made significant announcements with Hewlett Packard (e.g. end to end infrastructure solutions for cloud computing) and Cisco (e.g. virtual desktop computing) in 2010.

System Integrators on the Rise in XaaS and Cloud

When SaaS first became the rage after the debut of salesforce.com in 1999, system integrators (SIs) and solution providers were confronted with intrigue (e.g. a new way of service delivery) and fear (e.g. what’s our role gonna be?).  SaaS’ twin mantra of ease of deployment and ease of management which could conceivably minimize the role of service providers had plagued SIs and solution providers for years.  Even salesforce.com was challenged in convincing SIs to recommend their “no software” CRM in its early days.

At Dreamforce in December, 2010, I noted a more pronounced presence of system integrators exhibiting than prior years.  Besides established salesforce.com partners such as Accenture, Bluewolf and Deloitte Consulting, other large and boutique SIs were also present: Appirio, Cognizant, Fujitsu, Mahindra Satyam, Tata Consultancy Services and Wipro.  Was this an indication of the widespread adoption of salesforce.com (and SaaS[1]) thereby enticing SIs to finally jump in or has X-as-a-Service (SaaS/PaaS/IaaS) platforms increased to a level of complexity whereby SI expertise is crucial to customer acceptance?  A more awakening thought:  Has the elixir of cloud computing and XaaS grown to be like its ‘enterprise software’ older sister, thereby requiring lengthy and expensive engagements in consulting, deployment and management?

As customer adoption ramps up, XaaS and cloud vendors clearly recognize the value of SIs and solution providers and their ability to hold sway over customers, regardless of technology or IT delivery model.   System integrators in particular have leveraged their expertise in grid computing, IT consolidation, service automation, business process engineering, hosting coupled with industry knowledge to extend their services into SaaS/PaaS/IaaS and cloud computing.  While these new offerings do require fresh and specific skills set (e.g. business transformation vs. technical implementation), know-how, IP development, as well as new or incremental infrastructure investment, many of the offerings look like traditional SI services couched in a new skin.

  • Cloud/XaaS Enablement (End-Users) Global systems integrators (GSIs) such as Accenture, Deloitte, Siemens and Wipro provide strategy consulting and systems integration to help customers design and deploy private, public and hybrid clouds.  The newer breed of SIs whose business has been built primarily on XaaS and cloud computing (e.g. Appirio, Astadia Consulting, Bluewolf), specialize in transforming business processes (e.g. marketing or HR automation) vs. infrastructure implementation.  

    Common SI offerings include implementation of packaged SaaS offerings such as Eloqua, salesforce.com, Microsoft Dynamics and BPOS, Oracle On Demand, NetSuite and Workday.  Others offer migration to PaaS platforms such as Windows Azure and Force.com, custom application and integration (i.e. with data sources, legacy applications and systems).

  • SaaS Application Hosting and Managed Service Hosting and managed services are natural extensions for SIs and outsourcers.  In August, 2010 CSC announced an expanded alliance with VCE (Virtual Computing Environment), a joint venture of Cisco, EMC and VMware to accelerate the adoption of VCE’s Vblock infrastructure solutions.   Besides announcing its intent to create a new global solutions unit and centers of excellence based on Vblock, it also indicated that CSC Trusted Managed Services would be using Vblock as its basis for new IaaS/PaaS/SaaS offerings.

    By contrast Accenture partners with Avanade Online Services, a JV of Microsoft and Accenture, to deliver Microsoft Dynamics CRM.   Others such as Bluewolf offer function-specific capabilities through its Beyond Managed Services including cloud application management, migration and managed services for Amazon Web Services, remote database administration (e.g. Oracle, MySQL) and system administration.

  • SaaS Hosting for Channel  Partners Cloud-based Symantec Hosted Services secure information on endpoints, e-mail, instant messages and the Web.  To extend its hosted services reach through channel partners, Symantec offers a multi-tiered program (i.e. referral, resell and OEM), which looks very much like traditional channel programs.  Regardless, the 4,800 partners who reportedly have joined this program is a healthy indication of its traction with channel partners.

In less travelled territory, SIs are helping traditional ISVs transform to SaaS and developing their own SaaS and cloud services.

  • SaaS Enablement (ISVs) As traditional ISVs (on-premise software) expand into as-a-Service business model, SIs have begun to help ISVs re-engineer their applications for on-demand delivery and to host ISVs’ SaaS offerings.  Fujitsu Business Enablement Services for example provide ISVs with cloud-enabling services such as service provisioning, billing and payment, subscription management and reporting.
  • SI-Developed SaaS Offering Developing IP solutions based on third party software, have long been coveted by SIs due to its ‘proprietary lock’ on customers and high profit margin. Tata Communications’ selection of Jaspersoft Business Intelligence Suite to provide robust analytics for Mosaic, Tata’s cloud-based digital media management and workflow platform, is a prime example of how SIs and SaaS providers are combining forces to build new solutions.
  • OEM of Cloud Services Wipro took the lead in pioneering an OEM-style of cloud services to enable other providers to build and deliver cloud services in 2010.  As such Wipro owns the intellectual property or software used in delivering cloud services white labeled by an ISV or service provider.  By far this appears to be the most innovative of new breed of SaaS/cloud-related service offerings.  If this catches on, more are likely to follow.

As customers push the envelope on transitioning to cloud infrastructures and consumption of packaged and custom XaaS applications, SIs will continue to provide a critical role in all stages of adoption.  Watch for new SI XaaS and cloud services to enable mobility (e.g. mobile front end of SaaS application), enhanced business analytics, and hybrid clouds.

[1] Gartner predicts that by 2013 the worldwide SaaS market will reach $14B at an annual growth rate of 18% (CAGR).

SaaS Channel Margin: All Over the Map

Novell’s announcement of a beta program for Novell Vibe Cloud and Vibe OnPrem (November 9) marked its foray into enterprise social networking.  Along with this beta, Novell introduced an incentive program for resellers labeled as “discounts” and “rebates”.  For both cloud-based and on-premise versions, partners receive a small discount (single digit) at the time of customer purchase, and a larger rebate (double digit) for Year 1 billings.  For Year 2 and 3, partners would also enjoy the same rebate percentage as Year 1.  It is not clear whether partners will automatically be given the rebate, or will have to earn it in Years 2 and 3 through additional value add to customers.  Being a new kid on the social networking block, coupled with its pending acquisition by Attachmate Corporation, only time will tell how well this program tracts with partners.

By contrast Jive Software, the granddaddy of enterprise social networking, negotiates individual deals with each partner for reselling its on-premise and SaaS versions of software.  Partners receive a discount, allowing them to make whatever margin is feasible.  As for Year 2 and 3, partners need to stay engaged to earn additional revenue.  No free lunch here.

Major vendors such as IBM and Microsoft have programmatic guidelines for reselling SaaS offerings such as Lotus Live and Microsoft Business Productivity Office Suite (BPOS).  Up and coming players including Socialtext and Yammer have minimal to zero channel play in their go-to-market mix.  Others such as Workday have a more OEM-like relationship with partners such as OneSource VHR, an HR business process outsourcer.  See Tis’ the Season for Revenue-Sharing in this blog for more on OEM arrangements.

One of the more innovative approaches was NetSuite’s  SP 100 program targeted at ramping up reseller recruitment.  In March NetSuite embarked on a time-limited offer (through April) for partners to receive 100% margin of Year 1 subscription revenue, plus a 10% margin of annual renewals.  (Its standard program offers channel partners a 50% margin of Year 1 subscriptions, and 30% of subsequent renewals).  NetSuite acknowledged that SP 100 was a proactive measure to  significantly grow channel sales beyond 20% of its revenue.  In a recent interview with CRN in November, NetSuite CEO Zach Nelson indicated that this program has resulted in some “well-qualified partners” including VARs, systems integrators and accounting consultants.  CRN also reported that NetSuite is now “turning more service opportunities to solution providers”.   It is unknown as to whether NetSuite achieved its goal of increasing net new resellers or channel sales.  The outcome however suggests that SP 100 may have helped NetSuite to better determine who and how it needs to partner.

Tis’ the Season of Revenue-Sharing

Revenue Share While companies continue to stumble through on how to partner in the world of SaaS, revenue-sharing is emerging as a popular model in monetizing strategic partnerships. Revenue-sharing for on-demand services ranges from a co-marketing and co-selling arrangement to an OEM-like relationship. RemedyForce a cloud-based ITSM solution developed on force.com, is an example of the former. Recently announced by salesforce.com and BMC, “RemedyForce is the next phase of a strategic alliance between the two companies to develop, market, and sell cloud-based IT management .” [1]  Branded as a joint offering, BMC and salesforce.com intend to provide joint sales, marketing, product certification and implementation. Besides being sold direct, RemedyForce would also be sold by partners. Except in the realm of strategic alliances, this level of multi-functional commitment is rare.

In the OEM-like model, a SaaS provider makes its software available as a ‘capability’ (or suite of capabilities) to another SaaS provider.   By integrating Birst on-demand business intelligence, with RightNow on-demand CRM, their customers benefit from advanced analysis of customer and operations data. Unlike traditional OEM licensing, where the licensee is responsible for all customer interface including first (and even second) line of support, SaaS OEM partners are interlocked at every step. As both companies’ offerings are tightly integrated as one solution that must execute flawlessly in unison, ‘licensor’ and ‘licensee’ each has an equally crucial role in ensuring uptime, performance and business continuity.

Data points to observe.  OEMs may garner revenue as a percentage, from low single digits to mid-teens, of a SaaS subscription.   Another approach is for the OEM to offer a discount off list price, very similar to the traditional licensing model. Rules for such OEM models, if any, are vague and still evolving.

Marketing Share Other SaaS providers leverage partnerships to create awareness and generate leads. Through its “Powered by GoodData” program, GoodData provides pre-built dashboards and advanced analytics to a diversity of solution providers. Zendesk, Market Metrix, Get Satisfaction and others benefit by augmenting their offerings with enhanced capabilities such as analytics for support, customer satisfaction and community health by leveraging GoodData. While this arrangement does not directly generate revenue for GoodData, it can be a powerful way of providing customer visibility, which can ultimately lead to revenue generation.

[1] salesforce.com press release, Dec. 8, 2010