Virtualization and cloud computing giant VMware (NYSE:VMW) articulated the idea of software-defined data centers (SDDC) last year, aiming to revolutionize the way data centers are built and operated. VMware’s SDDC vision involves virtualization of storage and the network in addition to server virtualization to have a complete software-defined setup. This architecture is gradually gaining popularity among enterprises and data centers, as it makes more sense than a hardware-centric approach. When the idea of SDDC was bought forward, analysts expected that the private infrastructure-as-a-service (IaaS) offered by VMware could cannibalize the markets of public cloud providers such as Amazon (NASDAQ:AMZN) and Rackspace. Amazon’s Web Services (AWS) is one of the largest providers of public cloud services in the world. 
Amazon launched a management portal which can be used to handle virtualized data centers at the end of May.  Amazon intended to make the workflow within vCenter easier and more convenient for IT managers. VMware’s management refuted Amazon’s claims, saying that the management console will actually complicate rather than simplify the management of virtualized data centers. 
We have a $100 price estimate for VMware’s stock, which is slightly higher than the current market price.
AWS’ Attack On VMware
Amazon launched the Amazon Web Services Management Portal for vCenter which can be downloaded and installed with VMware’s flagship vSphere hypervisor. Clients using vCenter can migrate to the AWS environment without having to train the IT department on the new tools. By using the AWS management tool, users can migrate their existing virtual machines (VMs) to AWS cloud resources, which can then be hosted on Amazon’s public cloud. By hosting VMs on Amazon’s public cloud, the application could potentially make VMware’s private cloud model redundant. Additionally, VMware’s recently launched vCloud hybrid service could be under threat as it basically offers the same functionality, with the primary difference being that VMware hosts VMs in-house on a private cloud.
VMware could pay the price of using an open source platform if other players also look to develop similar tools or portals to circumvent VMware’s offerings. On the other hand, VMware management believes that add-ons such as the AWS portal tend to drive up the overall cost of ownership and make the user dependent on multiple products rather than one. 
Going forward, we expect VMware’s licensing revenues to grow on the back of a healthy demand and a solid customer base. It will be interesting to see how VMware responds to the add-on tools and other new applications that might crop up.
- Gartner: Amazon Still Public Cloud Leader By A Long Shot, Network World, August 2013
- New AWS Management Portal for vCenter, Amazon Web Services Blog, May 2014
- Don’t Be Fooled By Import Tools Disguised as Hybrid Cloud Management, VMware Office of CTO, June 2014
- VMware Hits Back At Amazon Cloud Trojan Horse With… A Blog Post, The Register, June 2014
Disclosure: No positions