Sometime ago, I was privileged to meet and interview Jonathan Chadwick, the CFO of VMware. Let me share with you some excerpts from that hour-long interview.
First impressions count! I observed that Jonathan has a deep understanding of technology, more than most CFOs in the tech sector. And understandably so. A quick look at his profile on LinkedIn and I see that he’s also served at tech companies like McAfee (a maker of anti-virus and security software), Skype and Cisco Systems. He’s also on the board at F5 Networks.
So I am keen to know what VMware has achieved in the past year. And I also have questions to ask about the AirWatch acquisition and Security.
You can read my abridged interview in InformationWeek India here (it’s selected as the Top Story this week).
While VMware has achieved leadership in virtualization (compute) it is now making a push into storage virtualization (with its just launched vSAN product) and network virtualization (through its 2012 Nicira acquisition and the NSX product).
MOBILITY
On the Mobility front, the crucial piece that VMware was lacking all along was MDM or Mobile Device Management. MDM is a USD 1.8 billion market and addresses an important enterprise trend called BYOD (Bring Your Own Device), wherein businesses have to adapt its infrastructure to accept a plethora of diverse employee devices — and yet secure its data assets. VMware took a leap on the MDM bandwagon through its recent acquisition of AirWatch, for an eye-popping $1.54 billion.
Based in Atlanta, Georgia, AirWatch is a 1,600 person company that has been growing extremely fast. Jonathan informs me that AirWatch has built up a base in excess of a 100 million dollar bookings in 2013 alone — that despite the fact that the company has been in existence for just about 3 – 4 years.
MDM is a USD 1.8 billion market long dominated by players like BlackBerry, Citrix, IBM, and SAP. So I wondered how AirWatch compares with these heavyweights and first movers. And I asked Jonathan what’s the proposition offered by AirWatch, and how VMware is going to leverage this.
Here is Jonathan’s response:
“If you look at Gartner’s Magic Quadrant, of all those players you mentioned plus a few others, AirWatch is in the top right hand quadrant (Leadership) based on the ability to innovate and deliver. They have been proven in the marketplace, and their position with the ten thousand customers so far, has been differentiated against all of the people around them, and they have been doing that as a standalone. With this partnership, we can leverage our presence in enterprise, and especially their enterprise position on end-user computing. We see a really nice combination of very, very little overlap in terms of our own offerings, where we differentiate in the marketplace. And this is one of those examples where the market is moving so quickly, that the big guys have not been able to respond fast enough; and so, five-year startups, a three-year-old startup like AirWatch, in terms of revenue base, has been able to really drive a significant market presence and customer loyalty. It is estimated, I think by IDC, to be around 2 billion smartphone devices on the global basis very shortly. So with data points like that, this is why they are winning,” informs Jonathan Chadwick, EVP and CFO of VMware .
SECURITY
I also see that VMware has not made a strong play on the Security front — and this is an important area, more so in virtualized environments. So how about Virtualized Security? Is that the next thing that VMware is setting its sights on?
Jonathan replied:
“I do not think that part is so crucial. I think where we see security playing a really big role beyond just the AirWatch example I just quoted, is inside the data center. So what is pretty well understood today is the provisioning of very capable firewalls at the edge of the data center, the ingress and egress points, but the interesting thing, especially now, when you look at how data centers are particularly virtualized today, is a lot of the traffic — about 80 percent of data center traffic now is actually inside the data center.
“The NSX capability (from the Nicira acquisition) as a distributed architecture, includes distributed firewalls that actually firewall the data center virtually in a way that is just not protected today. So if companies want to avoid shocks like some of the bigger security breaches that we’ve heard about in the past, increasingly they are going to be looking at how do I take virtual machine type capabilities, virtualized data centers and deploy things like distributed firewalls. The NSX technology is a highly important part of that security solution. ”
So are we talking about virtualized security? Is that the next area in virtualization?
Jonathan: “Precisely, in fact in the data center today, we have virtualized the machine; we virtualized the compute layer; we are virtualizing storage; and within the virtual networking stack, there is a series of distributed firewall capabilities, so each of the virtual machines are firewalled off each other. That is really important technology. It is directly complementary to what the edge firewall vendors are doing, who are pretty much doing the ingress and egress points. This is dealing with the relatively unprotected world inside the data center.”
CONCLUSION
I am betting that VMware will acquire one of the security companies this year. The potential targets for acquisition are CheckPoint or Symantec.