VMware: Some Strategic Moves Can Deliver Great Opportunities

| About: VMware, Inc. (VMW)


Most organizations are recognizing the advantages of cloud computing.

Aggressive virtual competition is eating away at the business of many companies.

By strategically extending the capabilities of VMware to other markets, the company is creating immediate advantages for itself that also benefit the company in the long run.

VMware Inc. (NYSE: VMW) provides virtual infrastructure solutions for organizations. While the demand for cloud computing is growing, the competition is also intensifying much faster. The cloud is the main talking point in the IT industry and is making a lot of noise. More organizations are recognizing the advantages of a cloud infrastructure and are moving their data to various clouds. In the same way, the number of companies that provide cloud infrastructure products and services are growing rapidly, which is leading to lower pricing and aggressive competition. How a company differentiates itself from its competitors through its strategies is crucial to gain a larger share of the potential future opportunities.

Huawei is a new big player entering this market, expecting to cover a vast majority of the emerging nations' virtualization needs with its FusionCloud suite. In addition, the company has a strong presence in China that will lead to greater advantages for the company over competitors in this industry. On the other hand, Google (NASDAQ:GOOG) (NASDAQ:GOOGL) provides cloud services as a universal commodity and has slashed its prices significantly. This forced Amazon (NASDAQ:AMZN) to cut its prices again after price cuts last year and it posted losses in the second quarter this year. WSJ reported part of the reason for those losses was Amazon Web Services. These different actions and their results reflect how the aggressive competition is eating away the business of companies in this virtual infrastructure industry. Microsoft (NASDAQ:MSFT), IBM (NYSE:IBM), Verizon (NYSE:VZ), Cisco (NASDAQ:CSCO) and others are also active and optimistic in terms of the growing cloud computing business.

In this kind of aggressively competitive environment, it is difficult for any company to grow faster in terms of revenues and profits without significant differentiation from its competitors. VMware is the cloud and virtualization software and services leader in the industry and is extending its vCloud Hybrid cloud infrastructure (IaaS) service to Japan in a joint venture arrangement with SoftBank. In addition, VMware is also trying to extend its hybrid cloud service to China through a partnership with China Telecom (NYSE:CHA) that will allow the company to overcome the privacy concerns that the existing U.S. cloud equipment and software providers face.

It is a good strategy to go with partnerships to sell equipment and software in other markets, as existing local companies understand their markets better than a foreign company can, but success also depends on the partner that is selected. By utilizing the brand names of its collaborating companies that have more awareness and a better reputation in their respective nations than VMware, this will help it to enter those markets straight away without the need to start business from scratch. At the same time, entering the Chinese market that is home to the world's largest internet population is a crucial strategic move that will gain substantial market share while its competitors from the U.S. still face privacy concerns in China.

By not using VMware's own brand name, the company is not losing and will greatly gain in this situation. On the other side, its U.S. counterparts using their own brand names are losing customers in the current situation.

U.S. technology companies may lose as much as $35 billion in the next three years from foreign customers choosing not to buy their products over concern they cooperate with spy programs, according to an earlier study by the Washington-based Information Technology and Innovation Foundation.

(Source: Business Week)

When one isolates the privacy concerns and looks at the growth potential of the cloud computing market in China, things have just started there and there is a long way to go. Enterprise use of cloud computing and big data are still lagging in China, with the cloud adoption rate by enterprises in China at 21% compared to 55%-63% in the U.S. That means future growth opportunities are excellent for VMware in that market.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.