The Meaning Of VMWorld 2011

| About: VMware, Inc. (VMW)
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Every summer sees a series of user or developer conferences in the computing space aimed at giving the rah-rah to a company's ecosystem.

The early summer sees the heavy-hitters like Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) show their stuff, while July and August feature smaller companies.

You can get a good clue as to the direction technology is taking by how many big-time industry analysts go to the meetings and, in past years, events geared to open source were the top tickets.

But this year's LinuxWorld in Vancouver was more a celebration and a valedictory. A nice party, but with the air of something past. The big action is at VMWorld.

VMWorld is, of course, sponsored by VMWare (VMW), mostly owned by EMC Corp. (EMC), and it's devoted to cloud computing. Note that it seemed to have a bit more buzz than Red Hat's (RHT) own conference, so much so that Red Hat trumpeted its Aeolus Project, an open source suite for deploying cloud applications, during the VMWorld event.

Aeolus is aimed at Rackspace's (RAX) OpenStack, and the nominal reason it was announced during VMWorld is that it will work with VMWare's vSphere hypervisor, as well as KVM, a hypervisor RedHat sponsors as part of the Open Virtualization Alliance.

The key to VMWare's own strategy are its alliances with other big vendors, especially Dell (DELL), which is building a global network of private clouds using VMWare software, and NetApp (NTAP), whose management software is now designed to help enterprises evolve secure cloud strategies under VMWare at their own pace.

The other take-away is the idea of a private cloud. A year ago Amazon (AMZN) and (CRM) seemed bound to take the whole market with their public, scalable cloud systems, but big companies aren't willing to put their eggs in that basket. Private clouds are how enterprise computing vendors hope to stay relevant.

VMWare hopes to surround this new market with tools before anyone else can get a community-based alternative running.

There are a lot of moving parts here, but the broad conclusions for investors are as follows:

  • Cloud is hot, and enterprise systems are in the replacement crosshairs. This is a big problem for Oracle (ORCL).

  • Enterprises want their own private clouds, not public clouds. This is a challenge to

  • VMWare is the center of cloud activity, although not yet the Apple of the cloud. Apple is not yet a cloud company, hosting only proprietary files and applications.

  • Open Source is a go-to feature of cloud announcements, everyone claiming to be more open than thou. This is a big problem for Microsoft.

Now, notice some of the names that are not at the center of these announcements. IBM. Microsoft. Oracle. Hewlett-Packard. Even, to some extent, Apple. They remain important vendors, but they are not at the cutting edge of the trend, and chances are they won't be unless they make an expensive acquisition.

All these companies believe there is plenty of time to bring their own customers in line with cloud solutions that they control. In time the big vendors do absorb the new trends, but only after all the easy money has been made.

Disclosure: I am long IBM.