Monday, April 4, 2011

The Challenges of Market Transitions

[Disclosure: My current employer (Cisco) is a business/technology partner to both VMware and EMC]

Earlier today VMware announced that they had acquired the assets, people and operations of online storage service Mozy from EMC. Almost immediately, the Twitterverse was calling out VMware for abandoning their current business model, primarily acting as a vendor, selling to Enterprise/Commercial businesses and Service Providers. Mozy currently operators as a Cloud Storage provider (to both consumers and small-business), so questions arose about whether this now put VMware in competition with their existing (or future) Service Provider customers.

Considering how rapidly the IT landscape is changing, I had to step back and think about whether an action like this completely forces VMware to change their business model or if there were alternative ways to think about it. My immediate thoughts are recorded on the whiteboard picture above. [NOTE: I have no inside-information about what the VMware strategy might be, these are purely guesses. Don't bet your 401(k) on any of my scribbles.]
Putting the VMware/Mozy specifics aside, what was interesting to me in this 10 minute exercise were a few things:

  1. Looking at VMware's competitive situation (bottom right of picture), against the dominant software vendors in the industry, do they have any choice but to have at least a portion of their business delivered as a direct cloud service?
  2. Given that most experts agreed that public cloud computing will be at least a portion of every businesses IT portfolio, is it possible to envision a major IT vendor that doesn't have a portion of their portfolio delivered via public cloud computing?
  3. Is it possible for any existing IT vendor that currently delivers their portfolio via direct channels (direct, channel partners, service providers) to migrate their portfolio in a way that doesn't completely disrupt their existing revenue models? 
IT vendors constantly struggle with the costs of training indirect channels &/or delays in customers adopting the latest R&D creations, which puts them squarely in the middle of a classic Innovator's Dilemma. Yet this is not a unique challenge to IT vendors. As far back as the 1910s, buggywhip makers and blacksmiths were faced with the decision of becoming auto mechanics or watching the adoption of the automobile significantly reduce their revenue opportunities. In the IT industry, these decision to adapt, change or stay-the-course are faced by both vendors and channels. Steve Kaplan (@roidude, INX) and I discussed this on The Cloudcast this week.

The more I think about this transaction and it's place in the bigger IT marketplace, it highlights that this isn't just an inflection point for the vendors but also for every other piece of the value-chain between technology creator and technology consumer.  And since there isn't a clear winner or definitive business model in this transition to cloud computing, the new rules are still to be defined. And just as more analysts are predicting Hybrid Cloud models for many IT usage models, I also suspect that over the next 2-5 years that we'll see the leading IT companies having the capabilities to deliver their technology through a hybrid set of models.

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