VMware might soon have to change its name: not by virtue of being a division of Dell Technologies, but because the name no longer fits its sprawling strategy and solution portfolio. VMWare NSX perhaps?
For a company whose moniker is a mashup of virtual machines and software, VMs are becoming less and less important, while other virtualization and infrastructure management software grow in significance. As I detailed in my last column, VMware is building a multi-cloud infrastructure abstraction layer that insulates users and applications from the idiosyncrasies of the various services.
By providing a standard infrastructure foundation that can be deployed across an enterprise and potentially on other IaaS like Azure, GCP or Alibaba Cloud, Project Dimension could make VMware the standard infrastructure abstraction layer that enables workload portability across different providers.
In VMware’s idealized world, differences between cloud service providers are blurred and enterprises interact with a VMware substrate, whether that’s Dimension-vSphere infrastructure services or PKS container services.
The glue that binds these cloud services, enterprise data centers and branch office devices into a cohesive system is networking, in particular, a growing portfolio built atop VMware’s NSX virtual network technology.
NSX was initially seen as a means of managing the virtual networks of enterprise VMs and connecting their virtual switches into a physical data center network, however, the technology’s capabilities and VMware’s ambitions have dramatically grown over the past few years.
As I summarized last time, the company introduced several new NSX products and features at VMworld, but these were just the public manifestation of product development, technology acquisition and customer engagement activity that’s been ongoing since last year’s event. Notably, successfully absorbing VeloCloud and its SD-WAN product into the NSX family gave VMware a booster for its already exploding networking business. While not always a headline grabber, from both a business and technical perspective, networking is VMware’s secret weapon guiding its next stage of growth.
Networking: a catalyst for revenue growth
Over the past four fiscal years, VMware has grown revenue and pre-tax income at an 11 percent clip. However, these figures disguise the strength of its networking business. While the company doesn’t break the results from individual operating units, VMware CEO Pat Gelsinger has highlighted the strength of its NSX business in his last two earnings calls. After the Q1 FY2019 report in May, Gelsinger said that license revenue for NSX and the newly-acquired VeloCloud grew 30 percent year-over-year. Things accelerated in Q2 when Gelsinger highlighted both the growing sales and product portfolio. (Emphasis added)
We are just really excited 40% growth in NSX again this quarter and this idea of that we have called as the virtual cloud network, where it’s not just about data center networking and/or micro-segmentation, but there is much expanded view on the portfolio has gotten much broader, we have NSX data center, NSX telco and NSX for containers, SD-WAN with VeloCloud, these hybrid use cases are really benefiting from the multi-cloud capabilities that we have.
We now have 82 of the Fortune 100 customers have now embraced NSX. NSX has generally been a higher end enterprise product, but we are quickly seeing it become the standard for software defined networking. We are now at a total customer count of 7,500 customers for NSX.
“Embraced NSX” is frustratingly vague since it provides no indication of how pervasive the usage is, however, given the rapid growth in sales (albeit, off a small base relative to its vSphere and vCenter VM products), the cost of NSX licenses and the planning and network design required to productively use NSX, it’s safe to assume that most of these large enterprises have big plans for NSX even if they are just kicking the tires for now.
Later in the same earnings call, Gelsinger noted that SD-WAN sales of VeloCloud products were particularly “hot in the first half of the year,” with customers from small enterprises to large multinationals and telcos like AT&T, Earthlink and that use VeloCloud as the foundation of their SD-WAN services.
During a VMworld press Q&A, Dell CEO Michael Dell joined in Gelsinger’s glowing outlook for the SD-WAN market, adding that “every multi-location business is interested” in the technology. Indeed, VMware is aggressively pursuing telcos via , which includes OpenStack Edition 3.0 and NSX support, as they switch to entirely virtual infrastructure (VMs, SDN, SD-WAN) and network services (NFV) to enable services like AT&T’s FlexWare.
An expanding network portfolio
VMware’s network portfolio reflects its expanded strategy for network virtualization and now includes components or bundles for
- On-premise enterprise networks (NSX Data Center)
- Remote site and branch office connectivity (NSX SD-WAN, aka VeloCloud)
- Bridging enterprise and IaaS networks, configurations and security policies (NSX Cloud)
- Extending enterprise network to public cloud infrastructure and SaaS (NSX Hybrid Connect)
- Intent-based, application-specific security and micro-segmentation (AppDefense)
Complementing these are network telemetry and performance analysis software via VMware’s Network Insight and its vRealize management automation platform.
At his 2018 VMworld keynote, Gelsinger repeated an assertion he has made previously that network software and services could wind up being a bigger part of VMware’s business than server virtualization. He highlighted his reasoning and VMware’s response to the business opportunity in the company’s Q1 FY2019 earnings conference call in May (emphasis added),
Long-term, we continue to see the networking opportunity to be as big or bigger than the compute opportunity, so it’s that pervasive. The second sort of piece of it is this quarter’s rollout of our virtual cloud network vision and strategy is demonstrating a much, much broader perspective of our overall networking strategy in the NSX portfolio. And if you think about it, Mark, we went from having essentially one product right, the NSX data center to now we have NSX data center, NSX for telco, the SD-WAN with VeloCloud, we have NSX cloud for Azure and Amazon, we have launched the hybrid use cases on the new security capabilities with AppDefense. So we have significantly broadened the capabilities that we have as part of the NSX family. We are now at 4,500 customers for NSX, but I will say it’s still largely a high-end product.
Gelsinger went on to state that VMware will be broadening the VeloCloud portfolio to address the needs and budgets of SMEs and concluded by saying that,
… all of those together really give us this perspective that NSX for the long-term, right, has a larger market opportunity than compute and we are making good time on accomplishing that vision.
Even as VMware executes its multi-cloud, multi-device vision with a set of products that represents a compelling alternative and potential competitive threat to Microsoft’s enterprise and cloud portfolio (e.g. Office 365, Azure, Azure Stack), it wins kudos from Microsoft for its networking vision. In announcing its expanded NSX portfolio, VMware shared a noteworthy quote from Azure’s head of networking development (emphasis added),
“Microsoft runs one of the largest clouds in the world, which has given us tremendous insight into building and operating global, high performance, highly available, and secure networks to support our customers. We share VMware’s vision of a future enabled by software-defined networks, and are excited to work with them on NSX Cloud to help deliver on that vision. NSX provides a consistent networking and security experience for our mutual customers across applications in their data centers as well as applications running natively in Azure. We look forward to continuing our work with VMware to evolve these capabilities.” – Dr. Albert Greenberg, Corporate Vice President, Azure Networking Development, Microsoft Corp.
It’s no coincidence that Azure was the first cloud service that supported network management using NSX.
I agree with Gelsinger’s contention that virtual networking is a growth engine for VMware that could evolve into its largest product segment. My hesitance stems from the fact that the timespan for foundational changes in network design and technology is measured in decades, not years. Consequently, to borrow a Rumsfeldian phrase, there are too many known and unknown unknowns that could derail VMware’s plans.
For example, one known unknown is the competitive threat from Cisco, which has its own nascent multi-cloud strategy, or another incumbent enterprise IT vendor like Microsoft. While NSX has a head start with its technological and market position, it’s not insurmountable.
In the realm of unknown unknowns are the changes that the growth of edge computing services and 5G wireless networks could catalyze, for example by causing the evolution of cloud and colocation services to a much more distributed design with a similar set of virtual network services. , about whom I’ll have more to say soon, is already attacking the emerging market for edge infrastructure and services. Such developments could encourage enterprises that otherwise would maintain some level of private infrastructure powered by VMware software to outsource to managed services built on alternative technology.
SD-WAN is a technology at the early stages of enterprise adoption and is an easy sell. However, even here, the business model is already bifurcating, with some organizations choosing to buy and operate their own SD-WAN overlay networks while others prefer to buy SD-WAN services from a traditional carrier, MSP or IT channel partner. Arguably, VMware gets sales either way. However, should service providers become the predominant delivery vehicle they would cut into VMware’s margins. There’s also a risk those sane customers buy from a VMware competitor and even eventually roll their own technology.
VMware will probably never enjoy the same market hegemony in virtual networking as it does in servers. Even so, the company is right to be aggressively pursuing the ample opportunities in software-defined networks. Given the risks, competitive threats and dynamic technology, it better be vigilant and nimble.
Image credit – via VMWare slideware
Article by channel:
Everything you need to know about Digital Transformation
The best articles, news and events direct to your inbox
Read more articles tagged: