VMware, Inc. (NYSE:VMW)
2013 Financial Analyst Day
August 26, 2013 2:00 pm ET
Jonathan C. Chadwick - Chief Financial Officer and Executive Vice President
Patrick P. Gelsinger - Chief Executive Officer, Director and Member of Mergers & Acquisitions Committee
Carl M. Eschenbach - President and Chief Operating Officer
Sanjay J. Poonen - Former Executive Vice President and General Manager of End-User Computing Business Unit
William D. Fathers - Senior Vice President and General Manager of Hybrid Cloud Services Business Unit
Rangarajan Raghuram - Executive Vice President of Cloud Infrastructure and Management
Brian Marshall - ISI Group Inc., Research Division
Brent Thill - UBS Investment Bank, Research Division
Heather Bellini - Goldman Sachs Group Inc., Research Division
John S. DiFucci - JP Morgan Chase & Co, Research Division
Rajesh Ghai - Craig-Hallum Capital Group LLC, Research Division
Raimo Lenschow - Barclays Capital, Research Division
Keith F. Bachman - BMO Capital Markets U.S.
Jayson Noland - Robert W. Baird & Co. Incorporated, Research Division
Louis R. Miscioscia - CLSA Limited, Research Division
James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division
Gregg S. Moskowitz - Cowen and Company, LLC, Research Division
Matthew Hedberg - RBC Capital Markets, LLC, Research Division
Scott Zeller - Needham & Company, LLC, Research Division
This event includes forward-looking statements that are subject to risks and uncertainties. Actual results may differ materially as a result of various risk factors, including those described in the 10-Ks, 10-Qs and 8-Ks VMware files with the SEC. This presentation will also include certain non-GAAP financial measures. Reconciliations to GAAP are available on VMware's Investor Relations web page at www.irvmware.com.
Good morning, everyone, and to those of you on the Web, good morning, good afternoon and good evening. I'm Paul Ziots, and it's my pleasure to welcome you all to the 2013 Financial Analyst Day being held in conjunction with the 10th anniversary of VMworld, the leading virtualization and cloud computing event. I'll cover a few housekeeping items and then we'll jump right into the day.
First, we're scheduled to run from 11 to 3:30. We have a short intermission from 1:30 to 1:45. There's no scheduled lunch break, but as you see there's food outside right outside the door, so grab food at your convenience.
Now a word about seating. We are strictly required to have everybody seated. So anybody in the room, please be sure you're in a seat right now. We're in full compliance with the Fire Marshal Code. Let's, please, keep it that way.
Now lastly, Q&A is important to all of you, so I wanted to give you a quick heads-up on what to look forward to during the day. From 1:10 to -- excuse me, 1:10 to 1:30, we'll have a Q&A with executives from our Software-Defined Datacenter, BU, our Hybrid Cloud and our End-User Computing businesses as well; from 2 to 2:15, Q&A with a very large VMware customer; and from 2:45 until approximately 3:15, Q&A with our CEO, CFO and our President.
With that, it's now my great pleasure to introduce to you Jonathan Chadwick, VMware's Chief Financial Officer, to start the presentations.
Jonathan C. Chadwick
Thank you. Clicker, don't run away with that. Morning, everyone, and afternoon, wherever you are, to you around the world, if you're watching or listening verbally. It's my great pleasure to be here, not just because this is my first official Analyst Day for VMware, but also because it gives us the opportunity to join this in conjunction with, as Paul said, the world's industry-leading virtualization event and the cloud computing event of the industry. So I think we have a unique opportunity to combine listening to us and the financial context of today, but also talk about this opportunity that's just incredible ahead, talking to our customers and our partners, and I just encourage you, as I know many of you do already, to network as much as possible.
If you think about where VMware has come over the last decade plus, we've been about bringing disruptive innovation to the marketplace. And people don't ask today what compute virtualization is all about. They ask about how much more there is to go. And if you listen to the keynote today, and you'll hear again from Pat in just a second, we're taking a direct parallel from what we've done with ESX in the first introduction there and the opportunity for the next decade. We're just getting started. The opportunity ahead of us is huge. We believe we've got the correct vision and very sound strategies for how to execute against that vision, and we believe we got opportunities to delivering growth today and continuing into tomorrow.
I want to take one thing off the table, first of all, before we get started getting into too much detail. Nothing has changed since my outlook I provided to you on July 23 at the end of Q2. We're reaffirming Q2 -- Q3 '13 and financial year -- full financial year for FY '13 financial guidance. So nothing has changed in the outlook I provided since July 13 -- July 23, excuse me.
If you think back to March when we held our strategic forum meeting in New York, we showed this market opportunity chart. This market opportunity is extremely large. I think we're poised for a decade of significant opportunity and significant growth. This is just talking about 2016. And this is just taking about our estimates of the market as we see it today. We're talking about the next wave of innovation. Each one of our leaders has focused their teams and their organizations on how we're going to capture these market segments. And each one of them will talk about how this market is going to unfold, their visions and their strategy for this as we go forward.
So with that, let me talk about how we're going to use the next 4 hours with you and give you a sense about what's coming up. So Pat will join me on stage in just a second here to review his vision and strategy for VMware and how he's leading us on that journey for the next decade. Carl will then join us on stage and lead us through a conversation on our go-to-market strategy. The go-to-market aspect of our business is as important as the product aspect, how are we bringing this opportunity and taking the opportunity to the market, both with direct sales and with our very, very large customer and partner base. And then each of our General Managers in the areas of Hybrid Cloud, End-User Computing and Software-Defined Datacenter will lead us through their visions and their strategies about how they're aligning their businesses to seize the opportunity ahead. And then we'll have a Q&A for about 20, 25 minutes with Bill, Sanjay and Raghu before we're honored to have Steve Hilton from Credit Suisse join us. Steve is an industry-leading CIO amongst other things and we're very honored to have him join us and lead us in a conversation with Carl when we hear about the journey he's on and the opportunities that he sees ahead as we think about the industry transformation we're really just getting started with. I'll come back, last but not least, with a financial framework, recapping what I talked about in many way since March, but also talking about a few more details about how we should think about this, how you should think about this opportunity from a financial perspective, again, for the next 2 to 4 years. And then Pat and Carl will join me on stage around 3:00 for about half an hour of Q&A as we spend the time answering as many of your questions as possible. And then I'd encourage you -- as many of you as possible to join us at the W Hotel for a reception, and I'm looking forward to seeing as many of you there as possible.
So with that, it's my great pleasure to introduce our leader and CEO, Pat Gelsinger, to kick us off. Thank you very much.
Patrick P. Gelsinger
Well, thank you, Jonathan, and great pleasure to be with many familiar faces here. Slightly smaller audience than the last one. Great. Come on, it's a joke, right? There's over 10,000 people in that room and over -- how many in the overflow, Carl? 3,000 or 4,000 in the overflow. I mean, what an overwhelming audience, right? I mean, just incredible, right? Just -- we didn't realize there were that many V geeks on the planet, did you, right? Yes, this is a great show.
So I do want to briefly just go through that. I know a number of you there sort of try to fly through some of these comments pretty quickly, and then talk about a few specific things that I think are unique to the financial analyst audience. But I started the keynote by talking about these waves, right, as they've gone through the IT industry and their implications on the infrastructure required to run IT. And the first, the mainframe era, thousands of users and apps, right? The glass rooms of IT and that gave way to the client server era, right, where we ended up building, right, very specific infrastructure, deliver on very specific application domains, ERPs, CRM, et cetera. And today, we're on the cusp of the transition to the mobile cloud era and -- right? This mobile Cloud Era is one we're talking about literally every person in the planet becoming a user, right? We're seeing, right, the age of software, this application, right, and the burgeoning set of applications and self-service environments, and fundamentally, the IT operations that need to be delivered against that as IT as a Service, right? This rapid, agile environment against it.
And as our customers are looking at this mobile cloud world, virtualization is a key and powerful tool to go build it, but they also need to reduce costs in their current client server environment. And in that, essentially, we need to drive out cost from this client server environment, the legacy environment, these silos, this museum of IT to enable the investments in IT of tomorrow or into these cloud and mobile infrastructure. And we see the role of VMware as uniquely sitting as one of and maybe the only technology that allows you to help build tomorrow, while also liberating resources from today. And that, to us, is the passion that we have because we get to help our customers, our partners and our ecosystems on both sides of this issue, saving costs today, building the infrastructure for tomorrow.
Jonathan showed this picture, and we continue to see that there is a huge market opportunity for us as we go forward. The Software-Defined Datacenter, the largest of the components thereof, right, compute representing the smallest piece, right? But as we open up to network and security, to management and automation, storage and availability, right, and accelerating growth rate potential and a much larger market opportunity. The Hybrid Cloud today, we made the announcement vCloud Hybrid Service is $14 billion market in Hybrid Cloud, and you'll hear us constantly come back to the phrase of hybrid, the seamless connection of those 2 worlds together. And then End-User Computing, right, again, leading to liberate resources from the secular decline in the PC industry to, right, this mobile environment of the future, both saving cost for today's client infrastructure, as well as building, right, the environment for tomorrow. So that's the $50 billion market opportunity as we've laid out from here to 2016. We gave you that framework back in March and nothing's changed, even though we continue to analyze, refine and look carefully at that model.
The 3 imperatives that we laid out, the first one is extending virtualization to all of IT, right? Every piece of the data center needs to be virtualized. We need to bring that same software-driven, right, flexibility and agility to networking, to security services, to data services and storage facilities, to, right, the availability services and deliver inside of the environments of management and automation, right? And then next up, right, as we've laid out, is the announcement of NSX, our networking platform. That entire layer, right, of management in the data center needs to be redone, right, and this is one of the areas that we see some of the greatest leverage for operational efficiency is the automation and new tools and analytics associated with, right, running a data center of tomorrow. And then finally, that the Hybrid Cloud becomes the standard, right, this expected way of being able to take advantage of public cloud resources.
So we announced a number of things this morning, a brief reprise of the things that we discussed today, right. First, right, the continuing cadence of our core product line with vSphere 5.5. The simple term I'd use is 2x, right? We doubled the number of VMs, doubled the number of cores, doubled the number of sockets, right? All of these 2xs as our customers continue, right, particularly to virtualize more large environments. Intel roadmap continues to give us more cores and enabling that continuing increase, right, in many aspects of the VMware use cases against it. And against that 2x, we're likely to take applications like mission critical, right? We'll see up to a 2x performance improvement, right, as a result of those continuing enhancements in the core virtualization layer.
We announced vCloud suite 5.5, a lot of fit finish and improvements for that. We announced NSX, the combination of our organic networking, VCNS, with Nicira into a single platform. And we announced the general beta of vSAN, our key technology for the software-defined storage layer.
We also announced Hybrid Cloud, the general availability of the vCloud Hybrid Service today, as Bill will go into a little bit more in the course of our discussion today, great response from the early access program. And customers like Harley and Apollo that we had, right, feature in the stage today. Also, our first franchise partner, and Bill will explore this a little bit more. But to me, right, we've sort of given little hints of this direction to you as we've talked about the Hybrid Cloud strategy for us in the past. We've sort of used terms like asset-like and partner-friendly. And this is the first embodiment of what we really mean when we say that because we're able to take, right, and go to a major service provider like Savvis, forge a partnership where they are taking advantage of our core software stack innovations and operations that we're going to do and combine that with their assets, their network, their infrastructure, their service relationships to their partners. And that win-win relationship, both of us go faster into delivering this hybrid environment.
And in End-User Computing, the key announcement of today was Desktop as a Service. And as you think about Desktop as a Service, to me it really sort of combines, right, some of the legs of our strategy together. Because for it, it allows us to start building, right, the layer, these 3 pillars of our strategy and start demonstrating how we're going to work together across those different pillars in the strategy. And so Desktop as a Service, right, it accelerates our End-User Computing offerings, but it does so by building on our vCloud Hybrid Service. So every time I, right, sell a vCloud Hybrid Service, I advanced the Desktop as a Service opportunity. Every time I sell a Desktop as a Service user, right, what are they running on, right? They're building on a secure, reliable SLA environment of vCloud Hybrid Service.
We also announced today DR as a Service. We take that footprint of SRM, SRM probably the most successful adjacency in VMware's history, and we gave it this nice elegant target in the cloud. So again, we're tying together both technically and business go-to-market and customer value, right, of 2 legs of the strategy, right? We also announced vSAN today, right, and Virtual SAN, one of the things that -- one of the use cases that you heard me comment on the stage is VDI. And VDI needs very performant, low-cost storage infrastructure because the storage component of End-User Computing for VDI is the largest barrier to the cost model, right, of VDI being broadly deployed and Sanjay will cover this a bit more in his conversations.
So we're leveraging our End-User Computing position with key technologies coming out of our SDDC position. And when you take those together, right, fundamentally, what you're going to see from VMware as we go forward against these 3 strategies is we will get more and more technical leverage across the 3, product leverage across the 3 and go-to-market leverage across the 3. And you'll see us tie these together in closer and more powerful ways for our customers as we go forward. And this is why we think, in many cases, right, there will be, right, an acceleration of business value, customer value, services that we're going to be able to deliver to the marketplace. And ultimately, differentiation and competition -- advanced -- competitive advantage over any of the alternative players in the industry. And this leverage, we think, is a very powerful, right, capability that we're just getting started on and I wanted to specifically highlight some of those unique cross-strategies that are starting to materialize today.
Now this whole story began with compute virtualization. It's where we began the story and the Software-Defined Datacenter has been very successful. As you heard me say from stage this morning, we're not done until 100% of apps are virtualized, right? We're not -- 90% is not a good answer, 80% is a lousy answer, 70% is dreadful, right? We're just going to keep driving for more and more. But clearly, the Software-Defined Datacenter is a much bigger picture than that. And as you think about this broad set of things that we've laid out, this picture has become a very broad set of capabilities for the datacenter overall, touching on management, security, orchestration, user interface, self-service portals, right, a very, very broad set of capabilities. And when you look at those, it's like, wow, the VMware technology stack. There's a lot to it, right, and we've continued to build out the set of unique products, services and capabilities to have a full enterprise suite of technologies. And we sort of dive into any one of these and whether it's something like DRS or SRM or security features or virtual firewalls or new load balance for services, wow, there's a lot of stuff inside of that suite. And we continue to pick up the pace on our innovations as our customers are anxious to take advantage of the individual capabilities. Some of the customer examples on stage, right, could you imagine 3 better customers, right, than GE, Citi and eBay, right, for NSX, right? As you listen to some of the customers like Columbia taking advantage of everything, right, that we do, Apollo Group, the consolidation ratios they're seeing and the benefits of both public and private, very, very powerful use cases and this breadth and depth to meet the full range of enterprise customers.
Now one of the things I touched on as well on stage is trying to clarify this position of OpenStack. And for OpenStack, what is OpenStack? It's a framework for building cloud. It's a set of open APIs, and against that, you can choose different technologies, right, to go execute against that framework. And we've said very clearly that VMware is embracing those OpenStack APIs. We're adding support for them to our products. And if you look at this list here, what we -- what I announced this morning is that the orchestration layer, right, the next release of vCloud Automation Center will be adding support for managing workloads into OpenStack environments. So we're embracing it. It's just going to be another target cloud, right, that we can drop workloads and manage it in, right? Our portal and interfaces, we're adding support, right, through vCache (sic) [VFCache] for that as well. We've added support, right, and the grizzly release for vSphere and we have many customers and you'll hear from like PayPal here at the conference this week who's using vSphere, right, against their own version of their Nova controller that they've built, right, and there was some discussion on that early in the year. And they're saying, I want the world's best hypervisor to run in their management environment that they highly customized and built into their operations that they're doing for PayPal, right? Clearly, networking, it's part of the rationale for Nicira, right, was their leadership in Quantum, which has now become called Neutron, right, the latest versions of the networking APIs. And I put them in dash lines here since we haven't formally announced this yet, but you can guess what we'll do with our storage technologies, right? We'll add support for the storage layers because we'll have best-of-breed storage technologies. And what are we going to do? We're going to support just another set of APIs to extend our market opportunity and to those customers who would choose to build OpenStack, largely service providers, Internet providers, just another set of customers for us to deliver our best-of-breed technologies into.
But I'd also point out that the stack on the left is a whole lot richer and more robust for enterprise customers, highly integrated and complete, compared to the stack on the right, right? And this is why we're really saying, this is mature, it's early, and we're going to support it just as another set of interfaces and another set of customer interest might drive us to.
It's been -- VMworld is a great marker for me personally since exactly a year ago, I took the baton from Paul. I stood on stage and pontificated about things I don't know yet or didn't understand at the time. And now a year later, right, we've gotten a lot done, right, as a leadership team. First, just clarity of focus. And we clearly said, these are the 3 things that we're going to get done and these are big, audacious, aggressive goals. And we're going to align everything that we do, right, against these 3 areas. And that clarity of focus, as Carl and others refer to, is understood throughout the company. We also formed Pivotal, and with the formation of Pivotal, the movement of those assets, right, has clearly allowed us to be more focused on our priorities, but also participate uniquely in this Big Data space. Also driven excellence and execution. Today's conference, the numerous product announcements that we've announced, right, the enablement, right, against our core priority areas, we're performing as a company and the Q2 earnings numbers were clear evidence thereof.
We also reaccelerated growth of VMware, and for this, we're proud, right? We said we were going to, you were skeptical. Q2 proved that, right? We've reaccelerated the growth of the company and we're quite proud of the results that we brought forward.
We also have world-class talent, and you'll hear from Bill Fathers, you saw him on stage this morning. We've added key new talent, Kevan and Dinesh [ph]. Where's Dinesh [ph]? Over here, right, recently joined the finance department. You'll hear from Sanjay a little bit later and today leading our EUC business. And this morning, we announced Tony Scott as our new CIO. Tony, what don't you stand up and wave? They're going to get the chance to see lots of Sanjay, right? So Tony, this morning, we announced as our new CIO coming from Microsoft, Disney and GM and a few places before that so a world-class CIO. And if you look at that, we just have a great leadership team. And with Jonathan and Carl and the others, Raghu and the others on our leadership team, we're just delighted for the quality of our leadership team. And I know some of you have questioned that and some of that is just the natural transition of leadership. But I'll tell you, this is a great leadership team and I am honored, right, to be able to be part of such a great team of leaders.
And fundamentally, we see ourselves positioned to win. The Software-Defined Datacenter, right, it is the right strategy. We finished our customer meeting about Software-Defined Datacenter and the question isn't if or why, it's when. How do I get started? When can we get started? How do we move forward? Hybrid Cloud, right? Early access program. As I like to joke, right, the national anthem is still playing in many of these cloud discussions, and this whole idea of a true hybrid seamless experience any app, any place, no changes, very powerful. And End-User Computing, right, combining of the infrastructure and delivering all the way to these emerging devices. Again, uniquely positioned, strong vision, great resonance with customers. We see ourselves as positioned to win.
We'd also say that we also have a unique business model, and the federation gives us great opportunity, right, to both be independent but yet strategically aligned and leveraged. And you heard much about what we're doing this morning but GoPivotal, as an example, they have been the point of the arrow with the GE relationship. VMware has advanced our position with GE as a direct result of GoPivotal's engagement with GE. We're getting leverage from that.
EMC. You saw Citigroup on stage this morning. Citigroup, one of EMC's largest customers and that we were able to advance our position with them as a result of that relationship. BCE, one of their largest customers, Visa, and we were able to advance the VMware position with Visa as a result of BCE's position with them. Strategically aligned, uniquely independent and able to operate effectively in this way, leveraging the power of that federation, right, as we move forward to accelerate the VMware position in the industry.
So the takeaways I would like you to have as I end my time and I'll be back for Q&A a little bit later, one is, this is a huge market opportunity, right? It is large, it is growing. We're uniquely positioned to go take advantage of this opportunity. We are executing well. The leadership team that we're forming, the strategy and alignment and priority against that, we are picking up the pace as we execute across all aspects of the business. And finally, our momentum with customers, right? And I -- just I -- that room, I mean, it's just overwhelming, right? Standing room only, 15,000-ish people in the room, 22,000 people here at the conference, an overwhelming amount of interest in what we are doing. And our partnership and relationship with customers is clear evidence, right, that what we're doing, the vision that we laid out is being powerfully embraced by some of the largest and most important customers in the world but also by some of the most geographically dispersed customers, large and small, right, across them. And in the course of Carl's presentation updating you on customers and Sanjay and Bill Fathers and Raghu, right, to Jonathan's presentation, we hope you'll just get a little bit of the taste of the enthusiasm that we have, right, at VMworld, and thank you for joining us.
Carl M. Eschenbach
Thank you, Pat, and good morning, everyone. It's great to see everyone again here this year. And I'm very excited to announce, you all asked me last year at this event when are we going to have a CFO, and I'm very pleased to announce we've had Jonathan for almost a year and he's been a welcome addition to the team, a world-class CFO, and he's brought a tremendous amount of industry knowledge, experience and passion to VMware and he couldn't be a bigger part of our team than he is today. So Jonathan, thank you. And Paul, thanks for guys have done over the last year.
So what I'd like to do today is take a little bit of time and talk to you about how VMware is accelerating our customers on this journey to IT as a Service. And when we think about IT as a Service, it really can only be delivered through the use of software, and powerful software that reduces the friction between the consumers and producers of IT, and that establishes a new level of trust and collaboration between the 2 can only be achieved through the use, quite honestly, of powerful software that is being delivered as a service. And I'd like to spend some time just talking to you about how we're thinking about how to take these technologies, products, services and goods to market and get them into the hands to our customers to allow them to achieve the goal of IT as a Service.
And let me start by taking a quick look back at something both Jonathan and Pat showed up here earlier, and that is the market opportunity we have at VMware. And when you look at this across these 3 different key priorities that Pat has laid out for us, it's a massive market opportunity. A $50 billion market opportunity for us to go out and once again radically transform an industry through the use of virtualization software.
So quite a lot of ground to cover in 20 minutes.
So let's start with the core value proposition to our clients, many of whom the overarching business call of embracing the public cloud is to achieve greater agility. Practically, they want to get more done, they want to do it with less, and they want to get there quicker.
Our value proposition to our clients is around providing a seamless extension of their existing IT environment into the public cloud. And this resonates extremely well with clients. Let me just say practically what that means.
We think about this at 4 different ways. One is the existing applications they've already -- they're running very happily and are fully certified to run on their existing VMware infrastructure. They can now move or create new versions of that same application without facing the dilemma of whether the application will work, whether they have to rewrite it, test it and reconfigure it. They know because of the great control point we have in the infrastructure at the hypervisor layer. You can pick the application up, move it, and it's going to work first time. Very powerful.
We're also targeting this to be a platform that clients can build "born in cloud" and next-generation applications that need to get access to content that already resides on their virtualized infrastructure on premise. And I'm going to give you a couple of very practical client examples, so all these words can come and seem more like reality.
The secondary is around networking and basically being to extend their existing local area network over into our public cloud, and all of those security policies all remain intact. So from a security perspective, this is great. This means you haven't got to recreate the arc. You can just extend your existing networking and firewalls into the cloud Hybrid Service, and it's going to work with all the same security protections. And this means if you've achieved compliance on your platform for a regulatory, governmental or industry standard, as you extend it into vCloud Hybrid Service, you're guaranteed to preserve that compliance, which is, again, very valuable.
And our common management framework, you can take advantage of the same tools you're using on-premise to manage this public cloud service off-premise. And for many clients, just practically having one organization you can call. If you've got -- if an issue should occur and you're not sure if it's off-prem on your public cloud or on-prem, My VMware 1-800 or myVMware is the single place that you can call. And the vision we deliver to our clients is so that they have a public cloud that allows them to develop any application and they can put it either in vCloud Hybrid Service or on-premise and they don't have to make any compromises.
So I mentioned there that we're obviously targeting our existing client base and the substantial $40 million VM footprint we've established around the world with over 500,000 clients. And again, I'll talk a little bit about how we're already beginning to see our clients take advantage of this service offering. But when we think about the addressable markets and specifically the addressable market for vCloud Hybrid Services, we see the total addressable market in 2016 at around $14 billion with this 30% compound annual growth rate.
So let's talk about the strategy. How do we win? I want to orientate you on to this slide. So I'm going to talk about our strategy with 2 main reference points. On the left-hand side there, I'm talking about the kind of workloads that we're targeting. And on the right-hand side, I'm talking about the kind of buyers that we're targeting in various phases. And I'll talk you through what our 3-phase strategy looks like in the context of both of those things.
So let me start with workloads. On the left-hand side, when we look at the kind of workloads that clients move off-premise, we think about them in a few ways. We think about whether the application type they're moving is a traditional application. By that, we mean perhaps it's a SQL database or an Oracle Database, or a very conventional ERP, Enterprise Resource Planning, tool like SAP, Oracle Financials, JD Edwards. And again, the other dimension is, is it a workload that's in production or is it something that's somewhere in the test and development life cycle?
And on the right-hand side, we think about workloads in terms of being a potential "born in the cloud" or next-gen type applications. And characteristically, they tend to obviously scale out much quicker and perhaps place less reliance on the fundamental performance of the infrastructure. And in this category, a lot of Big Data applications, analytical tools, very often based on unstructured databases, and quite a lot of net new growth in enterprises goes into this right-hand side in terms of workloads.
And now let's look on the right-hand side, the kind of buyers. And perhaps we're oversimplifying, but we think about our clients in terms of the buyers and the economic buyers we're targeting either within the technical domain or in the line of business. And we see application developers living on both sides, but we're obviously quite focused on the application -- we'll talk about application developers that live within the line of business. And as I'm sure many of you know, over the last few years, the decision-making around buying public cloud services has started to shift rather towards the right-hand side of this chart as the line of businesses have disintermediated IT in some cases, they just go ahead and buy what they need as quickly as they need it.
So in the first phase of our strategy, you'll see us very much targeting our traditional core buyer and traditional applications and workloads and really establishing this fundamental basis of differentiation, this hybrid model, uniquely placed to be able to, with such a great installed base, present a seamless extension of what they're doing. And you'll see us piling on with more and more hybrid services that reinforce this notion of ultimately, you're going to have some stuff on-premise, some stuff in the public cloud. And the more seamless you can make that, that's a great value proposition.
The second phase, you'll see us take that value proposition and continue to pile on with more features and services, but really expand it geographically. And we'll talk a little bit about our various business models for how we see ourselves expanding it geographically.
And the third phase, we'll see us move into becoming more attractive for targeting next-generation scale-out type applications and really starting to zero in on the line-of-business buyer as well.
Now I should just pause and point out that in no way is this necessarily sequential. Obviously, we're moving quickly. And I'd probably say where we are today is, obviously, we're well establishing in Phase 1 of the strategy. We're already starting to plan and prepare for Phase 2 in terms of geographic scale-out. And, frankly, you also saw us announce earlier today, Cloud Foundry as a service, which is clearly an indication that we're already embarking upon making this platform an attractive destination for next-gen applications. So there's sort of a fairly large overlap in the phasing of the strategy here.
So let's talk of our business model. We have really 3 ways in which we're bringing the vCloud Hybrid Service to our clients. And critical to this is to allow clients to have the choice to either buy this as a public cloud service offering directly from VMware through channel partners or they could buy this as part of an offering that our service providers are taking advantage of our technology to deliver the vCloud Hybrid Service to their end customers. So let me talk you through that.
So we'll talk about this as being Model 1. So just -- I'd say we're announcing the general availability of this model today. This is where VMware own and operate the platform and obviously sell and go -- we own the sales and go-to-market function for delivering vCloud service into our clients. We're taking full advantage of our third-party datacenters, which we see as an excellent way of maintaining flexibility. Obviously, we're discovering here just how the physical location and how important physical location is to many of our clients as they're delivering a vCloud Hybrid Service.
The second model we've had around for sometime. So this is our VSPP program that we referred to, I think, in a number of earnings calls, very successful. This is where we empower service providers. We provide them with the software, often based around vCloud Director, and a part of our orchestration, automation and virtualization suite. And in turn, our service provider partners use this to deliver a cloud service to their end clients. And this has been extremely successful for us over the last 3 or 4 years. Our clients leverage our software and use that to deliver service to their end clients. And now this model is already mature in over 70 countries.
But we also announced this morning a third model, which is part of our strategy for extending our footprint and helping us gain market reach very quickly. And this is a model where we see service providers taking advantage of the vCloud Hybrid Suite -- Service platform, so a very prescribed package of hardware and software that they will then use to form their basis of delivering cloud services into their client base as well. And it's likely that as we use this model to deploy perhaps into geographies where having a physical presence and a brand is extremely important, perhaps on reasons of data solvency. Also in terms of compliance. You may well see us have this kind of relationships with service providers that have achieved very high levels of compliance, perhaps with government or other industry standards. But the other value, of course, for service providers is that they can wrap around this platform the myriad of other services, be it network application oriented or managed hosting or co-location. You'll see them wrap other services around our underlying vCloud Hybrid Service platform. So it's a sort of logical extension of where we've been. But really at the end of the day, it's going to be something that gives our clients a full breadth of choice of the options of how they buy vCloud service from us.
Just in terms of how we think about at a very high level, how we think about this in terms of capital efficiency. Obviously, in the first model, what we're not doing is doing speculative builds of large datacenters. We're really thinking and focusing on success-based capital, obviously, investing in the underlying hardware and infrastructure to deliver the platform services. And as you'd expect, we are aggressive and major users of all aspects of our software-defined datacenter, so the underlying cloud platform is as virtualized as we can humanly get it. And we already think that that's sort of providing us with capital efficiency savings very early on at 10% to 15%. But frankly, as we scale, I'd expect that performance and the savings we're deriving from embracing our own dog food is going to accelerate rapidly.
In the franchise partner model, we're -- likely the service providers will be making their own investments in their platform to deploy it in their own datacenters. You can clearly see that VMware's use of our own capital is probably further reduced. And I'd just mentioned that we announced this morning the first of those franchise-type relationships with Savvis, a very well-established global player that is deciding to embrace vCloud Hybrid Service as their preferred enterprise cloud platform, and we'll jointly invest and partly invest in deploying this infrastructure in a number of their datacenters as a first example of how this model is going to work.
And obviously, in the third and final case, where we're providing our service providers with software, clearly that's little to no capital deployed for vCloud Hybrid Service and for VMware. But I think it's very important that we -- clearly this is a -- it's a broad front upon which to attack the market, but we think it's important that from Day 1, you establish the right relationship with the ecosystem to be clear that while we do have a direct go-to-market model, we're absolutely about empowering a broad community of service providers that already rely upon our technology. And this frankly is resonating well with our service providers already.
Let me just talk a little bit about the Early Access Program. We started this in June. It's gone well. It was oversubscribed. And the main litmus test is that we're going to be -- we've launched and we're generally available today, bang on schedule.
And let me just give you a couple of examples of how clients have used the platform so it becomes a bit real. So Harley-Davidson Dealer Systems wanted to deploy a new application for their 500-plus dealers around the country. So it's a sort of tablet-based applications, point-of-sale, and it allows the salesperson to basically have quick reference to inventory and perhaps the profile of the client that they're talking to and their purchasing history. Now it is an app that's mobile. It's obviously based on an old SQL database. But it critically needs to get access to content that resides in their inventory and client databases that reside in their datacenter, inside their firewalls on the existing highly virtualized databases they already have running. They experimented with a number of other public clouds to run this mobile app in various other clouds but just could not get it to integrate because trying to circumnavigate the various layers of security you've wrapped around a very important client data -- really, really complicated.
They basically came to us and said, "Look, this is what we want to achieve. Can we deploy this app and not have to fret [ph] around with the networking?" And it worked. So it just worked instantly. So they were obviously delighted. They are very aggressive a rolling this application out, and we'll see them expanding that geographically. So hopefully, this brings it -- just real examples of how for a client that saves them months and goodness knows how much in the complexity of rewriting the app.
The second great example was in the Apollo Group and specifically the University of Phoenix. So online education for adults. Huge, huge volumes at certain times of the month or year, where various training courses occur or testing occurs, they see colossal spikes in traffic. So they've become big users, I mean big, big users of some of the other consumer-oriented public clouds. And they took stock and said, "Okay, we have about 5 or 6 public clouds that we're now taking advantage of. This has kind of proliferated around the world. How about we think about whether a hybrid model may make more sense?" So they ran some analyses and concluded that the best solution for them was to really host their steady-state workload on VMware technology on-premise and use vCloud Hybrid Service to be the public cloud that they're going to use seamlessly to take and accommodate seasonal bursts.
Now this is where it gets interesting. They achieved a consolidation ratio in excess of 15:1, 15:1. And you sort of well, how would you do that? The way you end up is, basically if you're proliferating the use of multiple public clouds, it starts to become very inefficient. And secondly, it's about the way you allocate resource.
So in our model, we allocate resource to our clients on a sort of guaranteed basis. We say, you have an absolute guarantee on this amount of capacity, and within that you can hopefully create as many or as few VMs as want to do. But the one thing that's guaranteed is your capacity. Whereas in the other consumer-oriented public clouds, you'd get a VM. And frankly the performance of that VM is highly, highly variable. So you can't bank on it. So you automatically self-provision a lot more than you think you're going to need to give you a safety buffer. And pretty soon, the economics start to become pretty unattractive. So a very interesting use case.
We've seen a number of other sort of more conventional classic cloud deployments, as you'd expect to see. A lot of clients who are already well established on the East Coast just now need another datacenter on the West Coast or they're already have a couple of locations but want to establish a disaster recovery site and see vCloud Hybrid Service as an obvious site for doing that. Incredible adoption across various industries in our Early Access Program. So we were delighted to see such a broad spectrum of clients already looking to see how they can use this as a logical extension of how they do business with VMware today.
So hopefully those are sort of very good practical examples of how this gets used. In the last few minutes here, let's just recap on where we are today. So having had a successful Beta 1 and 2, a successful Early Access Program, we are announcing the general availability in the United States of the service today, expanding our physical footprint into our datacenter here in Silicon Valley, our datacenter in Sterling, Virginia, and there in September, and then in October a fourth location in Dallas.
And in addition to that, the relationship with Savvis, where they're now investing with our technology, they're going to deploy vCloud Hybrid Services as part of their offering into additional and they're starting with New Jersey and Chicago. But it's a great model there that shows you how you're going to extend the reach of the offering into new markets by leveraging the relationships we have with service providers.
In terms of value-added services, disaster recovery as a service, which is a logical extension if you're an SRM, or a Site Recovery Manager, client. And if you just think about that, you deployed Site Recovery Manager and now you have the ability to use that same tool to create vCloud Hybrid Service as a destination point for disaster recovery.
Our Cloud Foundry, very much oriented towards developers, who are already using the Cloud Foundry environment to development applications. And of course, Desktop as a Service will be what I suspect will a long list of existing VMware applications that will now deliver as a service based on the vCloud Hybrid Service platform. And again, bringing back the differentiation, if you've got an existing desktop infrastructure already running on-premise but you need to use vCloud Hybrid Service quickly to either expand the number of seats you have, get into a new region or perhaps for testing new version of it, then again it's just an obvious way of extending it seamlessly. So you can see where we're going with the hybrid value proposition and just pouring on more capabilities on top of that. And as Carl mentioned, very, very much investing in our channel partners to help them, not only create the value-added services that will help clients move workload on to the platform, but also, obviously, very much take -- the great thing we have is, I guess, great reach into the enterprise market, credibility and trust to be the kind of entity they would want to buy public cloud services from in the first place. But then we're also going to be introducing increasingly frictionless models so they, having made the initial purchase, they can add more and more in seconds, not necessarily days. So you'll see us focus on that capability as well.
So in the last minute here before the shepherd's crook takes me off. Let's think about what we're going to be focused on over the next sort of 14 to 18 months. As you can see, we're attacking the market in a pretty broad front. I'm very pleased with where we are today with a very successful Early Access Program. You'll see us add more and more seamless hybrid experiences. So really by the middle of next year, we'll expect all of our clients to just logically regard vCloud Hybrid Service as an obvious extra resource pool that they can use for deploying resources or for adding new applications. And so you'll see us piling more and more hybrid-type services. And obviously, the rich ecosystem of software companies we hope will also start to adapt their own product technically and commercially so that it can live in this hybrid model as well.
In terms of market reach, so a combination of direct model -- we talked about Model 1 -- and franchise relationships type of partnerships -- we talked about Model 2. You'll see us expand this service offering from North America starting in Europe in Q1 of next year and in APJ probably around Q2. And I think we're actually moving just slightly ahead of plan in terms of European expansion, so we may yet have an opportunity to bring forward our expansion into United Kingdom earlier than Q1 of next year.
And in terms of client experience, it's all about delivering an utterly frictionless purchasing experience. So you'll see us focus on that great deal. Having made the initial deployment decision to move on to vCloud Hybrid Service, we want clients to be able to move workloads or add workloads or make adjustments to workloads in seconds rather than it having to be something that's a manual process. And, frankly, this is sort of underspoken of our aspect of cloud services. The ability to deliver that utterly frictionless experience becomes the absolute basis upon which you need to build the rest of your service offering. If you can't do that, frankly, it's given as availability. You have to be both available and have the availability at the position extremely quickly to be a credible offering that's able to grow at the compound annual growth rate that we talked about earlier.
And of course, finally, around existing and new applications to make sure that we work closely with a lot of the existing ISPs that have already technically certified on our platform, but also start to work with some of the providers of next-gen type application services. And you'll start to see us add on, develop our oriented services on to the platform as we expand into Phase 3 of our rollout.
Great. Well, I'm out of time. And hopefully, in 20 minutes, you've got a better understanding of the value proposition to clients, you can see the market we're targeting. You can see how clients are starting to the platform and, at a very high level, you understood our 3-phase strategy. Thank you very much.
Patrick P. Gelsinger
Sanjay Poonen. Just try to stick [indiscernible]. Thanks.
Sanjay J. Poonen
Thanks, Pat. It's a pleasure to be here and see many familiar faces. I am on Day 6 of my VMware journey. So if you have deep product technical questions, you can ask me that on Day 60. But it's a pleasure to be here.
I just wanted to speak a little bit personally from the heart as to why I joined VMware from SAP. Many of you covered SAP. And I talked to a few of you as I was considering this decision, and thank you for your encouragements to join here. But one, I saw a company that was tremendously innovative. I was actually at Veritas when EMC beat Veritas to buying VMware. I remember that time, and since the spin-out, since then, have admired the innovation that VMware has had. And I think a good testament to that is the recognition from Forbes as the #3 ranked company. Last year, in 2012, VMware was not even listed. To go from not being on the Top 100 to being #3 is a huge accomplishment.
And it's not just innovation in product. I think you heard from Carl the go-to-market machine that he's created of both kinds, both direct and channel.
Second, I really sensed a very strong team. The camaraderie in the team here that Pat had set up was just fantastic, including the new additions.
And third, my commute got 50 yards shorter. I used to turn left to go to SAP, and now I turn right.
If you'd -- just on a serious note now, if you look at this chart that everybody talked about, let me give you a little bit of my own personal sense as to why the End-User Computing opportunity is big. Most of you know that I've spent my life in the end user space, mostly in analytics and in Big Data and in mobile at SAP, where half the revenue of that company was stuff that we drove.
But if you think about what's happening in the end user area, all of this is being transformed significantly by some big trends. The desktop of today is transforming significantly. It's transforming because of the cloud. It's transforming because of mobile. And at that pivot of opportunity exists a huge new way of looking at this that the traditional legacy players probably are trapped of not being able to do with them. And that opens up a whole new way of the way in which virtual desktops, the way in which mobile is going to be viewed and the way social computing is going to be viewed.
And if you think about the nature of how many of the CIO conversations today are moving out of the realm of traditional ways in which you dialogue with them to some of these new strategic topics, whether it's mobile, whether it's social, whether it's cloud computing, whether it's Big Data, I sense a big opportunity here. And I believe there's clearly an opportunity for VMware to extend its brand from the datacenter to the desktop and where the desktop is going. In doing that, I believe there's a huge opportunity for a multibillion-dollar business in this, perhaps even a business that's the size of VMware today. And that's why I'm here.
As you think about aspects of this, Pat emphasized that everything we're doing in key aspects of these new businesses triangulate and fit with each other, and that's really important. Because one of the things when I talk to CIOs about what's the nature of why you would think about an adjacency, whether it's going from the datacenter to management or from management to End-User Computing, or the things that we're doing in the Hybrid Cloud, there needs to be a connectedness to that adjacency that you can explain so it doesn't feel completely out of wack.
So you heard this and there are a couple of things that we clearly are going to emphasize. I've always felt that End-User Computing is really extending the nature of management to the desktop, management to things like mobile and then emphasizing new things like security. And when you get some advantages like we have in vSAN, you get the advantages of the investments we're making in the Hybrid Cloud, we also get to take advantage of the innovations in both storage and where cloud computing is going. So I see a big opportunity now here in End-User Computing to be able to take both of those advantages and play a great curveball disruptive innovation to the traditional players in this space.
what I'd thought to do, rather than walk through a lot of product detail, is walk you through how you might think about this from the context of a customer. And if a customer could answer why buy, why VMware, why now, from the lens of that customer, I think you've motivated them to understand why this is important.
Now let me start at the bottom because how cool is it when you work for a company, where your wife or your brother could say, "Could get me copy of that software?" And this is Fusion and Workstation. So many of you know that whether it's a college student or any of the folks who are consumers of this, or whether it's a PC or a Mac, probably use that software. And that's the roots of a lot of the technology here.
But as the world has moved to the enterprise, I just thought to give you 3 vignettes of very good case studies that I think will motivate why what we're doing is different here. You'd probably can't get a more distributed environment than rental car business, okay? There's thousands of people at Hertz, multiple locations. This case study is actually a year on view. They're in essence creating a whole less complexity as to worrying about whether they'd deploy security software, PCI compliance, all of the things that potentially you've got to worry about in a workforce that's distributed, and in essence, lower their cost. This has become a fabless case study for us.
But it extends from not just those types of distributed workforces to ones where you can actually be saving lives. When you think about John Hopkins, one of the best medical universities, and 10,000 plus clinicians. If you could provide them a way by which their clinical documentation, medical records and things of that kind could be deployed through these clinicians or on the run, whether it's on thin desktops or whether it's on their mobile devices, that's what we're starting to do with John Hopkin.
And it's actually led us into some opportunities where we think in the health care space, we could do more with Epic. And Epic, as you know, is a leader in the EMR space, and Carl hinted the verticalization. We think that where a lot of these desktop technologies can enhance themselves is actually optimizing for some of the verticals, and I'll come back to that in a second.
And we're starting to see this becoming something that will allow us with this suite now, not just View, but also Mirage and Workspace, so that we could cover everything from physical to virtual to mobile.
If you look at some of the case studies of where we've seen this success, these are ones -- when I asked the team, and I talk to some of these customers also who are watching from the outside in, some of the reasons why we've been successful, you take Amdocs. This is actually a Mirage customer [indiscernible] was the acquisition. 10,000 plus seats. In this type of use case, where you can actually reduce the pain on the help desk, it's a huge opportunity for optimization.
And it was exactly this pie chart that about a year ago, when Pat came in, helped us lay the new foundation and framework for our strategy.
Now to do that, we had to make some very, very big decisions. And we had to go through what I would call a realignment process earlier this year. This is a chart that I showed last year at the Financial Analysts Conference. And there's only one more additional acquisition on this chart, and that was Virsto from earlier this year. Everything else had been done in the past. In fact, there was many different acquisitions we've made over the last few years. But when you go back to the $50 billion and the 3 key priorities and strategies that we needed to focus on, a number of these either fit into the strategy or they didn't. So what we have to do, we had to realign the business. We had to realign the people. We had to realign the resources to make sure we were in alignment to go and tackle that massive opportunity.
And a lot of these, actually, went into 2 different areas. They actually went into either the Software-Defined Datacenter that Pat was up here articulating, with a lot of the things around networking, with the things around storage, automation and management. And the Wanova acquisition, which is the ability to centrally manage your Windows environment on laptops, on PCs or any device moved into our End-User Computing strategy.
At the same time, over the last 5 years, we had to stop and pause and think about all of the acquisitions we made, and whether or not they fit into 1 of these 3 key strategies and priorities of the company. And the ones that did not, over the last year, you've seen us do divestitures of. Shekar and our business development team has done an amazing job at divesting a number of business into hands of people we trusted, so that they can continue to service these customers that are already VMware customers. So we put a lot of these out there in the market into the other hands. We divested them, part of the realignment effort.
At the same time, we took a number of our, what we used to call, Layer 2 assets, the Spring Framework. We took a lot of the things from Cetas, as well as the Cloud Foundry, which is the open-source PaaS platform that VMware brought to market a few years back. And we put them into pivotal to build the go pivotal business, which I look at as one of, if not, the single largest startup out there today. 1,400 employees strong, with assets from both VMware and EMC, $300 million-plus in revenue, it's a very exciting business joint venture between us, EMC and now GE as well. And that was the realignment effort.
It now has us aligned strictly on 3 things and 3 things only. And inside of VMware, we say if you're not working on 1 of these 3 key areas of focus, you're probably not aligned with VMware. And through this realignment, it has allowed us to double down our efforts across all 3 of them. And let me take you through just a couple of things we're doing in that double-down effort.
First, let's start by talking about End-User Computing. And Sanjay will come up and spend a lot more speaking about the End-User Computing space, but we are really excited about the End-User Computing business. We think there's a significant opportunity for VMware to actually continue to take market share against the competition. And because we believe that to be the case, we have doubled down our go-to-market effort and strategy by hiring hundreds of people on the go-to-market and sales side to actually go out and target customers looking to radically transform their desktops. And as we've said, the last 2 quarters, in both Q1 and Q2, our license bookings were growing in the mid-teens in the End-User Computing business. And when you compare and contrast that to the rest of the market in this segment, we can actually stand up here and believe, from our perspective, we're taking market share. That couldn't have occurred without a realignment effort.
At the same time, you heard Pat articulate both here and on main stage our effort to get into the hybrid cloud business. It's not public or private. It's not public versus private. It's one and the same. It's hybrid. The world of computing in the future will be delivered through a hybrid model. It's the only way you can do it efficiently and effectively. And it has to be done with someone like VMware, who can seamlessly extend that data center into the public cloud. With the launch of the vCloud Hybrid Service, you heard Pat say, the early access program was oversubscribed. We saw strong customer demand. And at the same time, once again, we doubled down our go-to-market efforts and we've hired and built out a specialized sales force to go after this opportunity.
And lastly, the Software-Defined Datacenter, where we virtualize all of IT, not just infrastructure, but it's infrastructure, it's applications and end users. And we, here, once again see a massive opportunity, not just, again, to virtualize the infrastructure, but how do we move from a world of management to automation. And because we are growing as fast as we are in the management space and we're the #1 vendor in cloud management today, we've decided to once again double down our efforts, build out a specialized sales and technical force to take advantage of the massive market opportunity we have around cloud management going forward. These 3 key areas of investment could not have taken place unless we went through that realignment process earlier this year.
At the same time, we had to also, as you know, put assets into pivotal. We did that. We took about 400-plus people. Some great people are now at pivotal and were still part of that. And pivotal is a platform that will run very, very well on top of vSphere, as well as our public cloud with vCloud Hybrid Services. And that is an opportunity for us to expand the workloads that run on top of our platform. Because today, a lot of what pivotal does in the Big Data space or with Hadoop actually run on physical servers. We now have the opportunity to put that on top of the VMware platform. Again, it couldn't be done unless we specifically were to focus on this realignment effort.
We also continue to invest in emerging markets. We see a significant opportunity in emerging markets around the world, from China to Eastern Europe and Russia to Japan and Latin America. And this is just an illustration to show all of you, actually the bookings growth we're getting out of this market as compared to the headcount growth that we're putting into it. And I think all of you remember from our earnings call last quarter, we had a phenomenal quarter, specifically in APJ, where we grew the business significantly year-over-year and quarter-over-quarter. Again, these are investments that we would not be able to make as a company unless we actually did that realignment effort earlier this year.
And because there's this build-out around the world and these continued investments in the emerging markets, when you look at VMware's share of business that we get outside of the U.S., it's now up to 52.5%. And for a company who's really only been selling in the market for the last decade, we think this is pretty amazing. So more than 50% of our business in about a 10-year time frame actually come from outside the U.S., and that is because of those investments we continue to make in emerging markets. And as I said, you could see that in our results in Q2.
We had a great quarter around the world, growing the Americas business, which is, obviously, our largest individual business, by more than 20%. In EMEA, we grew the business on what we said is in the mid-teens. And we all know there's massive headwinds we're facing in EMEA. But we continue to power on.
And our technology provides such incredible ROI and TCO value. Even in the most challenging climates, we continue to see people to adopt it, to drive out the cost of their environment.
And in APJ, we just had an amazing quarter. And when you compare and contrast what we did in APJ last quarter, because of the strengths specifically that we saw out of Australia, I think it was quite impressive when you compare it to the rest of the market. So very key investments on the go-to-market side across the 3 priorities, key investments in emerging markets, and they continue to pay off for us going forward.
So now let me switch gears and talk about how VMware continues to accelerate our customers adoption of the Software-Defined Datacenter and IT as a Service. So if we take a quick step back and look at how people have historically adopted virtualization, they've really gone through a 3-phase approach. They've taken, they've implemented virtualization, as all of you know, to drive out massive CapEx savings. And we used to call that infrastructure focus and CapEx savings. But as people got more and more comfortable, whether they started to move into what we call business production, where they started to actually get the benefit of both CapEx and OpEx. And then ultimately, more and more of our customers, as I'll show you in a couple of slides, are actually adopting this technology to truly deliver IT as a Service.
Now as our customer has evolved, we've had to evolve. We've had to evolve how we sell into the market. And if you look at back, historically, how we've sold, we've sold point products. We sold vSphere to address that CapEx savings opportunity.
Then as people got further along, we started to sell things like SRM that Pat spoke about earlier, vCloud Director, vC Ops and other management and automation tools. But what we found, as our customers were going on this journey with us, they didn't want point products. They wanted the whole solution from VMware.
So we started to change our selling motion and we changed our pricing and packaging along with it. So that now, as you look at our sales motion, what we sell, day 1, is a true solution. We sell vSOM, which many of you know and ask questions on the earnings call and in the analysts conference, asking about how is vSOM going. And in the first quarter it did extremely well. It's a combination of the vSphere platform coupled with vC Ops, bringing to our customers highly scalable virtualization software and now software and an automation tools to allow them to operate in this new world. And our vCloud suite continues to power along.
For the fourth consecutive quarter, it beat our expectations. And it's being sold in conjunction with the ELA, exactly as we would have expected.
As our customers continue on the journey, what we're finding is more and more of them want to buy the Software-Defined Datacenter. They want to get access to this hybrid cloud. They want to leverage that same infrastructure to transform their desktops in what we call end-user computing. So what they ultimately do is they enter into an Enterprise License Agreement with VMware.
And as you know, last quarter, we had a very healthy quarter. We had 37% of our bookings come through ELAs. And many people say, "Is that good? Is that bad? What's it mean for VMware? What's it mean for the customers?" Quite frankly, we think it's exciting and it provides significant benefit for both our customers and for VMware.
If you look at it through the eyes of our customers, it gives them the ability to have, what I call, frictionless deployment. Every time they want to adopt more virtualization, they did not need to go and get another purchase order. They do not have to go and justify another way to get access to more VMware because they have a framework to get access, an easy access to all of our technology. It also allows them to get predictable pricing. They know exactly how much it's going to cost per compute, per storage, per network component.
And lastly, I think most importantly, they start to align our long-term strategic vision to VMware. In this notion of the Software-Defined Datacenter that we brought to VMworld in 2012, it's becoming a reality. Our customers believe or they wouldn't be entering into multi-year strategic agreements with us. And they also, at the time, they buy an Enterprise License Agreement. In fact, I don't like the word ELA because it seems very license centric. It's an enterprise license centric [ph]. I think of it as an EA, an enterprise agreement. Because the majority of our enterprise agreements include services components to help them drive the deployment of all of the assets they get access to under this agreement.
For VMware, there's many benefits. Some of them are actually the same, some are slightly different. But for us, it allows us to capitalize on that massive installed base we have out there today and moving from this interactive model of a point product sale through a strategic relationship, and allows us to very quickly expand our footprint, not only in our accounts, but also globally because they have global access, that they're multinational company, to all of this technology.
And for us, it's also frictionless deployment. Our customers can easily deploy the technology, and our sales teams and our engineering teams aren't going in and selling point product. We're selling a solution.
And lastly, we enjoy and we want and we'll continue to build on the services engagements we have with our customers because we absolutely know, and as you'll hear up here later on today with me when I spend some time with Steve Hilton, one of the challenges is not just technology adoption, but how do you transform your IT organization into people process side of the business. This is why we think there's business benefit by doing enterprise agreements for both our customers and VMware.
Now along the way, what we think is going to happen here is we're going to see our customers continue to move on this journey to IT as a Service. These numbers here are out of our most recent customer survey that we've done, and the results just came in, in the last couple of months. And this percentage here is where our customers believe that they're at in this 3-phase approach to IT as a Service. And as you can see, IT as a service now about 20% of our customers believe they are delivering IT as a Service. And what's most compelling about this isn't necessarily what percent of our customers are at, what different phase. But it's a fact, as they further drive this notion of the Software-Defined Datacenter, they get a much richer return on investment.
And the return on investment isn't just on the capital cost savings that they get, but it's on the operational efficiencies, moving from a system administrator of supporting 100 virtual machines in Phase 1 to 300 in Phase 3. These are the benefits that people will get through Software-Defined Datacenter, the automation of the Software-Defined Datacenter, the efficiencies, and ultimately, deliver IT as a Service.
And one example of this is a customer we're working with. It's a large financial services company. Many of you would, obviously, know who it was if I said it. But we've been working with this company for a few months. And one of their challenges was, how do I move to this world of a new greenfield data center and take advantage, VMware, of everything you're laying out? I want to virtualize my compute, network and storage. That's a greenfield environment. But I had this legacy data center over here that I have to protect, and I have to keep the lights on. And to make that bridge or to jump from the legacy to this new world is extremely hard.
So we've worked with them to say, can they get enough capital to go and stand up a band new greenfield data center and leverage everything that Pat spoke about today. And that you'll hear further from the presenters up here.
And what we found is if we could build a new greenfield data center, the savings were absolutely remarkable. As you see here, we would save more than 54% over what they do today on the OpEx side of running IT, and their capital requirements will go down by 74%. That's the power of the Software-Defined Datacenter. The reason for this, for example, on the capital side, Raghu will get up here and talk about network virtualization and how all Layer 2 through 7 services are now done in software.. All the appliances that people have bought in the past are no longer needed.
Again, this is transformational stuff. This is exactly what VMware did a decade ago when we disrupted a market with ESX. Now we're about to go on the next journey in the next decade to disrupt the rest of the data center and drive this Software-Defined Datacenter approach.
Now we're also focused on making sure that we don't just acquire a company or customers. But once we get those customers, we build a long, meaningful enduring partnership with them. And every year, we focus on what is VMware's Net Promoter Score. And we are maniacal about this, and everyone in the company thinks about it. It's a very customer-centric approach, as I'll speak to you here in a few minutes about. But these are just some of the statistics that we get back on Net Promoter Scores. The industry average for high tech on Net Promoter Score is 13%; for B2B computer software companies, it's roughly 9%; and VMware last year was at 43%. One of the highest NPS scores you can find in all of tech.
And just recently, this group called the Temkin Group did an NPS study. This was specific to North America. And once again, we were proud to say that we came out on top with a Net Promoter Score of 47%. Again, making sure that we understand, it's not only technology that allows us to gain access to customers, which, quite frankly, is probably easier than maintaining a customer for life, which is why we spend so much time thinking about this. We're also pretty proud of the fact, and Pat had it on a slide during his keynote earlier today, we've -- recently, I guess, it was last week, we were announced as the Third Most Innovative Technology Company by Forbes. It was the first year that VMware was actually even eligible for this ranking. In our first year of eligibility, we came in third, ahead of companies like Google and Apple. That's the type of company we aspire to be in the future.
So now let's very quickly talk about, if this is the market opportunity and this is how we sell, how do we get access to our customers? Well, it starts with a customer view. It starts with a customer-centric strategy across the company. And if you think about most technology companies, they think about the technology they have to offer, and then they figure out what are the routes to market so I can get them to customers, as opposed to thinking about what does the customer need. And then once you understand what the customer needs and you understand what their business challenges are, you start to think about, okay, what is a technology that is going to solve those challenges? And in VMware's case, what are the partners we're going to leverage to get access to those customers? And then we have to start to think about, okay, are our partners capable of delivering the technology customers want? And the only way to make this all come together is that VMware thinks about all these different disciplines of a go-to-market strategy, starting with a customer, understanding the requirements they have, leveraging the technology we're building, leveraging the partners, and then VMware bringing that all together to build out a go-to-market strategy.
Now when we think about go-to-market, we think about it in segments. And at VMware, over the last few years, we started to really drive a segmented approach as to how we attack our customer base and the opportunity. Starting at the highest end, we have a global accounts program, which is about 70 accounts around the world. When you start to drop down below there, we have our strategic accounts, which are the larger accounts out there that we're going after. We have a commercial business, and then we have, what we call, our mid-market and SMB business.
And then across each of these segments, we cover them different. As you can imagine, with the global accounts, many of your accounts, we have a rep covering your account, and that's the only account they cover. He or she does not have any other account.
When you go down market, reps may have 1 to 10. When you even go further down, they may have 20 to 50. When you go all the way down market, we're just going to leverage our channel.
And as most of you know, VMware does about 85% of our business through the channel, so the channel is always involved in everything we do, as I'll show you in the next slide.
Now at times, they start to think about verticalization, and is there a selling motion or a solution that we can repeat as we sell into the market or a specific market, like the financial services, like the federal government, like education, like state and local. So at times, we actually build verticals to go out and drive a consistent selling motion, with a consistent set of solutions each and every day. And along the way, as I said earlier, our partners are always involved.
For the last decade, we said we're going to be a partner-led and -driven selling organization, and we are that today. 85-plus percent of our business still, at this point, goes to our partners, and I don't see that changing at all as we go forward. The partner community is one of the reasons VMworld is as successful as it is. There's over 2,000 partners here, and they're the ones who brought a lot of the 22,000 customers that we have at the show this week.
Now as we go out and we make acquisitions or as we continue to drive innovation internally and bring more and more solutions to other factory, we need to start think about how do we take them to market. And this is just a high-level framework of how we think about we're going to sell a new solution or a company that we're acquiring. If it's an emerging product, we really need to think about, is it ready to be sold with our core? Is it purely adjacent to something like vSphere or the Software-Defined Datacenter? Or is it an emerging market that we actually need to build a specialized sales force to actually sell this solution in the market? And that's our strategy. At times, we'll build a diversified sales force and a specialized sales force to go offer the opportunity. At other times, we'll take the solution, we'll put it right into the core sales force and have those thousands of people right off the bat start to sell it.
And sometimes, we actually do both. As I mentioned earlier, if you look at this framework, technologies like View or technologies like NSX, we've decided to build specialized sales forces to take it to market. At the same time, we expect that our core will be capable to sell this as well.
This is our framework, and it's worked very successfully in the past and it's something we're going to leverage in the future, whether we organically or inorganically bring new solutions to market.
Now as I said earlier, we also need to make sure that we're giving a very simple and easy way for our partners to engage with us to ultimately engage with their customers. And it's very straightforward. As our customers get into new accounts, we pay them and we pay them margin. As they expand in their accounts, we pay them more margin. We want to make sure we're building what we call a value channel. A lot of people talk about the channel in the context of a value versus a fulfillment channel. We don't want fulfillment channels. We only want value channels, and we will pay our partners for delivering value to our customers.
Now one of the things that people have often said is, "VMware, are you capable of changing the selling motion and enabling your existing sales organization in your channel to be able to sell this Software-Defined Datacenter?" Well, if you look at the Software-Defined Datacenter as it's described today, a lot of the components of the Software-Defined Datacenter have actually been sold already through the channel.
And in fact, if you look at this, if I break this down, 70% of servers in data centers today have been sold through the channel, approximately 85% of all networking security services and goods have been sold through the channel. And lastly, if you look at storage, even storage, the high-end complex storage solutions are actually sold through the channel. So the channel has already, if you will, primed the pump and sold to the customers all of the hardware that we're going to go out and virtualize. And people say, "Well, how do you move to a sales organization that can sell or a channel that can sell software solutions?" Well, it's actually, we don't think all that difficult, there are some challenges.
But if you look at it first through the server view, and we already know that today server virtualization has been delivered to the market through a channel. We've proven that in the last decade. We're going to now go and we're going to repeat that for network virtualization, as well as storage virtualization. This is our strategy to enable our channel. At the same time, it's good to sell the technology, but can you sell the management solutions around it? Can you do automation? Can you do provisioning? Can you do remediation of that infrastructure? Which we think we can do but we can't do it alone, which provides our partners to have an opportunity to go in and sell management services as well.
Our customers need help on this journey to the Software-Defined Datacenter, both technologically, as well as on the people process side. And when you stop and look at the market opportunity for professional services that our partner community has, it's almost as big as the TAM I showed you earlier for VMware. This is why the partners are very much engaged with VMware and see this vision of a Software-Defined Datacenter as something they want to align to going forward.
With that being said, let me talk about enablement and wrap up. So enablement is critical for our success. We think of enablement once, then twice. We think of enablement, as we build enablement materials to help radically transform our sales force to sell Software-Defined Datacenter, the hybrid Cloud and End-User Computing services, but we built that once knowing that it's going to be delivered twice, both to our existing sales force and our channel because we see them one and the same. And we have been very aggressive and adopted many new technologies to bring enablement to the market.
The latest one, we're working on an iPad and iPhone or a mini iPad solution that all of our people will be able to access all of the information they need through any device they want in a very secure way. And then we'll take and we'll use that same infrastructure, that same technology, and we'll give it to our channel. Enablement is focused on not only enabling our sales force, but our channel, build it once, deliver it twice.
So in wrapping up, this is what I would say: We are aligned more than ever. We're aligned to go out and take advantage of the $50 billion market opportunity that Pat and Jonathan laid out earlier. And we couldn't be here without that realignment effort that we went through as a company. I must say, we're all proud of how quickly we got through that and how well we've been able to maintain our focus in both Q1 and Q2.
We're going to continue to invest, as Pat said, across the 3 areas and strategies of the company: the Software-Defined Datacenter, the Hybrid Cloud and End-User Computing.
And when you think about what Pat laid out on main stage this morning, he didn't lay out just a vision, strategy or direction for VMware. He laid out a vision, strategy and direction for an entire industry. And we will continue to focus on customer adoption and make sure that VMware is not only committed to our customer, but the customers' existing investments they have in our infrastructure.
And lastly, we will continue to focus on enabling both our sales force and our partners to be able to help our customers once again, just like we have in the last decade, to go and radically transform IT through the use of simplified, powerful virtualization software.
Thanks for your time.
William D. Fathers
Thank you very much. Thank you, Carl. Great. My name is Bill Fathers. I'm the General Manager, Senior Vice President for our new vCloud Hybrid Services business unit.
In the next 20 minutes, what I'd like to do is give you an overview of the service offering and how we differentiate in the market, talk a bit about our market opportunity, at a very high level, give you a view of our strategy of how we -- our strategy for becoming a dominant player in the public cloud marketplace.
So that we could cover everything from physical to virtual to mobile. If you look at some of the case studies of where we've seen the success, these are ones -- when I asked the team and when I talked to some of these customers, also watching from the outside in, some of the reasons why we've been successful, you take Amdocs, this is actually a Mirage customer, Wanova was the acquisition, 10,000-plus seats. In this type of use case, where you can actually reduce the pain on the help desk, it's a huge opportunity for optimization, where you can show cost, savings, and you actually are able to get the full -- the organization working in a much more agile fashion.
Land Rover, as you know, was taken over by Tata. And a lot of what happens in an organization of that kind, especially as you think about geographically expanding, is the fact that in India, in China, and many of the new places where you're doing things, you want to have an efficient way by which these engineers can get their diagrams or a variety of the things that go on in car manufacturing. Again, a perfect use case for a distributed workforce, geographically distributed, and one way you can manage this at a level of scale, in this case 4,000, 5,000 of them, much, much more easily with the solution as we provide. And then you take one of the larger -- largest deployments we've seen, NTT, the Jaguar one was actually a competitive win against our competitor in the space, the NTT was actually a rip-out, where we actually replaced the competitor here, and this one's going to be probably in the tens of thousands when we're done. Part of what we found was, in this space, there hasn't been a lot of attention given to the simplification of things like management consoles and so on. And as solutions from some of our competitors have been deployed, customers just found a whole bunch of pain associated with that type of deployment.
Here's a good example of one where we will deploy with the experience that the end -- the customer felt was easier to use, more scalable to tens of thousands. And to the extent that we can deploy this now across the world in a very, very fast fashion, we're finding that our customers themselves are able to move much, much faster and certainly, to lower cost. And as you know, in IT, it's all about being able to lower your cost and then free up those dollars to do innovation. The perfect world is where if you're spending 90% of your money in the CIO budget, on keeping the lights on, you have very little time or money for innovation. And we could help people take that amount of money that's typically keeping the lights on and reduce it by a significant amount of fraction. You free up money to do innovation, and that's really what a lot of what the technology here helps us do.
So as we think about investments in where we want to be able to grow this, here are the 5 areas that we are prioritizing. They're clearly horizontal use cases: the branch office; the local; the remote offices; the ones that I talked about for example in that Hertz use case; but there are also many vertical use cases in industries like healthcare. I talk about the use case with Epic. In state and local government, educational institutions are ones which are rife with lots of examples of students and teachers, and places where you don't want to spend a lot of money on laptops.
And clearly, the other types of segments are banking. So we'll prioritize many of these vertical segments and the lighter become things that we either productize, or actually build a go-to-market machine around how we can expand in a particular vertical. I saw that play very successful in SAP. I think there's a lot of momentum that we could also build out here. You heard me talk a lot about the way in which we think about the future of the desktop and the desktop going to cloud, and we believe that there's going to be a huge opportunity for Desktop as a Service that I will talk about further. We also think that this is certainly going to expand not just in the case of you and its use in mobile, but also mobile as a whole, which I'll cover a little bit later.
Desktop as a Service is a huge opportunity. Our competitors have not innovated in this area. This is an opportunity for us to not just do a Desktop as a Service in the context of a cloud offering from our service providers, and you'll see us partnering with service providers to do that, but also in the context of our Hybrid Cloud. So this is a place where we can amplify one of the offerings that Bill provides in the Hybrid Cloud. As we think about the innovations in storage, whether it's with vSAN or where the future of Flash-based storage is headed, we think all of that will also further reduce the cost of a typically -- typical VDI deployment. And at the end of the day, we want to be the solution that can be managed at large levels of scale. If we think there's an opportunity to both replace, as well as innovate, in many of these new areas where you can deploy to tens of thousands, potentially hundreds of thousands and collectively, millions of seats, we believe we can do this in a much cheaper, faster and an easier-to-use fashion.
Here's one example of that cost equation, when contrasted with one of our competitors. And we think, again, because of the complexity of many of the different ways in which acquisitions that have been done by Citrix, the user cost is just a factor different. You'll see in this study that was done by an independent third-party, at least 1/2 the cost from the standpoint of our for-user cost, and the other aspects of it is just the ease of use and the general scalability. We probably haven't done enough of a job at telling you some of the stories of some of our largest deployments. You're going to see us doing it a lot more, so that through the years of -- so that through the voice of our customers, you're going to hear some of the success stories that we've had in growing this business. As Carl pointed out, we're growing twice the pace of our competitors. We think we're gaining a tremendous amount of share in this part of the market.
Desktop as a Service, we will have an offering by Q4 of this year, both, as I mentioned, through service providers and other players, but also in our Hybrid Cloud. And I think this is going to be tremendously exciting. This is the intersection of where VDI meets the cloud, and there's all kinds of opportunities as to where we believe we can take this. This is also going to ease the deployment in a much faster fashion as all cloud computing does. And it's another place where you will see VMware be an innovator. We've been an innovator in a number of different areas, but the intersection of VDI and cloud is one more area where we believe we'll be able to show thought leadership and also product leadership.
As you expand to some of the other areas like mobile, we believe the mobile movement is just getting started. It's a huge opportunity in front of us, billions of devices, and expect much more from us. We announced Workspace this year. This is going to be certainly an area of my own passion and focus. And I expect, as we expand in this area, it's not just going to be something that will allow us to touch the billions of devices in the world, the future is the fact that every machine is potentially a device, your thermostat, your refrigerator, your Tesla car, is in fact a mobile device long term, and has an opportunity for both the management and the security of those things, so to speak, Internet of Things. So as we think about where this is headed, our focus will be not just in IT, but the end users. And I think many of the same constructs that you've seen us do, like for example, policy and management, will be ones that we extend there. In doing this, we're taking a very careful view of looking at all of the device-operating systems, from iOS to Android to Windows, all the various different telco providers because the service providers are very important, and the VARs because you understand that the distribution of much of the way the mobile movement will work in the market will be not just on our own, but through many of these important channels.
So overall, very, very excited to be here. This is probably the first presentation that I've done in my life, where I'm actually 4 minutes ahead of time. But Paul, you'll be happy about that, and with that, let me introduce the godfather of the software-defined data center, Raghu.
Thanks. All right, good to see you all again. Hope you enjoyed the keynotes today. And don't miss the keynote tomorrow, you will see Carl Eschenbach at its finest. I will talk about the software-defined data center, specifically covering 2 aspects. First, at this venue last year, we talked about our vision for the software-defined data center. We talked a little bit about what we have seen in the marketplace since then. And then specifically, we talked about the new developments, some -- most of it was announced today. I'll try to give you a little bit more color on those.
So what's driving the software-defined data center, as Pat pointed out today, is a fundamental transformation in what customers expect out of their infrastructure, right? Velocity and agility has become paramount top of mind for most of our forward-thinking customers. The reason is, as businesses shift towards engaging with customers, in a variety of different media and different devices, it is the systems of engagement that customers are building that are replacing or becoming more important than the old systems of record that IP used to be managing. The systems of record where the ERP systems and so on and so forth, systems of engagement are these mobile social systems that customers are building in order to get in front of their customers in more and more attractive ways, right?
Out of this, combined with a change in how software is being built in most of our customers, is driving the need for continuous development and continuous deployment. That in turn called for a whole different model underneath in the infrastructure space.
Associated with this is the explosion of data, right, because as you engaged particularly with customers, you got to understand that in a much deeper stage, that again calls for an explosion of infrastructure of a different type than what IT has been dealing with.
Even while doing all of these, all of the infrastructure has not gone away. For most of our large companies, they stood out of significant risk-based infrastructures and other non-x86 space infrastructures. And that is where the next generation of cost-cutting is going to come for a lot of them.
And then last but not the least, shadow IT is a very real phenomenon, a line of business bypassing IT altogether, and buying their compute resources from public cloud providers. And all of this leads to a new set of requirements, a set of requirements where customers are expecting IT to be able to deliver applications and services on-demand, on top of an infrastructure that's not siloed to any particular hardware vendor, on top of an infrastructure that's elastic and highly automated and, of course, extend seamlessly externally to provide pools of capacity when that's needed.
That's really the foundation of the set of requirements that's driving our thinking around the software-defined data center. This is the vision that we introduced last year. To recap, we think the way to achieve these requirements is by abstracting infrastructure services away from hardware, pulling it, virtualizing it and then automating it, okay? This was very successful for our customers in compute, but the minute that application gets deployed into a real data center today in production, it gets slowed down because storage and network are done the old-fashioned way, the way physical infrastructure works.
As a result, all the automation that it can apply is very brittle. With the software-defined data center, this is the next evolution of our stack from what we showed last year. This is a concept of abstracting and pulling and virtualizing we have taken from compute and extended it to network and storage. With CACs, our cloud automation system that allows you to define anything as a service, as service catalog that's extensible by the customer, to deliver all these infrastructure services and deploy applications on these infrastructure services whether they're local or remote. And our operations management product is a product that allows you to deliver these with the consistent SLAs.
For this VMworld, we have announced products and every one of these are advanced products in every one of these domains. There is a new generation of vSphere, vSphere 5.5. The big news of the show is, of course, NSX, the network virtualization platform. And Virtual SAN enters public beta.
In the operations management front, last month, we introduced Log Insight, which allows us to apply Big Data techniques to log messages in order to gain operational insight and then set up automatic remediation. You can think of it as a companion product to our vCenter Operations product, which uses time-sensitive data, right, statistical time-sensitive information and then close to divine analytical insights out of it. The Log Insight is a companion of complementary solutions app. And then vCAC is our cloud automation suite, consisting of our Application Director, as well as our DynamicOps purchase of last year.
The way we go to market with these is we simplify these into suites. vCloud Suite was introduced at the last VMworld, and had been very successful for us over the last 4 quarters. And that's meant for the Enterprise consumer, and vSphere with Operations Management is for the virtualization mid-market customer that wants to have a better-managed virtualization environment. This is a little bit of an eye chart but just so that you have this for your records, these are the product components for vCloud Suite, as well as the vSphere with Operations Management. Consistent with our packaging strategy, it comes with a small, medium, large size, meant for different selling motions and different classes of customers.
Over the last year, we have had 2 types of successes with customers. Customers that have adopted any particular component in a big way, as well as customers that have adopted the whole suite. So these are examples of customers that have chosen 1 or more of these individual components. And here are a couple of examples of customers, both at in the Enterprise scale, as well as the mid-market that we would like to call out. For example, Symantec, which has been a long-term vSphere user, they have been deploying the full elements of our vCloud stack. And they have deployed over 200,000 VMs. This is the global support team at Symantec that supports the end users. And so they use this private cloud infrastructure to recreate customer trouble scenarios and troubleshoot them. This is their estimates of the engineering man-hour saved, and you can translate these into dollars. More importantly, it is the agility of the service level that they're able to deliver to users that is the strategic benefit of the app. You saw a lot about Columbia today at the keynote. And then, in the mid-market, vSphere Operations Management has proven to be particularly attractive because it enables customers, like those that are shown here, Greektown or Cornerstone, to get more out of their virtual environment. Very often, when customers deploy the Operations Management component, they get an additional 20% to 35% CapEx savings because they're able to use the capacity more efficiently after looking at the insights from -- delivered by vCenter Ops. As you noticed, this is also enabling us to displace Hyper-V in these accounts, too.
So that's a quick overview of some of the successes from last year. Now let's talk about where we are going looking forward, starting with the announcements that we made today with compute, right? So this is a chart that we have religiously shown you every year that we've had this, right? The top chart is the percent virtualized in the marketplace. This comes from our annual survey that we do of our customer base. The industry analysts do their own survey, and they're all in this ballpark, and the net-net is, the industry is about -- sorry, our customer base is around a mid-60s virtualization percentage, right? They are steadily progressing towards a very high number. The chart at the bottom is equally instructive because this measures the percentage of virtualization of business critical applications, customers that they say they have virtualized their business critical applications. Some of those applications are listed there, right?
And that number again has been steadily growing. The reason these 2 are important is the more virtualized a customer is, the more it is an installed base opportunity for us to sell higher-value products. We estimate there are approximately 40 million virtual machines installed in our customer base on top of our paid product, right? 40 million virtual machines. Now imagine the opportunity it opens up for us to sell additional management, or the Virtual SAN, or the NSX platform, or other management products that we may build in the future. So this is a huge and strong base across 500,000 customers that we intend to deliver more and more value in the coming years.
So with vSphere 5.5, our focus is to create a single platform for the Enterprise that can serve not only their traditional applications but also their next-generation applications. So vSphere 5.5 is not a major release, but the major focus of this minor release is to deliver value for new applications. So the Big Data extensions that we had announced earlier in the summer are now part of vSphere 5.5. This enables Hadoop workloads to be easily deployed and utilized in a general-purpose vSphere infrastructure.
We announced our collaboration with Pivotal to deploy, to create a version of a Pivotal cloud foundry that runs on top of vSphere. We have seen very high interest from very large enterprises that have sizable developer audiences, that want to go from an Infrastructure as a Service private cloud to Platform as a Service private cloud. Of course, we talk plenty about what we're doing with OpenStack. And we have extended our platform to be very useful in high-performance computing. Here is a practical example of what a customer has been doing with 5.1. I'll talk a little bit about additional things we are doing in the future.
And we continue to work with the chip manufacturers to support their newer and newer platforms, such as the ones that are coming out with the -- such as the Habiton [ph] platforms from Intel.
As I showed you earlier in the chart, business critical applications continues to be a focus for us. This is what customers are deploying, right? I was talking to one of our BCE experts from Asia just yesterday night, and he was telling me that just in the first half of the year alone, he's been involved in over $200 million of displacement opportunity, where customers are moving stuff off of old Solaris or other risk platforms onto vSphere or on x86. Right? So this is all net new opportunity for vSphere Enterprise Plus because that's what customers deploy.
One of the key breakthroughs that we have done with vSphere 5.5 is we have made it suitable for applications that are tremendously latency-sensitive, such as in Wall Street trading environments, such as in other telco environments down the road. Right? And this is a verbatim quote from a very, very big bag that all of you know very well. And this attests to the delivery of performance that we have done in vSphere 5.5. Right?
So that's a quick overview on compute. Now let's talk about networking, right? I showed this chart at the March financial analyst conference that we did, and you saw this chart earlier today, right? When people ask us why are we in the virtual networking business? This is where our story starts. We've been in the virtual networking business for a long, long time, right? As more and more applications get virtualized, go back to that 57% virtualized number that I showed you a few slides ago, the way all these applications connect to the network is through a virtual edge switch, right? So the edge of the network is living inside the hypervisor, all right? And because of the growth of these applications coming onto the virtual platform, it's growing -- virtual switchboard count is growing much faster than physical switchboard count, right?
The other interesting observation here, that was a surprise to us until we did the survey, is the percentage of virtualization app virtual switch, right? A big reason why we introduced CLIs and why we did third-party virtual switches in ESX, was so that network administrators that are familiar with how network switches work could manage network switches from their favorite vendor. What we are finding is there is an equally strong population of server administrators that are now turning into virtualization, network virtualization administrators. And this is an additional proof point of what Martin [ph] talked about upstage, on the main stage, is that network virtualization is adopting -- sorry, the networking is adopting the operational model of compute, right?
And that will rise the second reason why we are doing network virtualization, okay? Server virtualization was usually successful for 2 reasons: People have brought it into their corporate data centers for the CapEx benefit. The reason people have stuck with it is because it's transformed the operational model for compute. We took a server, which was a physical object in sheet-metal and A6 and whatnot, chips, turned it into a software object, which was a virtual machine, so you can programmatically create it, destroy it, move it around, do whatever you want to do with this. This level of flexibility does not exist today in the network. This is why customers have told us that they have taken as much as 45 days and 50 days to deploy an application because the network is still physical and all the configuration of load balancers and switches and access control lists and VPNs and VLANs and whatnot, all of it is happening in a manual basis today, right? They're all capacity-constrained. Each time you deploy an application, you have a thinker with the network configuration and the network topology, which in turn, makes things more trouble-prone and leads to more operational costs.
With network virtualization, we are recreating the network in software through NSX software, right? The major elements of which are switching, which I just talked about. Distributed routing, the traffic between applications in the data center is called east-west traffic. That traffic, according to network companies, is now 70% of all network traffic, as opposed to the north-south traffic, which is the traffic going to the end-user device.
And you can see why that is the case, because each time you do a web lookup or access a net application from your mobile device, it hits one of many web servers. But from then on, the traffic goes on to some business logic server and then to some database, perhaps through some middleware, to some mainframe, et cetera, et cetera. All of that is what we call east-west traffic. Right? As you put more applications into the data center, all of those applications generate traffic that has to be swift, that has to be routed, et cetera, et cetera. And what we are doing with NSX is turning these into software services.
In addition to switching and routing, we're doing firewalling and load balancing, another hit services.
Now on top of this chart, you see some numbers. That shows the throughput speed, right? We are able to do this at line rate, so imagine 10 GB network backbones in the rack, we are able to do this at line rate. So performances -- this is not a type, we are talking about real data center traffic at very high speeds being handled by software. The reason we are able to do this is a distributed architecture, okay? Unlike our previous attempts at providing, for example, firewalling, we do not use a virtual machine to do that. The technology for this is built-in as an extension of the hypervisor, right? So we are able to provide this sort of functionality at line rate speeds, number one. Number two, because we are the first stop point on the network, next to the application, these services can be set up in response to what an application needs and when the application moves, the services of these policies can be moved to wherever the application is moved, right? So the mobility of policy enforcement becomes automatic. It's tremendous, and best of all, the way you scale these network services is no longer a distinct competency from how you say it's scaled to compute. When your application needs more horsepower, the way you scale to compute is most likely to scale out application, you put more compute nodes. When the application needs more network services, the way you scale the network services is again the same thing, you put the network, you put more compute nodes. The management of this is the same as how you manage the application. The programmatic APIs is the same as what you do to provision the compute APIs to provision the application. It's a seamless extension of what to do with compute, right? So this leads to an order of magnitude simplification of how networking works in the data center, okay?
Remember this theme because we're going to come back to this for storage as well. This is the scale-out power of doing networking this way, right? A single host, you get the line rate speed that I talked about. vSphere clusters are often clusters of 32 nodes, so you can get up to 1 terabyte of throughput on a cluster of 32 nodes. A single virtual center domain can go up to 1,000 holes, so you multiply 30 gigabits by 1,000 to get the throughput of your network services in a large vSphere form, right?
The last but not the least, that is a common API called the NSX API, that many partners that can be used to interface this to any cloud management system. So whether you're deploying OpenStack or VMware vCAC, vCD or CloudStack, you can then walk these network services in a consistent way in a cloud management system agnostic manner. And the beauty of the underlying the server technology that we acquired last year is that it's inherently multi-hypervisor, it's hypervisor-agnostic. So we'll work on vSphere, we'll work on KVM, Zen, we have got a Hyper-V roadmap, et cetera, et cetera. And we've been working with a set of switch partners to make sure that this can be extended to the physical domain. So if you have a database living on a physical server connected to a switch, they can all be part of the same logical network that's managed by NSX. So at this conference, you'll see sessions from many of the networking vendors, whether they're Layer 2, Layer 3 vendors, or Layer 4 to 7 services like Palo Alto networks, et cetera, et cetera. If you have time, I would encourage you to go catch up on one of these sessions.
So that's storage -- sorry, that's networking. Let me quickly talk about storage. Same concept, how do you make storage more software-driven? As Pat talked about, 3 aspects of this, right? One is you virtualized the core data plane, right? Then you provide a policy-driven control plane and then thirdly, you make data services very application-centric as opposed to infrastructure-centric. We are announcing 4 products today -- are announcing 3 products and progressing on one other. Virtual SAN is in public beta. I'll talk about Virtual SAN in a second. Virtual volumes, this is our effort to make underlying storage, external storage more application-centric. And you will see tech previews with our partners. The vSphere Flash is our attempt to exploit the Flash layers that are present in more and more server systems. And then, Virsto is our acquisition that we did a few months ago, and it's now useful for customers in order to deliver data services and better performance where they're using external storage or ACE.
Virtual SAN, I mean, those of you that are familiar with the storage space know that there is no single storage solution that fits all use cases and workloads and deployment scenarios. Virtual SAN is a hypervisor attached persistence layer that uses the local flash and the local disk that is present in every modern-day server and clusters these to look like a virtual storage array. Initially, the use cases that we are targeting are virtual desktop, like Sanjay talked about, huge need for low cost storage there, Tier 2 or Tier 3 workloads like your file server and SharePoint, and so on and so forth. And of course, as a DR target, where you may be willing to live with the local disk performance.
Because we are using a distributed architecture, everything that I told you about networking, replace the word with networking and -- we'll substitute the word networking with storage. All those benefits you'll get, again, because of the distributor architecture. The way you scale storage now is exactly the you scale compute, add another node. So if your application needs more storage resources, you just need to add another node, just like you need to add another node for compute or need to add another note for networking.
Here is the chart of the VDI performance, right? The dollars per VDI cost, see how linearly it scales. In this chart, it's up to 4,500 nodes, so in desktops, and we have seen results of the goes -- span much larger as well. So this is a killer solution for VDI. The chart on the right-hand side shows how we perform with respect to Tier 2, Tier 3 workloads, read/write performance. You can see in terms of IOPS, we are very compatible to midrange storage arrays while using local storage economics, right? So we think we are creating a new price point in the storage industry ecosystem in terms of choices for customers.
All right, 5 more minutes, I've got to cover management. This has been a significant focus for us in the last 3 years. And as Pat talked about, the keynote today, cloud management is a rapidly growing category and we are seen as the leading vendor in cloud management. The reason this is a fundamentally different and disruptive category to traditional enterprise management is because the technology requirements are very different. Enterprise assumes management products are built for a client/server era, agent based, they collect data from a few tens of devices and try to show it to you using some virtualization technology. Whereas, the mobile cloud area requires something fundamentally different, here, you're talking about thousands of devices, thousands of virtual machines, and the complex connection of applications to servers, to storage, to network. So the amount of data that you've got to analyze makes this a Big Data problem. This is why enterprise systems management vendors are not able to transition smoothly to the cloud era, right? And our product, because we started from new, we have taken Big Data techniques, applied them to data center management problems and cloud management problems.
And lastly, but not the least, the third disruption that's happening here is one of category disruption, right? When you think about the cloud problem, it breaks categories by definition. So there is no longer -- you can do capacity management separate from performance management, separate from some of the storage management performed, separate from network management, they're all interrelated, right? So you need to take a whole new approach and one that's based on policy-based automation, as well as applying these analytics approaches.
So we've got this -- just a little bit of eye chart, I apologize for that, we've got 3 major areas of focus in management, cloud automation, which is about deploying applications in an automated fashion to any cloud, right? Cloud operations, which is about managing the applications on the infrastructure, and having the software autism and take remediation, remediation actions. And then cloud business, because IT is now a broker of services in addition to a builder of services, they need to be able to use financial metrics, as well as their seller metrics to determine where to deploy the application, and that requires a new discipline management that we call, cloud business management.
The baby of building about our management portfolio is to start from our obvious strength, which is infrastructure management for virtualized domains. From there, we have expanded to hybrid domains, infrastructure management for both of vSphere, as well as non-vSphere environments. And then moving up into applications, you're progressively advancing our management portfolio, we have done it through a sequence of acquisitions, as well as in-house development and go-to-market activity.
Let me skip past this, in the interest of time, we've already seen some pretty big successes with our management products and this has contributed to the increasing velocity of our management business. And Dow Jones, significant, significant reduction in provisioning time for applications. Boeing, significant increase in their capacity utilization and reclamation of CapEx. And nationwide insurance, using ITBM to lower overall IT as a service cost.
So we've thrown a lot at you today, right? Both at the keynote, as well as here, I've walked through the range of products, that takes us from being a single-point solution vendor, i.e. a server virtualization vendor, to a full-fledged data center vendor, right? A data center solution provider that's providing a very disruptive approach for how customers build and operate their next-generation data centers.
These products are also suited for the same type of customer today, and this chart sort of maps the products to the type of customers that we're going to target over the next year or so. Clearly, compute virtualization, fully mature, we are selling it everywhere to everybody that wants it, right? All the way around to the new products, which are software-defined storage, just selling to the early, early adopters along with NSX, et cetera, right? As these products move up the maturity chain, and as these products start to appeal to mainstream customers, our strategy is to start bundling them into the suite, and increase the velocity even further. So that's why this chart is pretty important.
So in summary, where we were last year was SDDC, as a vision, but the bulk of the business was server virtualization. Where we are today is the bulk of the -- a significant portion of the business is coming from beyond core server virtualization into things like management and, obviously, end-user computing. And we have laid out a set of products that will enable a customer to build and operate a data center entirely based on software. And that's where we are headed towards with the software-defined data center. With that, let me bring up Bill and Sanjay for some Q&A.
[indiscernible] Maybe we ask for bringing up the chairs. As we're bringing of the chairs for the 3 of you...
For the third time...
We'll do a quick lightning round with the 3 of these guys and then open it up to the audience. Is the mic going, guys? All right. Mic? Raghu, VMware imbedded the term Software-Defined Data Center over a year ago. A year later, there are a number of products in the market, tell us how good does that feel.
This is an amazing lot for us because our teams have been working on all of these for 3 years. So they did not just show up in the last year, right? And there are a lot sleep-deprived teams all across VMware today that are celebrating this day. So it's hugely exciting for us, from our ability to showcase this level of innovation, which I doubt any vendor has done, across so many domains, and the business impact that it's going to have for our customers.
Sir, building up a new business, how has that been, from scratch, BCHS?
Patrick P. Gelsinger
It's been very, very rewarding, actually. So VMware's credibility in the market, with our installed base technology stack and the sophistication with which we've worked with partners over the years, are sort of all the right ingredients. That's good, and obviously, VMware is used to getting into a market and becoming the dominant player in it relatively quickly. So good demand and healthy pressures to make sure that we grow it cautiously. Obviously, the ability is everything for clients, but at the same time, incredibly ambitious for the offering. So it's great, good experience.
Great. And Sanjay, I think, what, 6...
Sanjay J. Poonen
On the job, first impressions?
Sanjay J. Poonen
I'm very, very -- I came to VMware, probably, 3 years ago, and I always thought this conference had sort of a cultlike feeling. I guess I'm now one of the cult. So very impressed with the customer intensity here. There's obviously a huge number of raving fans, the technology from the original days of ESX, and I think some of the new areas that VMware is now charting out, whether it's hybrid cloud or end-user computing, or automation and NSX, are hugely exciting because it's an opportunity to grow the portfolio and take a $5 billion company and double it, or something of that kind.
Fantastic. Let's open it up to the audience.
Brian Marshall - ISI Group Inc., Research Division
Brian Marshall with ISI. Raghu, I think you have a couple hundred engineers focused on SDS. Can you talk a little bit how this is going to overlap with say, EMC's acquisition of ScaleIO, and how this is going to be integrated from the 2 companies' perspective?
So fundamentally, the architecture for Virtual SAN product is built as a seamless extension of vSphere, right? So if you look at where technology trends of going with server-attached flash and next generation memory and server-attached storage, we think, fundamentally the hypervisor has to evolve to provide this layer, right? So architecturally, it's a very different product than ScaleIO, which is built more as a general purpose storage. So that's difference number one. And then secondly, operationally, this is tightly integrated into Virtual Center and for the VI admin, right? The common theme that we have mentioned many times over opaquing the operational model with compute and apply into the rest of -- sub the hypervisor, it's possible to do very application-centric storage provisioning, which is much harder to do with a general purpose storage. So while ScaleIO has some similarities, it's fundamentally a different product meant for a different set of use cases.
Brent Thill - UBS Investment Bank, Research Division
It's Brent Thill with UBS. For Bill, just on Hybrid Services, can you just walk us through the pricing. You said that, I believe it's $0.13 an hour for fully protected, $0.045 an hour for your other service. Can you just walk through and compare and contrast the other services, if you will?
William D. Fathers
Sure. I won't go, if it's okay, I won't go into a blow-by-blow account of it -- in huge detail, where we have currently 2 service offering and our virtual private cloud, where there's more multi-tenancy and it's more of a shared environment, clients make an initial commitment to 3, 6, 12, 9 months and above. In terms of pricing, I think we're very, very focused, frankly, on making sure we remain price competitive, and the way we're doing that is, by investing in our virtualization technology and the extent to which that will continue to allow us to keep our underlying cost structure as cost competitive as possible. That's kind of where we're aiming. And obviously, as we achieve greater and greater economies of scale, so I suspect that will get a little more straightforward. From a pricing perspective, clearly, it's a very dynamic market, and you see price changes a great deal. We're very, very focused on just maintaining a competitive price point, is probably as specific as I can be.
Heather Bellini - Goldman Sachs Group Inc., Research Division
Heather Bellini with Goldman Sachs. I was just wondering if you could share with us, and I'm not sure, Raghu, if this should be for you or not, but the feedback from the Nicira pilots that have been going on since you've bought them, just what are the challenges that they're facing? What are they saying, seeing the pace of new pilots that are starting to ramp up?
Yes. So the pilots that we've been doing have been going long for, certainly -- when Nicira as a standalone company, they had all of these product down the path, but it's picked up pace, I would say, over the course of the last 12 months. What we are seeing in the pilots is very, very favorable feedback in terms of what it's taking for customers to deploy this, just like they did with ESX, on top of an existing infrastructure, without touching the underlying infrastructure too much. There, customers have to wrap their heads around is, the traditional divide between networking -- the way you operate a traditional network and the way you operate a virtual network, in terms of programmatically driving it in response to what the application needs. So I think the operational model, depending on what kind of company you are, you might find it, more or less, foreign. And so that's where -- as we think about what we do in the future, that's we've been putting a lot of attention to, making it as easily consumable by the traditional network administrator. But for the cloud administrator, they have been able to gravitate to this very easily, because it's very similar to what they've been doing for the rest of building out the cloud. In terms of the acceleration of pilots over the next year, yes, I would say, over a natural course of customers getting more and more familiar, we should expect and our sales team and solution engineering team getting more and more familiar with selling these. We should expect the natural acceleration of pilot activity But I wouldn't expect an inflection point in 2014 by any stretch of the imagination.
John S. DiFucci - JP Morgan Chase & Co, Research Division
John DiFucci from JPMorgan. I guess just a quick follow-up to that, Raghu, and then a question for Sanjay. Is there anyone beyond proof of concept yet? Or is anyone planning a beyond proof of concept yet for software
networking. And then -- I guess, you could just answer that and then I'll ask Sanjay.
Yes. So as you might have, I don't know if you saw the keynote today, eBay is in production, with several thousand virtual machines. There is a very large service provider that's a public reference of ours, that's in -- upwards of hundred thousand virtual machines in production. We're running their cloud on a day-to-day basis. So yes, we have some early adopters that are in production.
John S. DiFucci - JP Morgan Chase & Co, Research Division
Okay, great. And Sanjay, just curious, yes, you took this role. And we've seen Citrix sort of struggle with what appeared to be a huge opportunity and maybe it's not. And I just kind of -- how did you come to the conclusion, because you obviously took the role, how did you come to the conclusion that this was a huge opportunity? Or maybe it's not, maybe it's just a good fit, strategically, within VMware? I'm trying to think about how we should be thinking about the opportunity, overall, but also for VMware.
Sanjay J. Poonen
Yes, I think, listen, when I look at companies that should really be able to manage and secure the end-user, that's really this sort of management and security, these are related areas, there are some natural candidates of companies that could do it. Systems management vendors are one, security companies are another, virtualization companies are a third. And I looked at those buckets and, from my perspective, I had seen some of the steps that VMware had taken, from outside in. Talked, certainly closer to the team, and realized a little bit of what Pat's vision was and the team's vision here in the early stages. But I look at this as an early stage of a big market. End-user computing is a very much in its first inning or second inning of where we think this can go, largely because we've been talking about traditional desktops, which are PCs, and even that has not been fully virtualized. So if we have -- I like the Raghu showed which was the 60% to 70% of the data center, we have far from virtualized the desktop landscape. And we know the future of the desktop landscape is not PCs, it's mobile. So if you think about that being where we are in that inning, I think this is a huge opportunity and it's ours to execute. So I believe we've got that the DNA of the people here, we've got technology, the company's has been bold as we think about big markets of this kind, and that's what I'm excited to work together with the team to execute on it.
John S. DiFucci - JP Morgan Chase & Co, Research Division
So is your approach similar to the server virtualization market? Whereas --
There are technologies that are going to be common, that we will leverage. Clearly, a good part of what you've seen would View leverages much of what's also in vSphere. And there are things that you'll have to do as you think about the nature of what some of that's done in mobile devices that might be different. So we will leverage, absolutely, where, from the core, we can leverage. And for example, where we run in the cloud, we'll run inside service providers offerings but also in Bill's hyper cloud. So there will be duality to the way in which we think about this. Obviously, in new areas like mobile, you have to think about some of these markets, from my own experience with some differences, too, because you can't bring in some sort of a tank to the -- mobile device, in terms of the way you can't shrink your desktop VDI solution into a mobile but it's a very different way that you think about mobile devices. So there'll be differences in technology, that I've sort of learned from my past and scars. But hopefully, I think you've got the right smart people. And we have smart people and a large market opportunity.
Rajesh Ghai - Craig-Hallum Capital Group LLC, Research Division
It's Rajesh Ghai with Craig Hallum. Raghu, in the slide you that you put up on the NSX partner ecosystem, there are quite a few switch vendors, and there's one vendor, quite conspicuous by its absence, Cisco, so just wanted to understand whether they were approached and then they declined? Or what are the implications going forward given that?
Sure. But before I answer the question, let me introduce Steve Mullaney. Steve, can you please stand up? Steve is the head of our Networking & Security Business Unit, so you can catch him later in the hallway, or I think there's other venues this evening as well, for asking more questions about -- he talks to customers everyday. Now back to your question, it is a very wide ecosystem with a very open server APIs, right? We do a lot of things with Cisco. The NSX architecture is designed to work on top of existing networks and, as we all know, 70% of that is Cisco. So NSX, for it to work by itself and deliver value with the customer, it can exploit without need for any sort of API level integration. Going forward, based upon the customer use cases, we might be doing a little more integration with them on these technologies as well. But at this time, we don't have any specific integration to announce with them.
Raimo Lenschow - Barclays Capital, Research Division
Raimo Lenschow from Barclays, a question for you Bill, just for you and your journey. But also there's some scary data points out, if I look at the magic quadrant you've got, in terms of the scale some other providers, especially Amazon, had built, can you talk a little bit about what you've seen from your ecosystem and your partner program in terms of the scale that I can expect from you guys in the coming quarters and years? And maybe related to that is, how do you think about how many platforms will be out there in the future? I'm thinking there's Amazon, there's to be Google, there's going to be Microsoft, it's OpenStack as you guys. What do you think for the longer term, what's the long-term end-game here?
William D. Fathers
Great. Let's first answer the first one in terms of scale. So I think we think about this in terms of our existing client base, which I think we talked about as being our primary target. And obviously, with the way we measure success, is how many of our existing clients are taking advantage of vCloud Hybrid Service. And I think we pointed out that there's a few different ways they might do that. Might be that they're buying the vCloud Hybrid Service directly from us or, potentially, they're buying it from a service provider that's using our technology. So I think, right from the traps, we think that's quite a good strategy in terms of making sure that we have a good share. And when we think about the total addressable market there, that we had, I think, said $14 billion in 2016. We'd like to think that the combined impact of, not only VMware, but all of our service providers in over 70 countries, gives us the right to grab a good chunk of that total addressable market. Now obviously, it's an incredibly dynamic marketplace, and so to predict what is going to look like in 3 to 4 years time, I don't know. But our position is absolutely, myopically focused, on this hybrid value proposition of really taking advantage of the compatibility. And as, I think, this next phase of the growth of the cloud market and enterprise is all realized, it's now inevitable, they will be moving towards the public cloud, but they'll have this combination of some use internally and some externally. Beyond the other focus on that differentiation, of saying that we know that's going to be the reality, let's help you make that the best of that situation, is what we're going to be very focused on that. So what we focus on and how many other players can deliver that value proposition and we don't think there's many.
It's Adam Shepard from Arete. Bill, just a question for you. You mentioned that the -- that seamlessness of experience in terms of app deployment networking is such a key differentiator for you. So I wanted -- to what extent customers need to reconfigure their implementations of VMware to take advantage of the hybrid [indiscernible] seamless experience, given that you're talking to a very prescribed platform of hardware and software for the partner side? So I wonder if the customers also need that to get that great experience.
William D. Fathers
That's an excellent question. And I can sort of glibly say, it's entirely backwardly compatible and therefore, all and every implementation of VMware technology would deliver the same level of seamless experience. I think where we are is, we're in a pretty good spot. Basically, if the application's been written to conform and work with the hypervisor layer, then there's a very high chance you're going to be able to move that. The extent to which the management integration and the ability to really extend networking and security, when we start to really push the boundaries towards the end of next year, of just making that totally seamless, we could run into issues where clients' existing infrastructure, on premise, may become a limiting factor. But I don't see that as a material constraint to our growth for the next several years. But I'll probably ask Raghu, if you have a point of view on that as well? But I don't see any issues around requiring clients to do upgrades, on premise, in order to be able to take advantage vCloud Hybrid Services.
Yes. Some of the early access customers today, right, they are -- the way they extend to the hybrid cloud is actually using some of our virtual networking technologies. And as we made the point, in my chart, these things can overlay on top of existing networks. And so it's not necessary to massively disrupt your networking architecture in order to get to the hybrid cloud. Now there are also customers, and I think it's being rolled out as part of the SDDS -- sorry, as part of the BCHS roadmap that would like the direct connect model, and we are putting that in place as well.
Keith F. Bachman - BMO Capital Markets U.S.
Keith Bachman from Bank of Montreal. Bill, for you, to start with, it's still a bit unclear about what you're exactly selling at the Hybrid Services because you're going to be selling against service providers, or selling to service providers that seem to be tilting towards OpenStack. So maybe the way to ask the question, as you look out over the next 2 years and you lose deals, what are you losing against? What are the products and services that you're losing against? And then, Sanjay, I also just -- excuse me, Raghu, I want to follow up with you. In the last couple of years, there's been a lot of talk about security. And security still seems to be a problem in virtualized environment, and yet, it doesn't seem like there's much discussion, at least thus far, around security and how that leverages into your products and services.
William D. Fathers
Hopefully, we're clearly articulating the strategy, we're not only -- are we using reason our technology to drive our own services business to market, but we're also powering and providing increased options for the thousands of service providers that already use our software, we're introducing the option to them to also use of the vCloud Hybrid Service platform as well. So frankly, if a client decides to go with one of our service provider partners maybe because of geography, certification of the services they can add, that's an absolute win for VMworld, and we'll be aligning our go-to-market in such a way. Perish the thought that we would be losing opportunities, so an existing client wants to move a workload into a non-VM public cloud. I think, obviously, we sort of reflect on the huge installed base we have, and clearly, OpenStack is a framework that increasingly looking at, just doesn't have the penetration within the enterprise.
And then, Sanjay, I also just -- excuse me, Raghu, I want to follow up with you. In the last couple of years, there's been a lot of talk about security and security still seems to be a problem in virtualized environment. And yet, it doesn't seem like there's much discussion at least thus far around security and how that leverages into your products and services.
Sure. Do you want to...
Jonathan C. Chadwick
Yes. So just -- hopefully, we're clearly articulating the strategy. We're -- not only are we using our technology to drive our own services business to market, but we're also powering -- providing increased options for the thousands of service providers that already use our software. We're introducing the option to them to also use the vCloud Hybrid Service platform as well. So frankly, if a client decides to go with one of our service provider partners, maybe because of geography, certification, other services they can add, that's an absolute win for VMworld and we'll be aligning our go-to-market in such a way. At first, we thought that we would be losing opportunities. So an existing client wants to move a workload into a non-VM public cloud, I think obviously, we sort of reflect on the huge installed base we have. And clearly, OpenStack is a framework that we're increasingly looking at. Just doesn't yet have the penetration within the enterprise to allow it to be able to offer the same kind of on-premise and off-premise compatibility. But then, of course, the "born in the cloud" cloud providers, some enterprises may well decide for the sort of "born in the cloud" apps. They may go straight to a pure-play public cloud player. But again, they know they won't have that same level of compatibility and experience on-prem and off-prem. So I don't want to sound in any way contrite or underestimating the competitiveness of this market. I fully acknowledge it's an incredibly, intensely competitive marketplace. But I've just -- right now, at our stage, we're really focused on how do we add value to our clients in delivering this hybrid service, and it seems to be resonating well.
So the security question. I think we have a two-pronged role. When it comes to core network security, we are counting on network virtualization to provide just like in some are virtualization, the properties of isolation and so on. That's an opportunity that we will play in, as you've seen from our distributed firewall, et cetera. The remaining portions of security market, we want to enable it through a rich set of APIs that allow for introspection into various layers on the stack. And we've been fondly successful at enabling partners like Trend Micro or Symantec or McAfee to take advantage of those APIs and build new products. So that's obviously continuing going forward. But there is also a whole new class of security vendors that are coming over the horizon, if you will, and looking at new ways of exploiting what we're doing with NSX to deliver better security, and you should see those developments happen in the coming years.
All 3 of these men are needing to move to the next meeting, so we're going to take one more, but briefly. So let's take the last question.
Jayson Noland - Robert W. Baird & Co. Incorporated, Research Division
Okay. Jayson Noland with Baird. Raghu, I wanted to ask about the go-to market and specialized sales forces around EUC and management, how those came about, and should we expect to see that in storage and networking? Carl had mentioned earlier that customers want to buy holistic solutions, not point products, so how do you manage the process of specialized sales forces and something more broad like an enterprise agreement basically?
Yes, so the EUC specialization came about because we were tapping more and more into a buyer that was different than the data center buyer, right? So we realized that there were a lot of opportunities that we could have had if we have gone directly at the EUC buyer. And at the same time, as our product portfolio is broadening beyond just core virtualized desktop to include Mirage, Mobile, et cetera, et cetera, it became a distinct competency on its own that we had to attack with its own merits, and that's when we decided to form a specialized sales force. With management, we have been forming a specialized sales force to do 2 things. One is to add more operations expertise to our existing selling motion, which is directed at the vSphere buyer, right? But at the same time, as we build out ITBM products and other products, we wanted to reach broader and broader buyers, either because platforms are different, OpenStack and HyperV and other platforms, or because of the value proposition is different and the users are different through application management and so on. So that's why we are building up the management speciality. Same logic with networking. Today, we sell a lot of networking to customers that are building out OpenStack clouds, right, as well as specialized networking technologies. And so we feel there is a need for specialized sales force.
All right. Thank you, Raghu, Sanjay and Bill. On to the next event...
Sanjay J. Poonen
Thank you very much.
We'll take a short 10-minute break, and start again at 1:45.
Carl M. Eschenbach
If we could get seated. That deep voice that asked you to get seated 3 times was not me. I'm going to do it very nicely. Could you please take your seat so we could get started here this afternoon. Just like at VMware, no one listens to me.
So for the next half hour, I though we'd do something different. We haven't done this at any other Financial Analyst Day and I thought we'd invite one of our customers on stage with us and I'll have a short Q&A session. But then quite honestly, we're going to open up to all of you here in the audience to allow you to ask questions. My guest today is Steve Hilton, a Managing Director at Crédit Suisse, and he's responsible for all global technology infrastructure. So it's a rather large role, as you can imagine. And most recently, he got so good at running infrastructure. They actually said the infrastructure for technology is nice, but we're going to take a one step further and they've given them all real estate services at Crédit Suisse as well. So he runs infrastructure on many debentures. So Steve, welcome...
Carl M. Eschenbach
And we've got a nice comfortable chair for you to sit down on.
I'm still trying to figure out who I upset to get corporate real estate...
Carl M. Eschenbach
Yes, I could only imagine.
But I could only upset some of them.
Carl M. Eschenbach
So, Steve, let me just start. I'll ask a few questions and then, as I said, I'll open up to the broader audience.
Carl M. Eschenbach
So let me just start, I guess, in -- maybe you share with the folks here, what are some of the challenges you're faced as a -- with as a CIO and responsible for running infrastructure today?
Sure, I am -- I think the problems are probably similar to what they've been in the past, just more accentuated. Clearly, with Crédit Suisse in financial services industry, massive transformation the past several years. So the journey in the past 4 or 5 years has been costs, costs, costs and costs. And regularly ask what my 3 top priorities are and they are it. At the same time, we still have the insatiable demand for infrastructure. So despite businesses shrinking, margins shrinking, the actual manner to compute capacity -- network capacity storage that we're providing for the bank is still 20% to 40% compound growth every year, so earlier to that. So the key is really efficiency. It's not really cost cutting. I don't think you can cost cut an infrastructure and still deliver value to the business. So that generally is all around efficiency, how do we round what we've got more efficiently and cheaper.
Carl M. Eschenbach
So that sounds like 2 things actually that are creating friction. You're asked to reduce your cost to run your infrastructure, but the line of business just brings more and more applications you need. So how do you bridge that gap and what are some of the strategies you have at Crédit Suisse to do so?
Sure. So there's multiple answers to that question. I think a lot of it starts from about 4 or 5 years ago when we did first virtualization. It's funny how focus and problems shift. But 4 or 5 years ago, the biggest problem we had was out of data center capacity. Data centers are growing at 1.2 megawatt a year globally, probably hundreds and hundreds and hundreds of millions every 2, 3 years into physical data centers. Server capacity, out of control server utilization, 8%, 9%, depending how you want to count it. So our focus there was very much how do we virtualize and get the capital down. And we've done that. I could throw a couple of numbers, 5 -- 4 or 5 years ago, we spent about $120 million a year physical servers, CapEx on new stuff. We're now down to the mid-20s. That's a huge shift. But then over the past 3 or 4 years -- certainly, the past 2 to 3, it's great that we've got our data centers down. We're now shrinking by 200 kilowatts a year, not growing by over a meg. It's great we got CapEx down. But if you look at my total spend, which is now over $1 billion, over 1/3 of it is people cost. So it's great that we've got data center and physical stuff down to less than 1/3. Outsourced vendor maintenance starts about 1/3, but it's the people. So how do I do more work with less people and it's fundamentally we've had to redesign and challenge the way we've run distributed infrastructure for the past 15 years. Not a single thing that we've done in the past is now acceptable for the future, and that's been a huge journey for me and the culture changed for my people. I've asked my technologists, my SAs, my DBAs to think completely differently on how they run the environment.
Carl M. Eschenbach
So Steve, earlier today, I shared with the audience how people implemented VMware initially to drive CapEx, say, eventually that you got going from $120 million a year to $20 million for servers. But that's only the first phase of the journey to move to IT as a Service and the second phase is really how do you automate that IT infrastructure because that's where you start to really tackle a lot of OpEx costs, right? And one of the things I know we've talked about in the past, you got a tremendous amount of tools and systems in place, and it looks like and it always seems like you're trying to streamline that to improve on the OpEx side of the house. And what are you doing in that area? Because one of the areas VMware's focused on and you're using some of our technology is to leverage the automation -- provisioning and self-remediation tools that we have.
Yes, so I think when you look at these infrastructures, certainly for a bank, we have built massive complexity over 20 years. And you shouldn't underestimate that complexity. We have over 7,000 applications that we support, most of them written in-house. Some of those date back to architectures from the mid-'90s. So you do have these big legacy we have to support. We take a lifecycle approach. Our view is if you're going to make an improvement in infrastructure, do it once, do it right and then do it for next 3 to 5 years. So we have these every 18 months to 2-year cycles of infrastructure investment, and then we bleed it and run it for 3 or 4 years. The concept of our platform is we provide an integrated environment, where everything from storage up to monitoring capacity performance, even change management processes, are wrapped around this bundle of compute, and we cycle that every -- put new ones in every 2 or 3 years. What we're seeing now and one of the reasons why the integrator stack is so critical for us, it's back to the people costs. I'm now down to -- it takes me 2 weeks to provision a virtual server. You may think that's rubbish. I'm actually very pleased with that. It used to be 4 or 5 months to get a physical server into our environment, massive processes, compliance procedures. The reason why it's taking 2 weeks is not spinning up the VM. The VM spins itself up now or. Automator service requests, "Give me one of these." Boom, storage and network. It takes 2 weeks to get the damn storage and the damn network assigned to it. And another time is money always. And then 2 weeks isn't bad, but if you actually look at the amount of effort going into those processes around network and storage, it's ridiculous. On the people side -- and on the CapEx side I said earlier, last year, we hit the point and I still can't believe this. But last year, actually 2 years ago now, we spent more on new storage than we did on new compute. And this year, we spent more on new network ports than we do on new compute. That might be right or wrong. I think that's wrong because I fundamentally think that a compute cycle is what adds value to IT. A transaction comes in and combine something else spits out an answer. So that's why our focus is now, I wouldn't say we fix compute, we're now about 62% virtualized and about 85%, 90% of net new service going in are virtualized. I wouldn't say we're done, but my focus as a CIO now is focusing on network, storage and around the people.
Carl M. Eschenbach
Yes. So that's great. So Steve and I have not had a chance to rehearse this. No, this is not. This is Steve unplugged and my questions are unplugged. So Steve just informed me he had the opportunity this morning actually to sit in Pat's general session and keynote, where Pat laid out the strategy and direction for our company. So I'm going to ask you a couple of questions about what you heard this morning and provide your thoughts. So has Crédit Suisse back to your network point and started to think about network virtualization and how something like the NSX platform might live in your environment in the future?
Yes, we have. Fundamentally, I mean we have it in our labs now and we're testing it, but we've gone beyond that. Our view is, as I said earlier, the cost to run the network is very high. But also, they seem very complicated and sticky. So I'll give you a couple of examples. We're a Swiss bank. Data privacy is everything for us. Just in Switzerland, I have 26 different physical network zones with different levels of firewall authentication and role sets to try and protect data from different degrees. So historically, we've relied on the network to protect the data. I can't tell you how much that doesn't work from an operational perspective, where a bizarre thing 3 years ago, we're the first ever customer ever to hit the theoretical limit on the number of roles you can have on the firewall. Not very proud of that, but that just shows you every single system access was a firewall change. Anything that flies in the phase of virtualization, it gives me stranded capacity, be it software [indiscernible] application complex. And if I'm honest, it's not that reliable. So we've already made the decision that, that intelligence needs to go up into the server in the hypervisor. I was saying to somebody just the other day, I actually believe that we need to start viewing the data center network as untrusted. We've just got to the point we're viewing our LAN, our office network, still trusted we're viewing as untrusted. So you say it's dirty. You then put encryption, authentication, VPN on there, and you say it's like being at home. I think we need to start guessing out with the data center because the second you've done that, you're encrypting and protecting the server asset and the data. That then opens you up to hybrid clouds because one thing we're seeing recently, I'm forever being challenged by my developers saying, "I want to go to the cloud." They want to go to the cloud. So we go, "Fine." We smile. We do a project. We say, "Let's go look at it." Every time we benchmark, and we benchmarked just 2 or 3 months ago, we are cheaper than Amazon internally. We are. Now I've got 22,000 servers, total of 55,000 images, 40 petabytes of storage, et cetera. I have scale. So our price point's lower than Amazon. They still want to go to Amazon. So what do they do? They come back 3 months later and go, "Damn, we've just recreated the Crédit Suisse data center in Amazon." And all this infrastructure, you have to stand up for the image to work. So we're still seeing that. So our story is we have an internal cloud, come and use us. You need to change the way the applications that are worth in any way, do it first internally, then look at external. There's something about the hybrid cloud that's very interesting for us because that's where you start to say, "I vaguely trust the bit in the middle if it doesn't matter where the endpoint is."
Carl M. Eschenbach
Yes, so I think 2 things you just mentioned, right? When we spoke few weeks ago, you talked about you would leverage potentially public cloud, but you view that as dirty, meaning, you don't know what's going to happen from the security perspective out there in the public cloud and you do in your own cloud and VMware's hybrid cloud. Hopefully, you can see that as a seamless extension of what you're doing today and apply the same security attributes. And the thing we're really excited about that we can go into farther -- further tomorrow during our keynote is this whole NSX architecture and how that time of virtual machine provisioning, as you said, you can do that in minutes when it takes days and in your case, weeks to get layer 2 to 7 services. But now we'll actually be able, at the time of virtual machine provisioning, to do things like load balancing and security right at the virtual machine level, so you actually take traffic through your network because everything's happening at the compute layer on the server itself. So we think we're addressing not just networking challenge, but a lot of other services that sit on top of layer 2, layer 3 networking.
Yes, absolutely. I think from a technical perspective, that's clearly the direction we need to go and it delivers. What's more interesting for me is the people processes behind that run it. So years and years, I remember for the cloud, 4 or 5 years ago we spoke, VMware's first pitch was, it's not just virtualizing the capacity, you've got to change the way you operate. We kind of ignored that if I'm honest. The 3, 4 years, it didn't really matter, if I'm absolutely frank. But now, my ops teams are coming to me saying, "We want to redefine how we set up to have cloud SA groups or combined SA groups." Because what's happening, one reason why it takes 2 weeks to get a network assigned is there's tickets, there's e-mails, there's phone calls, there's chasing, there's mistakes that are made. Don't underestimate this huge complexity. I've got probably 4,000 hands doing stuff in the infrastructure. What I need to do is make that 4,000 become 500. I'm not talking about taking 10%, 20% out of the people base. We have to get it radically different and the only way we can do that is to effectively get rid of network admins, get rid of storage admins and make it a, I hate to say it, an old mainframe Starlite, Mininova, a virtual resource admin, and we're getting there. NSX is critical for us to go...
Carl M. Eschenbach
You know you can call that?
Carl M. Eschenbach
The software-defined data center.
There you go. No, it is. And the bizarre thing is most of my ops guys don't know that, but they're asking for it. They basically are asking for that.
Carl M. Eschenbach
Yes, that's great. So earlier today, Steve, we've been hearing Pat spoke a little bit about the OpenStack and the emergence of this new framework for people to build clouds, and I think a lot of people have a perception that it's free, just go pull some open source bits down and there's a framework that's ready to go. And there's always a lot of grumbling that the early adopters of technology or folks like yourself and the financial services community, is Crédit Suisse looking at the OpenStack and what's your thoughts around it? Because we actually see it as an opportunity to extend our platform into that framework to make it the most robust, scalable thing, if someone chooses to do that.
Yes, I think from our perspective, we look at it out of interest as technologists. We're not looking it with any interest from a commercial perspective. We can give you the software for free. That's not where the cost is. Just to explain to how many hundred and thousand of people I've got, the cost is having a single integrated stack. Now I get asked all the time, "Oh, Steve, you're going to bring in a second hypervisor." I've got -- and say about...
Carl M. Eschenbach
And you say?
My answer's no. It's not worth it. No, I'm saying it just demonstrates to be why I should even consider it. Now I've got 15,000, 20,000 VDI systems running on VMware. I've got probably another 30,000 virtual servers, 25,000 to 30,000. I like having a single fabric. So it's very important to have a single fabric. And if I go back and go OpenStack, it's -- that's not where the money is, the money is in my people having to build, having to certify, and run it and operate it. So the money we spend with integrated stack like VMware pays for itself, magnitudes, like hundreds of times when it comes to my people's cost to run it.
Carl M. Eschenbach
That's great. So Steve, over the last many years, VMware has obviously been working with you and your organization and I'd say at one point, we were probably a very tactical technology vendor and provider. How do you view VMware today when you think about all of the technology partners you deal with and supporting this massive infrastructure? How do you view VMware and how has our relationship evolved over the years?
Yes, that's a tough one. I'll answer from, I think, 2 directions. There's the bottom-up view. So again, my people will actually do the work and run it. They were very skeptical to begin with, this 2007, very skeptical. By about 2008, '09, they were proud that DRS was kicking in 4,000 times a day on a cluster and things like that. And they then started hammering my door to say we want the newer version, we want the newer version, so that was a very positive bottom-up embracing. I think, from my perspective, 3 things, as a company, we find them a genuine partner, some of you use term, we certainly find them friendly to work with. There are big IT vendors out there, and I won't name them, but they have blue and reds and colors like that. I will spend a lot of effort to give a dollar to someone else because you know that any money you spend is going to come at a huge cost to you, not a true partnership. So certainly, VMware [indiscernible] falls into the category of we're fairly happy to spend with. Thirdly -- well, secondly, sorry, is the integrated stack, it really is the bigger vision, I remember, 3 or 4 years ago, Paul talking about the software defined network, the data center operating system, whatever you want to call it. You stuck to that for the past 4, 5 years, as far as I can tell, and are really delivering it now, at scale, at a reliability.
I think the answer is, is that we are now being forced to view them as all integrated. If I'm frank, like I said earlier, very deliberately in 2007. We just view and compute and went to virtualized compute and say we've got over $100 million a year out despite doing that. And in the meantime [indiscernible] people ask me all the time, I saw you have 45% compound, what does that mean? I'll give you 2 raw numbers. I joined the firm in 2006 [indiscernible] just running storage and servers and data centers. I know for a fact we're 2.4 petabytes of storage, that's the number I manage. It's now [indiscernible] 40. That's what 40% compound means. You get these huge ridiculous numbers. So we've been forced to be integrated. I do think the next big focus area is network. I think, storage, if I'm honest, is harder. We still have a huge number of applications, absolutely demand the performance and integrity of fiber [indiscernible] we still have a huge number of applications that rely on a storage. They're so dumb, they just say please expensive storage, make sure that every bit is written and doesn't get lost. So up until those apps start to get rewritten and start to trust to do it themselves, network is the biggest area. I'll give you a silly data point, and really nothing to do with VMware, I'd just like to give this data point. We're just deploying Microsoft Exchange 2010, we're also deploying Exchange 2003 back in 2006. In 2006, it was the most expensive, highly tuned server and storage infrastructure in the bank. E-mail was the most expensive per gigabyte of storage in the bank. Exchange 2010 now, Microsoft finally got their act together in '07, and really got it right. We're now using white box with a bunch of unRAIDed discs in white box and we trust Microsoft to do all the replication and copies. So we have 4 plus 1, 5 effectively, 1, my copy of the database of your mail. There's not a SAN or an SRDF or anything anywhere near. That's where our apps need to get to. But trust me, a lot of our financial apps are a long way away from that. But a simple answer to your question, we have to view as one, network is by far the biggest CapEx and OpEx save over the next 3 years and we have no choice but to embrace it. And I remember years and years ago, CIOs don't get fired for buying Cisco, that old adage here. Now I'll never get fired for buying IBM. I now get fired for buying IBM, because it's too expensive and we're about to get to the point where I honestly think that we will actually break the Cisco data center in the next 3 years. And I resisted that for the past 6 years, I now think we're at a point where we'll do that.
Carl M. Eschenbach
So as you think about our share of view, the software-defined data center going from compute across the network storage and automating it, you think the journey you'll take to the bank is continue to virtualize where your absolute compute of the first phase will be then to look at network and then ultimately storage virtualization.
Yes, I think storage probably comes along with network, but I think the driver, the OpEx save, is network.
Carl M. Eschenbach
Okay. Great. Other questions? We got 2 here.
Louis R. Miscioscia - CLSA Limited, Research Division
Louis Miscioscia, CLSA. Maybe you could go with Amazon is a more [indiscernible] expensive than you but do you see any applications that you're actually starting to take advantage of that?
Simple answer is no, we have none. We are more going to -- we use Software as a Service. So almost by definition it's sort of a cloud infrastructure anyway. So a lot of my internal apps, we're going to do things like ServiceNow, some HR systems, expense travel, so I'd say nonbusiness apps, we're sort of jumping to SaaS, for the very obvious ones you will know about. Outside that, no, we are not looking at public cloud like if I just provide a little proof of concept, we were led a couple of apps go and do it, but they've come back and say that's not going to work for them. And also, there's also the economic factors, for good or for bad, on data centers right now, because again, think about it as growing at 1.2 megawatts a year, only 2008, and now I'm shrinking. So there's also a whole economics of if you got your own capacity, why would you go somewhere else because you've got that fixed cost. That fixed cost does go, give it 5, 6, 7 years, and that fixed cost clearly goes. But now, again, I'm a Swiss Bank as well, please take what I say as a fairly exceptional use case, but we're not looking at it at all.
Louis R. Miscioscia - CLSA Limited, Research Division
And on a similar but different topic, I guess you mentioned fiber attached to disc, are you doing it with server-side flash?
Yes, absolutely. Two big areas right now. One is effectively to be a competitor to Exadata. So we have certain application profiles that their issues will get fixed if they go to an Exadata platform, we're highly resistive of doing that as an infrastructure. We believe our commodity virtualized environment can meet their needs despite what other salespeople tell them. So that's the case where we're building fairly large databases with a huge amount of memory and flash to address a very specific use case. The second one, bizarrely, is VDI. We now have just under 15,000 secondary VDI images, and coming up to 10,000 primary. So primary desktop and secondary is to be a developer or trade having a second machine. All those primaries do video. We are a Microsoft link shop, Win7 bidirectional video on every desk. It's murdering the back end, murdering it will all the codex. So we're actually seeing flash, believe it or not, on the VDI, which is the last place I actually thought I'd see, if I'm honest.
Carl M. Eschenbach
There's a question right here.
We've heard some customers talking about perhaps more fragmentation of the hypervisors and perhaps resistance to standardize on one vendor, but it seems like the direction of VMware perhaps is a little more seductive to you in that they're addressing real needs that you have going forward and it sounds like it's having an opposite effect that in fact it's perhaps creating more standardization on your part. So I wonder if you could address that? And also, when it comes to NSX, are there alternatives that you're looking at in the market?
Sure. So I think, on the first one, simple, if it works, why do you need a second one, and I think the key message and this has been for several years now, the hypervisors stopped becoming the differentiator a few years ago. The actual hypervisor. It was the systems around it, it was the management, it was the dynamic load balancing, it was the offsite recovery, it was the backup capability. That's where all the value where it really came in. So you say, well, that's a hypervisor, they're all kind of virtualized. Okay, I want to bring another one now. I'm standing up against higher ecosystem if you're not careful. And it's only Crédit Suisse, and my philosophy is we drive IT from a commercial perspective first. We are ruthless in how we look at the commercials of our -- one of my partners [indiscernible] that one, we are ruthless in how we look at cost. And whilst technologies will have a thousand reasons to bring in a second one or a third one, when you genuinely look at the numbers over 5 years, there's no value. And again, VMware has delivered every single time. We have neither things, they've delivered over multiple years. Your second -- and it drives standardization which I think is a good thing. Your second question, what was the second question, sorry?
Yes, NSX. So yes, there clearly are alternatives out there. We believe we're right in saying that the intelligence moves up into the hypervisor. So the question is why bother to look somewhere else. So we'll clearly see if it works as advertising within, we'll be aggressive on the commercials. But if I bring another one, there is going to be another tool, there will be another skill set someone needs to learn. There'll be another vendor I need to manage. For me, there's massive value bringing it together. What we will make sure at some point, we will make sure we don't get the commercial problems we fell into with IBM in the '80s, but we're not there with VMware because it's a competitive environment, every deal we do is a very healthy deal for us, we're not locked in. But whilst it continues to be a friendly relationship and the stack works, we're going to continue to go that route. The value of integration standardization massively outweighs any bells and whistles a new product can bring.
Carl M. Eschenbach
And I think, what hopefully you guys have seen here today, one, there's -- you can go and get any hypervisor out there, and what we've proven today through both NSX and virtual SAN is that's a pretty damn powerful hypervisor we now have. It's allowing you to provision your networking services and your storage services and set policies for storage at the virtual machine level not [indiscernible] at the data store and the more economical it is.
Just to be clear, when I was talking about the hypervisor, I mean about the compute bit of it, there's 2007, 2008 type challenge. That bit, you can get others, but it's the ecosystem around like NSX, the VMware.
Carl M. Eschenbach
We have time for 1 more question, maybe 2 if we do them quick.
Well, I have 2 questions [indiscernible] first, just to back up to compete, what were you doing to build that private cloud with using which components of VMware? How are you doing it and how automated are you getting? And then, I was also curious about your comments about the firewall and the rules, problems, and what that means in terms of you maybe changing how you deploy the physical firewalls over time?
Sure. I'll start with the second one. So physical firewalls, our strategy is to eliminate them within the data center. DMZs clearly, ANC is here to stay. But within the data center, I view as physical firewalls go away, think about it, their designed to make the network break, they're just designed to not route things. So our view is that goes all the way up into the host, into the VM. And again, if you do a hybrid cloud, you have to take rule set of what that VM is and isn't allowed to do. You have to take that with it wherever it goes. If you have it -- if some of that substantiates in a physical firewall, now way is that going with it, that's ridiculous. So that's the second one. I think -- I'm getting bad memories, the first question.
Carl M. Eschenbach
What are using from VMware [indiscernible] scale.
Yes, so we're clearly using all of the [indiscernible] suite from [indiscernible] VMware [indiscernible] shop for our orchestration. We've just acquired and are using the old digital fuel suites of the application management suite which really is integrated in the commercials all the way up to our charge back and our catalog and our recoveries. We are also clearly an EMC shop, not exclusive by any means, but we use them as well.
Carl M. Eschenbach
One last question, and then we're going to have to wrap up.
Just a quick follow-up on the NSX question. In the last session, it was mentioned that there were a couple of pilots out there, were you involved in the NSX pilot? And if you were, could you comment on where the most impressive pieces of the functionality have...
No, we were not in the pilot. We have it in our environment, and our labs are evaluating it. I mentioned earlier, we have this platform view, my next version of MyCloud, I call hosting platform, I don't need to deliver until middle of next year. So therefore, we are evaluating it and integrating as part of our the next release of our cloud, we call it a pod. So no it's a proof of concept in our lab right now. And so far, it's working as advertised.
Carl M. Eschenbach
With that, Steve, I want to thank you for joining us here today and sharing your thoughts about where the industry is going and how VMware can or cannot impact your infrastructure going forward. And thank you for the partnership we've established over the years.
Yes. I hope it's helpful.
Carl M. Eschenbach
Okay. Thank you very much. We appreciate it.
Carl M. Eschenbach
So with that, I think, we're going to transition to our last presenter and then myself, Pat and Jonathan will be onstage. I'd like to turn the floor over to our CFO, in the capable hands of Mr. Jonathan Chadwick. Jonathan?
Jonathan C. Chadwick
Thank you. Well, that was just a fascinating conversation from Steve. Hopefully, you had a chance to listen to it. There were are few themes that I pulled out of that. One was costs, costs, costs is going to away as a key issue. Whether it's people costs or now no longer the cost of compute, but actually the cost of storage and networking. The other thing you might pick up, which hopefully you're seeing as you here about NSX and you're hearing about other opportunities that we're bringing in to the table is question of agility. The fact that we're proud now to be down just with one customer, down to 2 weeks to provisional service, kind of interesting don't you think? So the point is we're talking about agility, and when we think about operational costs, you've heard us talk about agility and operational cost being one of the key opportunities that we're bringing to the table as we think about the next stage of the journey ahead with NSX in particular. So great conversation there.
So I think about the strategies that we've laid out and I think about the opportunity ahead, I want to translate it now to how I think about it from a financial perspective. I think about it in 3 sort of high level, with 3 sort of core elements. First is about revenue diversification and growth. And the opportunity ahead, I hope you have a very good sense of the market opportunity that we're seeing. We can argue whether or not it's a $50 billion market or a $45 billion market in 2016, but the point is there's something out there that's tangible. You've heard one key customer just talk about it, you've got the opportunity of it today and the next few days to really talk about this with other customers and really get a sense about whether this opportunity is real. What problems are they really facing? We see that market expanding and we think we're uniquely placed to enjoy that. We've also talked or touched on different monetization models, and I see this being an evolution, not a revolution, an evolution, not a revolution, as I think about adding additional business models and monetization models to have VMware continues to grow. We're going to continue to grow perpetual license, we're going to continue to grow maintenance, we're going to continue to grow professional services, but we're also going to start to see more and more relevancy coming from service offerings such as subscription and consumption models.
Second thing is the companies had a demonstrated history of profitability expansion. We've been doing that by also or while also investing with discipline. We don't get to the position we're in today without having invested carefully. Could we have done everything perfectly? Did we do everything perfectly? No. But clearly, we've invested, we've made some bets, and we're going to continue to do that. And one thing I'll reiterate as we close with my comments here is how I believe we can expand non-GAAP operating margins as we go forward while also continuing to invest in the business.
And then, last but not least, I really believe there's an opportunity for superlative shareholder returns here, demonstrated and connected through top and bottom line performance, but also continuing with the strategic use of our cash and our balance sheet. As we think about balance sheet today, yes, it's got a significant amount of cash, but actually, as you think about the relevancy we're having with customers and we're increasingly seeing with customers, that strategic asset, that strategically strengthened balance sheet is increasingly relevant and relied on. I'm going to talk about all 3 of these in more detail over the course of next 25 minutes or so.
I really believe we're at the start of something quite special. This convertness [ph] analogy of where ESX was 10 plus years ago and what has transpired, we're no longer talking about what is virtualization, explain that to me, I'm not sure I understand physical versus logical, we're not talking about how much is left in compute. I actually think the conversation should be how fast can you get there, because when you do that, when you virtualize that entire layer, that's just a killer platform from which you'll expand into the areas of management and into the areas of networking and storage.
We're already seeing reacceleration of growth. We saw it in Q1, and we saw it in Q2, and we're seeing it again as we line up for achieving what we laid out to you on the 23rd of July with respect to growth on the top line and the bottom line. And we're seeing it and what's important to note is we're seeing it with respect to what we have in the bag today. We're not dependent today on networking, we're not dependent today on storage. We're driving this growth through a combination of our existing compute offerings, we're seeing significant growth in management and cloud automation, and we're seeing the results of our strategy in user computing really pay off. And we're also seeing good traction, continued good traction with our VSPP program, which although not the biggest source of revenue for us, is growing at over 100%. So we're already seeing growth accelerate.
We've talked over the course of this day and at the main stage event with respect to our 3 set of core element. I'm not going to be able to do these great justice from a technology standpoint. What I'm going to talk about is what do I see as being the implications of each of these as we go forward and I want to share a couple of data points just to give you a sense of why the opportunity is just getting started.
So let's talk about SDDC. So as you know, computer management are what we're selling today, we're selling significant amounts of this, core to our SDDC strategy today, computer management. We're arguably #1 in both of those markets, if you think the cloud management as a particular subsection, we are absolutely #1 in that market. And we are selling those products today, both as components and as elements, core elements of our vCloud suite.
Next up, as we've talked about, and hopefully you've got this sense, next up, we're going to be bringing networking to the marketplace and moving from proofs of concept to revenue generation. And we're also going to do the same thing with storage as we move from public beta, and as we go forward -- by the way, you have a hatchery today of English accents, did you notice that? I know you feel lucky about that. But storage is going to be a compelling transition, as well as we think about the amount of money being spent on storage, that was a staggering number, just from one customer a second ago, and hopefully, you heard it. As we think about the journey that's occurred with respect to compute, again, I want to think about the parallels for the next decade.
Let's just talk about the suite for a second. So as you have picked up, we're now -- through Q2, we're at the fourth quarter of being in the market with our vCloud suites. They come in 3 flavors. We are -- or we were seeing the fourth quarter in a row, 100% record of being over our own internal plans. And we set recently aggressive plans as we think about this opportunity internally. And vSOM, which was its first full quarter of being in the market, was also ahead of plan.
The other key data points I want to share with you though, a signal of momentum and opportunity. As we think about where we can take vSOM and where we can take the vCloud suites as we go forward. If I just look at the vCloud suite attached in Q2, approximately 50% of ELAs in Q2 included one form or other of the vCloud suite. That's a slightly different metric from that 75% metric we've been sharing with you, this is a signal of attach, so around 50% of our ELAs had some level of vCloud suite attached. For a product that's just about 3.5 quarters in the market, it's a pretty good signal of momentum.
The other data point I want to share with you is when I consider the install base of CPUs out there, install base is still less than 5% penetrated when I think about the opportunity associated with vCloud Suite and vSOM. Again, we're just getting started and the momentum is picking up.
As you know, we monetized this largely today through perpetual license and professional services and maintenance. That's been a tried and tested model. We're going to continue to do that, that's not going to change. As we think about adding networking though, you're also going to see us add subscription-based models as we think about how customers want to consume our networking services from us. NSX is largely going to be consumed as a subscription-based model.
Enterprise hybrid cloud, over 100% growth in VSPP, the VMware service provider program in Q2. Our partners are continuing to work with us, and they're continuing to drive what we believe is the second-largest ecosystem out there with respect to the overall cloud opportunity.
We are also bringing to the end the early access program in the United States and moving to general availability this quarter. And we'll continue to add more services on a fairly agile manner over the course of the next -- over all the subsequent months coming out and they're continuing to drive what we believe is the second-largest ecosystem out there, with respect to the overall cloud opportunity. We are also bringing to the NDL, the access program of the United States, moving to general availability this quarter. And we'll continue to add more services, on a fairly agile manner, over the course of the next -- over the subsequent months coming out. From that, one of the key ones was the backup and failover service being announced in Q4. And again, hopefully you've got a sense from Bill Fathers how we think about the CapEx investment here. We don't believe that our opportunities is around differentiating ourselves by building big physical data centers. We believe our opportunity is to take our software stack and put it into others' locations or to partner with people such as Savvis and with our VSPP partners, as we bring our services and our software to the market in a way that's differentiated from others. We believe this is a hybrid opportunity, it's differentiated and we don't believe it's a CapEx-heavy environment that we're talking about here. We're going to share our investment in CapEx with things like heat, light and gas and physical plants, et cetera, with co-location partners, partners such as Savvis in the franchise space, and service providers partners as we think about our VSPP program.
We monetize VSPP although it's a relatively small number but growing. We monetize that largely through a consumption model with our service providers departments today. As we go forward, and I think it's fairly obvious, we'll be adding subscription and consumption with vCHS as we expect it to ramp. So again, we're adding new business models as we go forward. Again, evolution not revolution. And then last but absolutely not least, in End-User Computing, those go-to-market investments we've been talking about for the last few quarters are paying off. We saw mid-teens growth year-over-year in Q2 and we saw a similar performance in Q1. Over 10% of license bookings in Q2 were generated from our End-User Computing platform, End-User Computing space. We've been really, really pleased by the market share we're very confident we've been gaining in the last couple of quarters. So again, the strategy is working here. Frankly, we've been playing #2 in this market for a long time, but with the products that we've been pursuing and the enhancements we'll make in the product portfolio and the go-to-market strategy, we believe we're actually seeing some great, great results. And with the leadership we're bringing into this particular marketplace and to internal teams, we're really comfortable about the opportunity ahead. Again, the monetization model is one I think you understand very well, perpetual license, maintenance and Professional Services. As I think about it going forward, again, we talked about our very interesting opportunity with respect to Desktop-as-a-Service. As a service implies certainly subscription model and potentially consumption as we go forward. We'll be talking more about that as we're going forward. But as we think about what customers are looking for from us, they're looking for us to enable them to buy in a different way than just license. So this, again, is an enhancement of how we monetize today.
I want to also talk about diversification and suites. So as you know, we continue to see significant growth in management and in End-User Computing. And in fact, this time last year, in Q2 '12, we shared approximately 25% of licensed bookings came from products other than standalone vSphere. Remember, our goal here is to maintain our presence in vSphere and our core compute platform, that's a very solid strength from us -- for us. But we want to view that increasingly as a platform from which we expand into other areas. If you think about it, the more vSphere we deploy, the more complicated our customer environments become, so the more management automation becomes highly relevant. The more vSphere we sell, the more opportunity knocks on our door and with our client's door, our customer's door, with respect to the relevancy of networking, the next wave is coming up. So as we think about vSpheres, it's going to be -- continue to be a very, very core part of our business, but what's even more important is how we continue to diversify and add and take people along the journey to this software-defined data center, in particular. So in Q2, a year later, that number of license revenue, driven from areas beyond just standard -- standalone vSphere, had grown to over 35% of licensed bookings driven partly from diversification, continued diversification from management products and from End-User Computing, but also again, through the success that we're seeing with the suite strategy. We're taking customers along this journey to more complicated solutions, more complicated promises. They make this journey to the software-defined data center. So the vCloud Suite strategy is working, it's resonating with customers. And yes, compute is a core element of the vCloud Suite, but it means that the suite strategy is working and we're seeing uptake from the customers. And just to give you a sense of our -- "Okay, Jonathan, the obvious question is where does this go?" The way I think about this is in about 3- to 5-years time, under a multiyear goal, I can easily see this getting to over 70% of our business in the next 3 to 5 years. If we get to this point, we would have seen the success of the suite strategy really take hold and we'll continue to have seen the progress we're seeing already in End-User Computing.
So what's driving growth today? You have a sense, I hope, of the opportunity we have ahead of us. But what's in the bag today for our salespeople to sell? And where the biggest dollars come from? Come from compute and they come from management and they come from the vCloud Suite and vSOM in SDDC. We're selling significant amounts of View in End-User Computing. And again, in the hybrid cloud, our strategy-to-date has been largely around the VSPP program. These will continue to drive significant amounts of revenue for us and growth for us in the FY '13 and FY '14 time horizon. We are not dependent today, as I think about the growth goals, on networking and storage. Yes, as we go forward, we're going to start see revenue contribution. But I think about more material elements of revenue, more significant amounts of revenue coming from the additions, in 2015 and beyond, from networking and storage, the Horizon Suite really taking hold and additions in mobility portfolio and the vCloud Hybrid Service really taking off from a revenue-contribution standpoint as we get into 2015 and beyond.
And I just want to share with you an illustrative model. As I think about it, "Okay, Jonathan, what does this mean overall, when I think about the mix of your revenue streams?" So the first point here is this is an illustrative model. I'm predicting a mix for us going forward, as we think about the evolution that we're on. We are absolutely going to continue to see growth in license and maintenance and PSO. But we're also going to see, we believe, around 10% of our revenue streams coming from subscription consumption models going forward. I think that's a good thing. I actually believe that's a very significant shift over time that we're going to see in the business, while also maintaining strength in our existing license and maintenance streams as well, which significantly drive much of our profit and cash flow generation today. So about 10% of our license, 10% of our product -- 10% of our revenues, overall, coming from subscription and consumption in around the 2016 timeframe. So a gradual addition, some fraction of that, today, in terms of contribution from our VSPP program. So a gradual shift, in particular in the 2015 and beyond timeframe, when we think about what's driving revenue for us going forward.
We've shown this chart probably about 5,000 times today. Is somebody wondering what the size of the SDDC market is? We're showing it because we want to give you a sense, and obviously it's a high-level sense, but a sense of the market opportunity. In March, I shared with you our view of what we think how this translates to a revenue opportunity for us. And frankly, my view has not changed. When I think about the opportunity ahead, I'm trying to give you a framework of how I think about the potential for opportunity. I really do believe that there's an opportunity for us to be growing in any of those years, from 2014, 2016, continue to be in that 15% to 20% range. I continue to see those opportunity ahead and, hopefully, you got a sense of why we're excited about that opportunity. And just to be very, very transparent, and hopefully you've got a sense about how these products are contributing revenue for 2014, right now I'm planning for approximately 15% growth. We've got the markets ahead of us, we're early in those markets. It's not going to do us, any of us, any good if we plan too far ahead of what we think is a multi, multiyear transition, but this is what I see the opportunity to be. We'll clearly update you more as we go forward and as this opportunity transpires.
So let's talk about the second opportunity, which is around profitability expansion. The company has had a history of expanding operating margins over the course, in particular, of the last couple of years. In fact, the last couple of years, we've increased our non-GAAP operating margin by around 400 basis points, that's a pretty good profitability improvement. And we've done that at the same time as adding and investing in our go-to-market portfolio and in our product portfolio. And we've also seen a continuation of operating margin expansion even into FY '13. We've clearly, as you've picked up through Carl's discussion and through Pat's discussion, been through quite a portfolio transition, with respect to the investments we've been making, in the business. We've focused the business on those 3 markets and allowed ourselves to invest more heavily in the areas we consider to be the best drivers of growth for us going forward. We're actually a little bit ahead of our own internal plans and plans we shared with you with respect to operating margin at this point, based on this number here. And I'll talk more about that in a second. And if you really think about what I've laid out, we ended Q4 2013 at just around 13,800 people. Our goal is to end at about 14,200 by the time we finish FY '13. But within that, there's a lot of changes, there's a lot of ads, there's a lot of movement. We've rebalanced the portfolio significantly by removing a number of product shares we felt which were just not core to our message going forward, and core to our mission going forward. We also significantly saw a number of heads move in the formation of GoPivotal. So when I net all that out, there's going to be about 2,000 people, new, focused inside the business on our top priorities. That's at least 15% of our workforce aligned in addition on our top priorities, such as global engineering capacity in general, building out the 3 priority areas like software-defined data center and the underlying technologies in there, End-User Computing, VCHS and on the go-to-market side, continuing to invest in emerging markets, the specialist teams that Carl has talked about with respect to End-User Computing, where we're already seeing results, the dedicated teams we have around vCHS and then what we've just recently announced with respect to our GBOM program or Go Big On Management [ph], which is taking the lessons learned that we saw in End-User Computing. And we're going to continue to invest in our channels and strategic partnerships. And then last but absolutely not least, our CEO would remind me, "Don't forget to talk about Professional Services." Not because we want to become a Professional Services shop but because we believe our customers want us to increasingly take our architectural prowess to them and help them in their transition as they think about the opportunity ahead. And I shared with you a rough mix of what I thought Professional Services could be, this is deeply expert [ph] in the business as we go forward.
So given all that, I continue to believe that the opportunity exists for us to stick with this plan, which is to grow operating margins, off the FY '13 guidance that I'm sharing with you by approximately 50 basis points a year, while also continuing to invest in the business. We have opportunities ahead, we want to make sure we're investing in them, but we also believe that we can do that while also improving our operating margins in each of the years going forward. So again, that's our commitment around multiyear profit growth as we go forward.
And last but not least, total shareholder returns. So you'll have noted our cash flow generation over the course of the last many years and many quarters. I was really pleased to see that operating cash flow was well over 30% growth, if you look at Q2 over Q2, in this last quarter. So we were pleased to see that continue. I remain comfortable with the operating cash flow guide that I gave in the Q2 call of between $2.1 billion and $2.35 billion, that again has not changed as I think about the opportunity for FY '13. And in addition, we've really added to our balance sheet. And during the last 12 months, obviously, we spent a fair amount on at least one acquisition that we're expecting to be highly instrumental for us going forward. But we've also built our balance sheet out. This balance sheet continues to be a strategic asset to us and for us and highly relevant -- or increasingly relevant as we think about our strength and position in the marketplace. Our customers want to do business with a company that's financially sound. And they want to do business with a company that's going to be around not just for today but for the next decade, because that's the journey they're on with us. And we now have approximately $5.3 billion on our balance sheet today of cash that we consider to not only be an indication of strength, but also to be an indication of optionality when we also think about strategic uses of that cash in the future.
We've generated about $5.6 billion of free cash flow over the last 10 quarters, and we've deployed that in a combination of purposes, strategically. The first is we've bought back about $1.6 billion of our own stock over that same timeframe. And in addition, we have spent about $2.3 billion in what we consider to be a strategic acquisitions and acquisitions that will yield results as we go into the next generation of virtualization. And as we go forward, we continue to believe that the best uses of our cash today will be to continue to accelerate market capture and to drive growth and to drive penetration in the markets we're in, by strategically acquiring, and to also continue to invest in our share repurchase program. You will have noted that we've just recently increased our share repurchase program by another $700 million in the authorization provided by our board just recently. So these 2 areas of our cash utilization, we continue to believe those were the best uses of our cash today, we believe there is significant opportunity ahead and you should expect us to continue to be judicious with our uses of cash in those main categories.
So with that, I think of this opportunity being unparalleled. I do think we've got this opportunity to reaccelerate and do -- and taking it to the next phase. It's very rare, and I understand that, it's very rare for a company to have that second act and really do it well. But when you look at the companies that have done it, they grow very large and they have this sort of opportunity and the sort of shift in the marketplace ahead of them that we're facing now. So whether it's through revenue growth and associated diversification of revenue coming from product, or revenue stream diversification, to continue to focus on profitability expansion, both 2 things, I think, ultimately and the strategic uses of our cash will hopefully generate supportive shareholder returns as we think about the opportunity for the next few years.
Thank you very much. So with that, I'd like to invite Pat and Carl on stage. I just want to note for the record, I'm 4 minutes ahead of time. I know you're excited about it.
Thank you very much, Jonathan.
Jonathan C. Chadwick
And we're going to entertain as many of your questions as we can in the next half an hour as possible. And then I just want to remind you, while we are setting up, we'll get the microphone there, that there is a reception tonight at 6:00 p.m. at the W Hotel, and I do look forward to seeing as many of you there as possible, so please make your way there before 6.
And we're going to also try another quick lightning round before starting. I see you've got the first question queued up, Walter. Pat, this is your anniversary, how do you feel about the past year?
Patrick P. Gelsinger
I feel good. We did a lot right, as I commented in my presentation. And just as we sort of snap the line on Q2, the good results, it was sort of a defining point for me. A lot of the things that we said we needed to get done in terms of focus, in terms of priorities, right, in terms of resetting expectations, getting these engines underway for the future growth opportunities, building the executive team, we just felt very good to say, "Okay, those things are in place." And I feel extremely firm that we're now on the footing that I want us to be in to really look to the future of VMware and -- or it's a -- see the opportunities that we've laid out. And I think we really have the execution mojo now to go do it.
Carl, you're a VMware veteran. Many years. 11-plus. How do you feel about VMware at this point in time?
Carl M. Eschenbach
Yes, so I can't be more excited. Even after 11 years, I feel like we've just begun, Paul. And I fundamentally think about where we're at today and what we're doing. And if I just go back even 12 or 18 months ago, right, we had probably a complex business model, a complex selling motion complex, operating model with multiple things we started to attempt to do. And what I like about where we're at now is we are simplifying to scale and do a simplified approach to the 3 priorities and strategies that Pat has laid out for us. I think we're very capable of scaling into the future. And reinventing ourselves, just like we did a decade ago around ESX, but now doing it in a context of the software-defined data center. And lastly, I would just say it's -- there has been some, if you will, movement in the executive ranks. I just couldn't be any happier to be part of the team and be part of the team with Pat, Jonathan and many of the other folks that you've seen here today. I think we have a world-class executive team, and to be part of it's a true honor.
Great. Thank you, Carl. And, Jonathan, you're coming up on your 1-year anniversary this fall. How's it been for you so far?
Jonathan C. Chadwick
It's been pretty calm. I'm so much okay. And we've done a lot, as Pat said. We have seen a significant amount of rebalancing the portfolio and you don't do those things lightly. Although when I evaluated the opportunity externally, of coming to VM, much like Sanjay was saying, I look at 3 things. I look at the culture, I look at the people I'm going to be working with and I look at whether or not, especially in technology, whether there's an opportunity for strategic disruption to occur. That's when it starts to get really interesting. You don't always get those opportunities, but I saw this triumphant [ph] free courses and, frankly, my diligence on the outside couldn't have told me as much what I've seen on the inside. And my view has absolutely not changed, in fact it's definitely strengthened. When I showed you the charts I showed you today, I don't show them lightly, I think there's an opportunity ahead and I think we're just at the start.
Great. Okay, we're going to open it up to the floor. And, okay, Walter [ph]?
So 2 questions. Just maybe one for Pat. I was going to ask your colleague that does the cloud, but maybe a higher-level question on that. If I take your guidance out of your illustrative case, Jonathan, on cloud, your subscription revenue being 10% or so were kind of order of magnitude. I look at your top-line guidance, your cloud business be $800 million, $850 million in 2016. I look at the past that's saying Amazon is on. I look at the trajectory that Microsoft is on and the billions they're spending on CapEx to build out those data centers. And I'm wondering, are you being aggressive enough, you're sort of being CapEx light, doing it in a maybe an economical way and you're not disrupting the business model in any way in talking about 10% or so of revenue. So are you being aggressive enough in this public cloud sort of entry? And then, Jonathan, just wanted to ask you about this.
That was for him?
That was for, well, I think, for Pat. And then just a quick one for Jonathan on stock buyback. It looks like you're roughly looking to kind of keep the share count flat, is that the right way to think about it with the buyback?
Patrick P. Gelsinger
So on the Hybrid Cloud, we'd say, are we being aggressive enough? Hey, if it works out to be better than what we've laid out, you're far be it for me, right, to slowdown. But the point in that is that we're laying out 3 business models, right: what we do directly; what we do with our franchise partners; and what we do with our VSPP program. And across those 3, it's about running the VMware software in the cloud. And we will have the house, right, infrastructure, we will have the franchise infrastructure and we will have that, that is being driven without our direct management. So we have 3 ways to scale. And I think, as you might have seen, if you do the inverse of what Bill described, right, I think on one of Bill's slides, he showed, right, he sort of say, "Boy, in the VSPP program, I'm getting extraordinary leverage. If I'm getting $100 million of revenue, that means I'm getting well over $1 billion of services impact right from it." Right? So I also encourage you to think about the inverse math, as well as you go look at the scale of what we're talking about because we are getting significant leverage through those other partnerships as well. And we're going to go very fast here. And we've gone from a GA -- I mean we've gone from early access to GA, right, in literally 3 months. Bill had said, "Your fathers would say, "We've done that in a fraction of the time of any other cloud infrastructure."" Right, we've just announced our first franchise partnership. We're going to expand globally very aggressively. So we think we're setting a pretty torrid pace with what we're doing here. Jonathan, you want to add a little bit more about the leverage point?
Jonathan C. Chadwick
Yes. So I think of the stated goal around our buyback program to help offset the dilution that we can see. One of the things we have to balance strategically inside the business is the thirst for talent, in particular in the Valley [ph], but other hotspots around the world. So we're going to continue to invest in that, we need to pay our people competitively, and one element of that is stock. We have, over the last 18 months, managed our total share count flat to slightly down, actually, and you obviously have noted that. But the way I think about it, Walter, is that I think about the buyback program being -- having the stated goal of helping to offset our dilution. But we are focused on that dilution number as we go forward.
Sandri [ph], you have another question?
Carl M. Eschenbach
Actually just one follow-up to Pat. I think, Walter, you're asking about speed and time-to-market of the cloud, right? And as Pat said, he's not going to hold us back, trust me. But you have to remember, we're going after a workload that already this is primarily on top of the VMware platform. So we need to make sure that the platform we're building in the public cloud is capable of seamlessly accepting those virtual machines to move between the 2. If we wanted to just go out and stand up another multi-tenant cloud for just next-generation applications being established, we could probably go a lot faster. But again, it's critical in how we're differentiating ourself is through a hybrid cloud approach, we got to get that stack exactly as it's going to look like in the private cloud today.
Patrick P. Gelsinger
So a question for Jonathan, I guess. Very interestingly, you did slip in the slide once or twice about the market opportunity you have, the 20% compounded growth in the software-defined data center, 20% compounded growth in End-User component -- Computing and 30% growth from the hybrid cloud. You're talking about deceleration of growth, 18%, I think, regarding to -- excluding [indiscernible] investors this year, that's going to be over 20% growth in the second half. Coming to next year, you're guiding to 15% growth. So just to understand your thought process there, why should we accept that kind of deceleration and what kind of factors you're considering that suggest a butcher's sense of humor or...
Jonathan C. Chadwick
I appreciate that. So there's a couple of things. Well I think about, first of all, that overall TAM, you had a couple of elements to your question, so let me address them. As I think about the market overall size, clearly we've got segments of that market, which are growing at 20% or 20% plus, if you look at that chart I showed. The way I'd think about the math is because we have a very, very significant share of a sliver of that market today, which is compute, which we showed you back in March, which we're estimating is growing at or around 10%, and obviously we're a big chunk of that, you get into what I'd call market share math, which is you can be growing at or faster than market and still see us growing at a slower rate because you've got such as -- such a big footprint in our existing compute base today. So that can be one reason. And again, there's another reason why you'll see the newer areas, while they'll be growing faster, they're going to have smaller dollar contributions to our overall growth rate especially in the earlier years, which is one reason why I talked about the potential for revenue expansion, growth rate expansion as we go forward. But it's going to take some time as we think about what's contributing to growth today from a dollars perspective. And then when I think about the shift from FY '13 to FY '14, there's 2 or 3 things I'd probably think about.
And then when I think about the shift from FY '13 to FY '14, there's 2 or 3 things I probably think about. First is don't forget in FY '13, as we've all talked about for many quarters now, we saw -- or we are seeing a significant ELA renewal cycle in '13. While ELA renewal volume goes up every year, it was a significantly greater and remains a significantly greater opportunity in 2013 and, in particular, in the back half of the year. It's one of the reasons why we've highlighted the opportunity for revenue growth in the back half, that I think while we still see the revenue of the renewal opportunity grow in next year, the amount of relative growth is a little bit lower. That's one issue. And the second issue is don't forget that 15% number I just shared with you is a reported number or to be reported number. It doesn't take into account that there's a small amount of Pivotal and the divestitures in the first part of 2013. So the apples-to-apples number would inherently be a little bit higher. And then the last thing I'd point out would be the vCloud Suite. The vCloud Suite has done extremely well, and for the entire year of 2013, it had almost no comps in 2012. It had not been introduced into the latter part of, I think, Q3, Q4?
Carl M. Eschenbach
Jonathan C. Chadwick
Q3. So you've got a full year of 2013 to compare against what you get to 2014. So broadly speaking, I think those are 3 or 4 -- 2 or 3 of the major drivers that I'll be thinking about.
Ann Marie, a question over here. It's hard to see. Is that Derrick?
James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division
Yes. Derrick Wood at Susquehanna. I have 2 questions. First is on the hybrid cloud. It sounds like you're going after the installed base and with traditional apps. So that sounds like ESX workloads. Is there going to be some sort of trade-in program for existing license maintenance fees that you could switch to vCloud Hybrid Services? And how will that range [indiscernible]? And then the second the question is on the channel. And you've seen ELAs as a percentage of bookings go from 20 to mid-30s over the last few years. And your indirect revenue is kind of stated at 85% of revenue, it sounds like. So it would seem that you're leveraging the channel for ELAs in a better way. So if you could just talk about what you're doing there as well.
Patrick P. Gelsinger
I'll start a little bit -- put a little bit of strategic context. And clearly, the first place that we're going with the vCloud Hybrid Service is for enterprise workloads, where a large portion of those are already running on VMware and giving our customers this compatible extension, right, to go with it. And I think Bill described that Phase 1 is establish the service, Phase 2 is expand the service and Phase 3 is start to reach into a line of business and broadening of that platform into other workloads over time. And strategically, that's just how we've laid out the progression. And for that, we're getting great response from customers. In some cases, right, you don't like the Apollo Group. Hey, they were exploring, right, using Amazon, and they said, "Boy, that's not meeting our needs, and now they're going to deploy it on us." In other cases, like the Harley example, it's extending and accelerating their opportunity, and they're already a good VMware customer. So we're definitely seeing that this model, right, of being able to extend the VMWare value proposition, right, to the public cloud and do that in a seamless way clearly is resonating with customers. And over time, we will reach broader to line of business and to new app development, and that's some of the announcements we did around vCloud and vCloud Suite today, very much reaching to those new app areas, like the Big Data stuff we announced today. And clearly, those will be targets for us over time on the vCloud Hybrid Service as well.
Carl M. Eschenbach
Yes. And I'll follow up on the ELA question. To Pat's point, right, yes, there is a large opportunity for us to [indiscernible]. I think Pat or someone showed 40 million workloads in the data center today, and their traditional application is running on top of vSphere. But we do see a rich opportunity for the next generation of applications that are being developed to be developed in the virtual hybrid cloud service from VMware. And the reason for that is if you develop them out there, when you move them back, you know the performance is predictable and it's running on the same infrastructure. There's no virtual machine format change, so we can take existing workloads, put them in a public cloud. We can leverage the vCloud Hybrid Service to help with the new workloads and next-generation workloads and seamlessly federate them between the 2. So we can go after both of them even with the enterprise today. As it relates to the ELA question, right, 85% of our business has gone through the channel for a decade, literally. I mean, it hasn't changed at all. And even as we get into selling ELAs, 37%, and then last quarter in bookings, we continue to fulfill them through the channel. So our channel partners provide value add. Even when we're selling Enterprise License Agreements to the customers, they have long-standing partnerships with them. They help sometimes with financing. They bring additional services to the customers, right, whether it's professional services or maybe application transformation services. So we don't have the business model where we're going to alienate or do away with our channel is we drive more deeper into ELAs. We'll bring them along with us, and we actually think we can enable them to drive ELAs deeper into the customer base based on their recent -- or based on their long-standing partnerships they already have today.
Sandra, do you have a question -- okay.
Heather Bellini - Goldman Sachs Group Inc., Research Division
Heather Bellini with Goldman Sachs. Pat, I had a question regarding your view of enterprise workload growth over the course of the next 2 to 3 years, and in general, I'm looking -- I'm trying to get your view of what you think enterprise workload growth will be in aggregate. And then if you can split it for us between public cloud workload growth and private cloud workload growth, I think there's a lot of questions as to kind of how you see that split and also how you see VMware share of those workloads playing out.
Patrick P. Gelsinger
Sure. Yes. And the data would argue that enterprise workloads, right, if you look at what they're running on premise, right, continues to grow, right, and somewhere in the high teens, right, kind of range for what that growth rate will be. And today, I think the numbers are somewhere in the 80-ish million range of those enterprise workloads. The public cloud workloads are something in the 5 million to 6 million kind of range of what's running there, and those are clearly growing much faster, right. I think the numbers are plus 50% kind of growth rates for the public cloud workloads. And even when you go do that math and project it forward to close to the end of the decade, there are still far more enterprise workloads running in private, right, or premise-based versus cloud-based. So that remains sort of the, you all say, the thesis to, "Hey, we still see growth in that enterprise or premise-based business even as those public cloud workloads are growing at a more rapid pace. And in that, right, we think that matches so well the strategy that we've laid out, right, with the hybrid cloud services clearly to go federate those 2 together, be differentiated in both sides of the wire as it continues to go forward. Now as we talk to customers, right, there clearly are people who are on all sides of this question, people who are premise-only and starting to experiment in the public, people who are public and saying, "That sucked. I want to come back internally," people who have been trying it but haven't met their needs or are now finding vCloud Hybrid Services a good alternative. This is a very controversial domain as it's still very nascent, right, as people start to figure out how they take advantage of those capabilities in that environment. And we do think that it will be -- several years until the maturity of these offerings really emerges. And as we've said internally, right, we would have liked to be further along with our vCloud Hybrid Service, right, offering just because the opportunity that we see in front of us. But given that nascent phase, it's not like we're too late, right. We really do have the opportunity to step in now into a market that people are experimenting, right, that initial market development is occurring, some of those pre-lead pin kind of markets. And now we can really step in and say, "Here is the offering that meets the unique enterprise and the business needs on both sides of the equation."
Ann Marie had a question over here.
Gregg S. Moskowitz - Cowen and Company, LLC, Research Division
It's Gregg Moskowitz from Cowen. Just 2 questions. First, for Jonathan. So getting to the 70% to 75% of license bookings in 3 to 5 years coming from others -- areas other than standalone vSphere would obviously be pretty substantial improvement. I'm just kind of curious what sort of installed base CPU penetration that might equate to versus, I think, the less than 5% that you were talking about today. And then secondly, for Pat, so one of the primary objectives, obviously, from VMware is to deliver virtualized compute networking storage security, with NSX now untapped to be GA, Virtual SAN obviously coming out shortly. Do you have the resources to fulfill the rest of your vision through internal development and tuck-ins? How should we think about M&A going forward?
Jonathan C. Chadwick
On the 70% goal that I shared, again, I think about that being a 3- to 5-year guided view overall. And don't forget, it's not just about the CPU, it's also about diversification coming from End-User Computing, management and the broader suite strategy that we have. So the penetration will be up higher than 5%. We haven't modeled out in great detail the exact range and exactly when we get there, but again, the potential is definitely then when we see the momentum we've got and the penetration we're at today. It's very, very early. And again, if I wasn't convinced by the momentum, what we've been seeing already, I would be a bit more concerned about putting [indiscernible], but the diversification has actually been coming off that solid base that we've been seeing already.
Patrick P. Gelsinger
On the M&A front, we don't see that there are fundamental holes in what we need to go execute on the strategies that we've laid out. However, we are going to be very aggressive in looking for tuck-ins and different complements to what we have in the family that allow us to accelerate our execution on these various opportunities. And for instance, you mentioned virtual networking in NSX, hey, we got the #1 and #2 assets in the industry. It's not like there's a #3 that I'm desperately pursuing to add. And also, this whole area of network virtualization is so nascent that it's not like there's great assets in the start-up community to go by, right? In many cases, things like the distributed firewall that we announced today, that is the state of the art. Nothing, right, is as innovative as what we've announced today. With that said, we do expect that there are going to be assets out there that accelerate this broad vision that we've laid out. And as Jonathan talked about, this is a priority use of our cash, and we absolutely will be aggressive, looking for tuck-ins that accelerate the strategy that we laid out.
Sandra, a question over here.
Matthew Hedberg - RBC Capital Markets, LLC, Research Division
Matt Hedberg from RBC. We had a nice update on Pivotal earlier in the year and today was announced new partnership to codevelop Pivotal Cloud Foundry. I guess the first question is you reflect on that on sort of your integration over the past, call it, 6 months. I'm wondering if you can give us a little bit more detail there. And then I guess second, assuming Pivotal's successful, which, in theory, you could run on top of VMWare, OpenStack or even Amazon, how can you guys benefit from Pivotal's success as they further dig deeper into Platform as a Service and analytics?
Patrick P. Gelsinger
Maybe Carl -- and one of the things, in addition to the numerous tasks that we ask Carl to lead for us, Carl is also our board member from Pivotal. So maybe Carl, your best position to handle that.
Carl M. Eschenbach
Yes. So we're pretty excited about what's going on at Pivotal. They're actually building out a new platform. Well, we'll take all of the technology they got both from VMware and from EMC and build out this new Pivotal 1 platform that I think will radically transform the way people think about their application infrastructures and frameworks. And as they do that, obviously, we're going to work with them very closely to ensure that things like Hadoop and Hadoop clusters that run physical servers today are going to be running on top of a VMware environment. And Pat mentioned earlier, one of the things in his keynote today, he mentioned was that Cloud Foundry, a Platform as a Service through open source, the leading one, if I may say, is now capable of running on top of vSphere. So if someone wants to build a PaaS platform on top of vSphere behind the 4 walls of their data center, they can do so. And it will also run on top of vCloud Hybrid Service that Bill talked about today. So these are the type of integrations that we're doing with Pivotal in leveraging all of their assets. And we're making sure that while they can and they will run on any type of heterogeneous cloud out there, we want to be the best one that they're suited to run on.
Sandra, go ahead.
Scott Zeller - Needham & Company, LLC, Research Division
Scott Zeller from Needham. High-level question that we get is about growth of private cloud, and there are several segments you've identified that are components of private cloud build-out. And I guess if you were to tell investors what rate at which you think private cloud projects are going, because it's -- I think everyone still believes it's still early stage, early innings, would you say the growth rate is closer to the software-defined data center growth rate, around 20%? Or would you say it's closer to the compute growth rate, around 10%? Or is it somewhere in the middle? Could you just help us with that overall, I guess you call it a blended growth rate for private cloud?
Carl M. Eschenbach
Yes, I don't know if I can pinpoint the exact number for you and tell you what the software-defined data center is growing versus the compute, right? But if I just look at the most recent customer survey we just finished up, I shared with you earlier today that 20% of our customers believe they moved to a state where they're delivering IT as a Service and they're getting significantly higher ROI and TCO by doing so. You could say roughly 20% in the market is on their way to truly the software-defined data center. The one thing that we are seeing, as people want to get to the software-defined data center, is, over time, I don't think it's going to be a technology barrier. I think the bigger barrier is on the people process side, because what's happening with VMware and the things we're announcing at this conference, we're driving the convergence of technologies. And that's not all that difficult as compared and contrast to the organization silos that exist in IT today and driving those into a common operating model to service how they run and support IT in the future. So we're seeing a big demand, for example, for professional services to drive the people process side of the business as much as we are on the technology. But again, I'd throw a number out there, 20%, but it's just a slag to say where people are at in their adoption.
Ann Marie, you have one on the side.
John S. DiFucci - JP Morgan Chase & Co, Research Division
It's John DiFucci from JPMorgan. Jonathan, you sort of dismissed maybe, or maybe that's too strong a word, but dismissed the question of how much compute capacity is left to be virtualized. But you noted that there's a significant opportunity from adjacent markets. At the same time, you acknowledged that it's very rare for a vendor to have such a big hit with the successful AC [ph] 1 as you have with compute capacity to follow that up with the successful AC [ph] 2 I guess 2 quick questions. One is, how much of that 15% to 20% growth even roughly is coming from these adjacent markets versus the course it have? Is it all of it? And then you must have thought about it because you made that statement. Why is VMware positioned to be one of those very rare anomalies in the industry that actually has successful AC [ph] 2 or maybe 3?
Jonathan C. Chadwick
Well, I'll to try to step through your question there, which was a broad -- as usual, a broad question that touched on a number of different things, and I'll ask Carl and Pat to touch on the more strategic things. So we shared a statistic on a chart or 2 during the day that talked about compute virtualization being in the mid-60s percent range in terms of penetration of the market today. Honestly, I don't view those being a bad thing. Yes, it talks about -- it points to the opportunity for selling more vSphere. But frankly, the more we get that market penetrated, the better we are from an overall platform perspective from which to sell other offerings and take customers along the journey towards a software-defined data center. So when I think about the overall market opportunity ahead of us, yes, we start with a TAM exercise. In terms of looking at our overall market, we spend quite a lot of time looking at what we consider to be the definable markets and addressable markets we can go after. And also, some challenges with that because some markets, we're effectively creating. The hybrid cloud opportunity is potentially a market that we're trying to bring some differentiated offering to, that we don't think others are doing today. So in some ways, we're actually taking a step into -- in the unknown, in the sense that it's a differentiated market we believe we actually had something quite significantly different. So projecting exactly what we think we're going to do there, yes, we have to look at comps, yes, we have look at industry data. We also fill our own point of view. When I think about that virtualization penetration and I think about the opportunity for layering and what we're seeing today in terms of management layer, a management and orchestration penetration, we're seeing that already pick up. Again, we shared at the end of Q2, the management was the fastest-growing product area for us. And again, we're the #1 market share leader in cloud automation and cloud management software today. We're already seeing that traction. So we look at the overall size of the market, we look at the projections of how we see others performing and how we think others are lining up against our strategy and then we break market down based on what we see our strategy is yielding for us when we think about our shortfalls and our adds and our opportunities, when we think about where we are today in compute, what we're seeing in management and automation and how do we see the markets really play out when we think about networking and storage over multiple years. But just to be very clear, as I think about the next 1.5 years, frankly, through the end of '14, everything that we've got in the bag today is driving significant revenues coming from areas like management and End-User Computing and our compute segment. And we are bringing customers along the journey through more sophisticated packaging of solutions to help them as they step through that. It's partly through looking at the overall market, but it's also by partly looking at the momentum we're already seeing.
A question over here, Sandra.
Jonathan C. Chadwick
You won't add to...
Patrick P. Gelsinger
Maybe just to add through it, right, the compute, we clearly have momentum, and we're not done until it's 100% virtualized. And building on Heather's, right, 15% to 20% workload growth in the data center, right, as well, I mean, we are going to -- that pool continues to grow, and we're going to continue to grow the percent virtualized. As Jonathan said, right, cloud management, we're #1 and we're growing fastest in the industry, #1 growing fastest. That's powerful, right? NSX, right, our network virtualization, untapped, right? It's essentially 0, right, today, right? And unquestionably, the leading technology, right, that you heard our customers like Steve Hilton [ph] and so on up here, right, and at the conference, GE, eBay and Citibank, right, this is powerful, right? It is extraordinarily disruptive, right? And it's like talking about ESX in 2004, right? That's where we are with regard to the network virtualization. And we just described a new storage technology that is off the charts, right? It simply sets a new point in the curve around how storage efficiencies are going to be delivered. These are powerful, right, technologies. And why are we the best company to do it? Because those are unparalleled positions by anybody else in the industry.
Yes. Since we just have 5 minutes left, we're going to take...
Carl M. Eschenbach
I just want to be -- I want to answer it because I have -- I'm trying to be quiet but I can't on this one, right, because we often hear from everyone 60%, 70% penetration, whatever it is. I don't know of any other technology company that has system-level software like VMWare that's had that type of a penetration rate in a matter of a decade. To me, that is a massive platform for the next phase of growth. And what we're showing at this conference is the platform for growth in the future is the software-defined data center. And I don't think you'll find 1 of 22,000 people here that doesn't agree with that. And then you take the fact that if that is the case and everything is now being provisioned, all networking and storage services at time of virtual machine provisioning, on top of that 70% installed base we have, that is a pretty rich platform for the next 10 years of growth that we can go on. So I love being that highly penetrated. It's a great platform for growth, John.
So we have just a few minutes left. So we'll take a few more questions of 1 question, 1 part, please. Raimo will start this one.
Raimo Lenschow - Barclays Capital, Research Division
And a quick question then on that one. Just Pat, if you look at the earlier parts of the year, there have been quite a few departures at VMware, and then you saw the press around that, that kind of strategy, writing the end about [indiscernible], et cetera. We now start to see kind of the refill and then saw very good hires in the meantime. Can you talk a little bit about where you are in terms of management rebuild but also in terms of the changes that you see in the team because we have a founder -- not a founder but like in the early stage company, now we're going to a more mature stage or in the next stage, what it means in terms of putting the people to move there into perspective?
Patrick P. Gelsinger
Sure. And we only have 1 big chair left that's not filled yet in the leadership team, and that's the CTO position. Otherwise, the team, right, we have the team, and I couldn't be happier with the team. And then we're putting more of our attention, right, as Jonathan looks to his team and Carl looks to his team and Raghu looks to his team, right, as we build out that next layer of leadership to make sure we have the world-class team, right, on their organizations below them. And we have brought in a number of very strong players, and we're quite happy with that. But how much talent do you need, right, never enough in this business. And we're going to be quite maniacal in terms of building that out. And we're seeing that -- it's not just about bringing in world-class people, right, but it's also making sure it's a world-class team, right? And we really are coming together as a leadership team. I mean, these -- you really are looking at the 3 that are leading in VMware. It's not me, it's the 3 of us, right? And then you expand that to the people that you've seen, right, on stage today. These are world-class leaders in their individual domain, right? Bill Fathers, a decade in cloud. I mean, this is before cloud was even a cool word, right, I mean, to have that level of expertise, or Sanjay and the role that he is, right? Tony was a world-class CIO, well over a decade ago. I mean, these are fabulous people that we're adding to the organization, and we really are coming together, as I say, as a leadership team.
Ann Marie, anybody on the side? Rick, 1 question, 1 part, please.
Just a follow-up on John DiFucci's provocative question. History would suggest that if you have a platform in infrastructure, that it's very leverageable for an expanded stack of products, probably facilitated by ELAs that can help gather more products together. So I wonder, Pat, if you could just give us your perspective of some color of this transition that you're going through from a period where perhaps there was concern over more competition at the hypervisor level to now having a broader stack. And even though they're not revenue-generating products yet, are you starting to see more traction in ELAs, more interest with customers? Is the sales force and the partner channel up for this or they've proven that they are able to sell the broader solution as you kind of go through this transition period?
Patrick P. Gelsinger
Yes, let's say, unquestionably, we are starting to see that momentum. The vCloud Suite uptake, I think, is the best indicator thereof, with management being the strongest element, right? And if we think about the management success case, I mean, we're #1 in cloud management and the fastest-growing. And we didn't do that with any real specialization of our management sales capacity, right? It really was based on the strength of the platform where we did the right product, it integrated well, it gave a great value proposition, it was a natural adjacency and we're able to be #1. Now we're putting, right, more maniac focus, right, the build-out that Carl is doing for the cloud management and the network, right, capabilities and storage, right, and vCloud Hybrid Service and End-User Computing. We really do see that these things, right, allow us to accelerate our growth as we put more of that adjacent focus with specialty sales, complementing it and, right, as I described in my opening presentation, also building more ties between the elements in the family, Desktop as a Service, vSAN, DR as a Service. And these things allow us to have richer value propositions as we go into customers and be able to sell burgers and fries, be able to sell more of the adjacent value.
Jonathan C. Chadwick
That's not a new revenue stream, just to be clear.
Patrick P. Gelsinger
Yes. But think about DR as a Service, SRM, right, our most successful, right, adjacency, right, how much penetration do can we see, Carl, right?
Carl M. Eschenbach
Patrick P. Gelsinger
Still low, right? And now, all of a sudden, we get to start selling a service opportunity to go with it, right? We really see that this opportunity allows us to be much more strategic, much -- sitting higher at the CIO's strategic partner list. And we really believe we're just getting started with those opportunities.
All right, I think we'll wrap it up then. Thank you, Pat. Thank you, Carl. Thank you, Jonathan. And thank you, all, for showing up in force for our 2013 Financial Analyst Day.
Patrick P. Gelsinger
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