Last week, VMware announced its intent to sell its vCloud Air business to European cloud services provider OVH for an undisclosed amount. With the deal, VMware will offload its vCloud Air U.S. and European data centers as well as its customer operations and success teams to OVH, which will operate the new service as vCloud Air Powered by OVH. The two vendors will maintain their longstanding partnership, as VMware will continue to be involved with R&D, customer support and go‐to‐market activities for vCloud Air use cases, including data center extension, data center consolidation and data center recovery. The deal benefits both vendors, helping drive OVH’s extension into the U.S. while solidifying VMware’s redefined hybrid cloud strategy, which focuses on multicloud management. The divestiture is expected to close in the second quarter of 2017.
VMware follows a path similar to other software peers that failed to gain traction
Launched in 2014 as VMware’s cloud IaaS offering, vCloud Air was the focal point of the vendor’s hybrid and public cloud strategy, garnering significant company investment in product development and data center expansion over the next few years. However, vCloud Air failed to gain meaningful traction as VMware faced several challenges along the way. For example, EMC’s purchase of Virtustream in 2015 introduced competing products into the EMC federated ecosystem, and a subsequent failed joint venture between vCloud Air and Virtustream created uncertainty about vCloud Air’s long‐term role. VMware also faced an uphill battle to gain traction against top‐tier public cloud providers such as Amazon Web Services (AWS), Microsoft, Google and IBM.
As a result, VMware began slowing investments around vCloud Air and pivoting its hybrid cloud strategy to rely more heavily on its vCloud Air Network partners to provide cloud services and drive growth in multicloud management. At VMworld 2016, VMware advanced its cloud strategy with the announcement of its new Cross‐Cloud Architecture, which includes VMware Cloud Foundation and Cross‐Cloud Services, leveraging core assets such as vSphere, vSAN and NSX to stitch together customers’ hybrid IT environments. VMware also struck key partnerships with IBM and AWS to leverage their respective positions as IaaS providers and deliver cloud services. VMware’s new approach to the cloud market was a positive one, aligning closer to the company’s core strengths as an infrastructure management provider. However, as its strategy shifted, VMware relegated vCloud Air to a secondary role. With the ongoing sunset of vCloud Air over the past few years, VMware has followed the lead of various peers that refined their cloud strategies, including Hewlett Packard Enterprise, which exited public cloud in 2015, and Dell Technologies, which sold its data cloud infrastructures as part of its services divestiture to NTT DATA.
Long‐term implications
VMware’s planned sale of vCloud Air clarifies its hybrid cloud future, pushing its Cross‐Cloud Architecture to the forefront without any confusion around the role of vCloud Air. TBR expects the pending transaction to minimally disrupt the vendor’s performance, as VMware has largely transitioned its cloud strategy for over a year, and existing customers will find sufficient services through the progressing partnership with OVH. VMware emphasized a similar outlook, making no changes to its financial guidance for FY1Q17 and full‐year FY18. With VMware’s new Cross‐ Cloud Services, available through AWS and IBM, set to launch in mid‐2017, TBR believes the vendor is well positioned to grow its presence in multicloud management and drive accelerated growth within its hybrid cloud business.
(C) TBR