VMware is traditionally a software company, not an infrastructure management company, so unlike other big-name companies that have rolled out a major IaaS offering, VMware, Inc. (NYSE:VMW) doesn’t have a ready set of massive data centers all around the country ready to host this offering.
Using VSPP (VMware Service Provider Program) partner’s data centers and white-labeling existing infrastructure would give VMware the ability to source and deploy new cloud locations extremely quickly, with minimal investment. VMware had to make this move. Operating like a traditional software vendor in the cloud era is not a recipe for long-term success.
2. VMware’s strategic partnership with EMC Corporation (NYSE:EMC) to fuel growth
Last December, EMC and VMware launched their Pivotal Initiative to benefit from the growing Big Data theme and demand for cloud-based solutions. Basically, both EMC and VMware are going to combine resources to form a strong player in the cloud-based environment.
VMware will contribute its vFabric, GemFire, Cetas, and Cloud Foundry operations, while EMC will contribute GreenPlum and Pivotal Labs. VMware will hold a 31% equity stake in the new operations, it will hold preferred shares, and the company will be represented in the board of the newly formed entity.
The Pivotal Initiative will enable a new generation of workloads that can exploit the advancements VMware is driving in datacenter. By realigning resources within the Pivotal Initiative, VMware, Inc. (NYSE:VMW) will be able to fully mobilize resources on delivering the software defined datacenter, the de facto infrastructure at the heart of cloud computing, and on end-user computing — two areas where they see tremendous opportunity for growth.
VMware will move over some 500 staff, and it will become the sales agent for Pivotal, therefore receiving a fee for sales support efforts. EMC will contribute another 800 staff to offer more efficient, controllable, and agile cloud-based solutions. In essence, the integrated Big Data ecosystem would combine VMware’s vertical specialization with EMC’s hardware.
The new operations will have tremendous growth opportunities according to VMware, Inc. (NYSE:VMW), addressing a $50 billion market opportunity in 2016. The market is expected to grow at an average compounded growth rate of 20% until 2016.
Conclusion
VMware is still in the very early days of its IaaS roll out. Even though it’s been rumored for months, the company just confirmed its plans last week. VMware has not yet disclosed how the service will be priced. Given VMware’s commitment in providing a total cloud solution, I expect the pricing will be attractive for grabbing a significant market share. The stock is expected to rise significantly from its current price.
The article VMware’s Hybrid Cloud Should Push the Stock Higher originally appeared on Fool.com and is written by Anindya Batabyal.
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