VMware has stirred up plenty of news lately for sending mixed messages about the public cloud, and its willingness to allow its customers to leverage true hybrid cloud operating models (which would involve seamlessly connecting public clouds like AWS and Azure with their private clouds, or The End of Server Virtualization Lock-In).
A leading analyst firm forecasts the shipment of about 10M servers per year over the next three years, with about 50% of them being x86. What if enterprises wanted the strategic scalability, agility and protection of the hybrid cloud model, instead of the tactical agility, efficiency and protection of server virtualization?
Hybrid cloud would give enterprises more complete control of their apps and services.
If VMware could get $2k/year for each server (traditional and x86), that would amount to an additional TAM of $60B based on a three year refresh rate. Yet that would represent a major business model shift and limit the amount of lock-in that VMware would have over its customers operating on its private cloud platform. It could face margin erosion for its core lines.
On the other hand, if Microsoft Azure (NASDAQ:MSFT) truly embraced hybrid cloud, it could force VMware to decouple server from cloud virtualization and make the leap to an entirely new operating model. That could be even more interesting, as it would give Microsoft a powerful position offering N+1 app and service in the cloud, for everything from development and testing to failover. Microsoft could trump VMware.
Hybrid cloud also is a lower risk proposition for Microsoft, as well as the opportunity to end VMware's dominance of server virtualization.
If cloud virtualization is the natural evolution of server virtualization, then you can expect VMware, Microsoft and several others to go after an (estimated) $60B hybrid cloud TAM. Stay tuned. This should be interesting.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.