vmware

Businessmodel of VMware

Customer Segments

VMware has a mass market business model, with little differentiation between customer segments. Its customers are organizations seeking cloud and virtualization software solutions.

Its deployments vary in size from individual virtualized servers for small firms to hundreds of virtual machines for its biggest enterprise clients. Three customers account for over 10% of its revenues each: Arrow Electronics (15%), TechData Corporation (12%), and Ingram Micro (11%).

Value Proposition

VMware offers four primary value propositions: convenience, performance, cost reduction, and brand/status.

The company’s offerings create convenience through a common platform for all varieties of enterprise computing. It also coordinates with all major software and hardware vendors, helping to ensure seamless integration of a customer’s IT with the platform. Lastly, it simplifies provisioning of business mobility and the unified hybrid cloud with preconfigured EVO hyper-converged infrastructure systems.

VMware’s vCloud Air solution demonstrates a higher performance level than its closest competitors. Independent research shows that it offers three times the storage performance of Amazon Web Services and two times the computing power of Microsoft Azure. VMware estimates that customers would have to spend as much as 83% more to obtain the same performance from those two.

The company’s solutions reduce capital expenses. The vSphere product has a high virtual-machine density – the number of virtual machines that can run per host. This minimizes the number of software licenses and servers that customers need. VMware also limits operational expenses, which are typically three times higher than capital expenses for IT firms. It accomplishes this through more efficient hardware utilization, which lowers downtime costs. Various studies indicate that its virtualization offerings cost 80-90% less to operate than alternatives by Microsoft.

Because of its strong performance, VMware has built a powerful reputation. Its solutions are used by over 500,000 customers across sizes, including 100% of the Fortune 500. Further, many prominent research firms have recognized the quality of its offerings. Gartner identified it as the top company in its Server Virtualization Magic Quadrant. IDC ranked its business mobility solution as #1 in its 2015 Worldwide Virutal Client Computing Software Vendor Assessment. Other organizations providing plaudits include Temkin Group, InfoTech, 451 Research, Gigaom Research, ZDNet, and TechPro.

Channels

VMware’s main channel is its direct sales team. The team works with the company’s various channel partners to introduce them to new sales opportunities and end-user customer accounts. Channel partners include distributors, resellers, and systems integrators. The company also sells its products and services through its website.

Furthermore, it promotes its offerings through advertising, social media, direct marketing, seminars, webinars, PR efforts, industry events, and its annual user conference, VMworld.

Customer Relationships

VMware’s customer relationship is primarily of a self-service, automated nature. Customers utilize its products and services while having limited interaction with employees. The company’s website features “My VMware”, a portal that enables clients to manage all of the licenses and services in their accounts.

That said, there is also a community component as it provides a forum for customers to assist each other and a personal assistance component as it offers phone and e-mail support.

Key Activities

VMware’s business model is wide-ranging. It entails designing and developing its software and offering services to ensure optimal usage of those solutions. The company also maintains the software platform used by its organizational customers.

Key Partners

VMware maintains the VMware Partner Network, which consists of partnership programs that provide training, marketing, and other resources to members. The programs are divided into three categories: Resell, Services, and Technology. They are described further below.

Resell – This category includes the following programs:

  • VMware Solution Provider Program – Involves partners that design and combine their virtualization solutions with those of VMware.
  • Corporate Resellers – Involves partners with global and national coverage that offer online sales access and provide instantly available inventory.

  • Distribution – Involves Authorized Distributors who act as an extension of the company and ensure partners have the support and tools they need. Services – This category includes the following programs:

  • VMware vCloud Air Network Program – Involves firms that provide hosted services to third parties such as Application Service Providers, Internet Service Providers, and Cloud Service Providers.
  • Partner Professional Services Program (PPSP) – Involves partners who deliver and sell their own consulting engagements; they receive training and sales support.

  • VMware Authorized Training Centers (VATCs) – Involves firms that provide authorized technical training to VMware’s channel partners and customers. Technology – This category includes the following programs:

  • Technology Alliance Partner (TAP) Program – Involves hardware, software, and storage vendors who develop and offer joint solutions to shared clients; there are more than 1,200 partners, who include Dell, Cisco, Fujitsu, IBM, HPE, and Lenovo
  • OEM Partner Program – Involves software and hardware companies that integrate their offerings with VMware software to sell joint solutions. ### Key Resources

VMware’s main resource is its research and development team. The company’s R&D employees have expertise in systems management, mobile and desktop devices, application development, networking, and open source software.

It also places strong importance on its intellectual property, with 890 patents granted by the U.S. Patent and Trademark Office as of December 2015.

Cost Structure

VMware has a cost-driven structure, aiming to minimize expenses through significant automation and low-price value propositions. Its biggest cost driver is sales/marketing expenses, a fixed cost.

Other major drivers are in the areas of research and development and administration, fixed costs, and cost of services, a variable cost.

Revenue Streams

VMware has two revenue streams: licenses and services, as described below.

License Revenues: These involve fees paid for licensing of the company’s software. The software is divided into five main categories:

  • Local Desktop Virtualization
  • Desktop & Application Virtualization
  • Data Center Virtualization & Cloud Infrastructure
  • Data Center & Cloud Management

  • Enterprise Mobility Management Service Revenues: These involved fees charged for usage of the company’s services, which are divided into five main categories:

  • VMware Advisory Services
  • VMware Operations Transformation Services
  • VMware Technology Consulting Services
  • VMware Technical Account Manager Services (TAMs)
  • VMware Education Services
Written on October 25, 2017