Q&A: VMware Channel Chief Sees Big Windows 7 Virtualization Services Opportunity

Doug Smith, Global channel chief for VMware, recently spoke with CRN Editor News Steven Burke and Senior Editor Kevin McLaughlin about a wide range of topics including the Windows 7 virtualization services opportunity, cloud computing, and the payback that the vendor's top solution providers are seeing from their all-encompassing virtualization/cloud computing services V-Practices. Here is an excerpt from that question and answer session.

What is the next wave of solution enablement toolkits?

We have six that we announced at VMworld. We are going to deliver them at Partner Exchange (February 8-11 in Orlando). The real cool one in round two is Windows 7 migration for the desktops. We think that is going to help our partners tremendously. Our partners are also Microsoft Partners. So we think there is a win-win there for everybody. Virtualize the desktop and let's move to Windows 7.

Talk about the opportunity to move customers to Windows 7?

We know a lot of customers skipped Vista. They are stuck on XP. And so there is a big opportunity for all of us. The other thing is look at all the new (handheld and tablet) devices coming out.

Microsoft and VMware have very different ideas. Microsoft sees virtualization as part of the operating system whereas VMware has made statements to the effect of possibly using virtualization to diminish the importance of Windows. Is there a difficult give and take there?

Obviously there are areas on the technology front where vendors collide a little. But at the end of the day, if I am a solution provider, it all comes down to customer choice. Customers are going to make a lot of these decisions. And we think the power of a solution provider is offering up multivendor, heterogenous solutions and helping customers solve problems.

And we think that VMware and a Microsoft partner together can help virtualize Microsoft applications faster, move customers to Windows 7 faster, move to the latest Exchange platform faster. We think that happens faster and the customer benefits across the board. To me that is the real value of being a partner, this idea of multivendor, heterogenous solutions. Vendors can't do it all by themselves. This is really in the partners' swing zone.

How many Microsoft partners are you working with in this regard?

By and large, if you are selling Cisco, HP, IBM, Dell and VMware you are selling Microsoft. The overlap is pretty much across the board.

Microsoft might not be so magnanimous with regard to working with VMware.

Considering they have 640,000 partners worldwide, we don't have a complete overlap with them because we don't have 640,000 partners.

How many partners do you have?

We have 25,000. That includes a lot of partners that are registered. We have 4,800 partners with competencies. That is the bulk of it.

How many in the U.S.? A couple of thousand?

Yes.

Are you looking for new partners?

We are always looking for partners that are willing to invest with us and we are willing to invest with them. We are not on a massive recruiting binge. If anything we are starting to look for partners in certain verticals or certain horizontals. It doesn't help us if everybody is crowding the ball. We are looking for some places where partners can do some distinctive value add in the marketplace.

Next: The Biggest Channel Shift In 2011

Talk about the biggest channel shift that your partners have to make in 2011?

This whole shift to the cloud is really big. We definitely see the private cloud first and foremost: how to get private clouds up (for businesses). There is some retooling that a lot of partners need to do on that. We kind of see that there are silos within the partner organizations.

If you were a big solution provider you had a networking practice, a server practice, a storage practice. You might have had a Microsoft or a business application practice. Virtualization cuts across all of these. So if you are going to be in front of a customer you have got to be able to talk about all of those. So virtualization kind of knocks down those silos. That is a different mindset.

We have worked on that with partners: how does virtualization functionally break down the barriers (in a solution provider organization)? We don't brand it, but we are calling it a V-Practice. How do you build a V-Practice? Who is your V-Practice Manager?

If you are doing virtualization, which is the first step that takes you out the door to the cloud, it is going to break down the barriers between servers, storage, business apps, networking. You have got to have something that sits above the fray and looks across how you are going to drive across (the entire solution provider organization).

We see that partners often are not asking for the entire sale. We do a partner survey once a year. The measure we used to see was an 11 times drag (of IT spending) - $1 of VMware (licensing) dragging $11 (in total IT spending). We just redid the survey and it is now 15 X (drag). This is not us making up the data. We go to the partners and ask how many dollars of storage, servers, networking, etc. That is across the board (for partners).

In this industry we all talk about product and services drag. Everyone talks about 1X drag, 2X drag, 3X drag. Nobody talks 15 X drag. When we first heard it we questioned it. But when we talked to the partners they said - 'No. It is 15X drag!"

VMware is what I call the Flash Point. We are the Flash Point of the change in the data center. The Flash Point happens and Boom! You are re-architecting the entire data center getting it ready for the cloud.We are in a very fortunate position. We are the Flash Point where that whole change happens. That change is 15 X. By the way we always forget to add our own backend which means there is $16 for every (single $1) VMware (software license) sale.

I think that is a challenge for the partners: how do I get as much of that 15 X as I can? Once the customer has made that decision to virtualize they are going to start changing out their server and storage. That is why this V Practice idea (is so important) sitting across the entire business with your customer and asking how do I maximize that entire opportunity?

Next: The Biggest Mistake Partners Are Making

What is the biggest mistake partners are making: is it not having someone that addresses the sale across the full spectrum of a customer's IT organization?

Let me answer it a different way.The guys that are really doing it right are building out their own services offerings. If you are treating this just as another product sale you are losing out on the bigger opportunity. It is just not dropping gear off and moving on. This is definitely a services sell. And the services opportunity here is huge!

You might have heard us talk about solution enablement toolkits. We have had 20,000 of these downloaded since we introduced them in September. There are about 20 different modules in this solution enablement toolkits (an assessment tool, a statement of work tool, some marketing collateral, a Grid that allows you to do some targeted end-user marketing). We have prepackaged all of that stuff. The way we describe it is we have done 80-90 percent of the work packaging up our IP (intellectual property) into a format that now the partner can go in and do that last 10-20 percent.

We believe and we have heard our partners loud and clear on this: they want to have their own services offerings that are differentiated. So I can amplify my own services offering taking that VMware solution enabler toolkit and build upon it. I can tell you I have been doing this for 20 years and have (never seen anything like this).

What is the key to the success of the solution enablement kits?

All these partners want to differentiate their business and stand out in the marketplace. It is a crowded market and they want to stand out and be able to develop a services offering that is differentiated, but they didn't necessarily want to do the 80 percent of the work that we the vendor can do more effectively. I think we nailed it spot-on. I am really excited about it!

What I am going to be excited about is seeing the services that our partners are really going to be offering around this. Delivering them this toolkit was fun. Seeing them deliver services on the backend is really going to be exciting. We have really helped build and enable the partner community.

What kind of payback are partners seeing from the solution enablement toolkits?

Partners that have used the solution enablement toolkits are telling us 6X to 16X increase in annual revenue around VMware. That is pretty cool.

Partners that have earned their solution competency are generating 2 X to 4 X the annual sales of those products.

So there is a direct correlation earning your competency to your VMware performance. And we know there is a direct correlation to the product drag of other vendor: servers, storage, networking, services.

More and more partners are doing their own software development effectively becoming ISVs (Independent Software Vendors). Do you see a lot of your partners writing apps on top of VMware?

We are hearing a little of that today. But if you look at our SpringSource acquisition that almost anticipates it. VMware now has the cloud application development platform that partners are going to use.

You are going to see some partners that want to go develop Apps. And I think you are going to see some other partners who are going to manage and own infrastructure but are not going to do apps. But we definitely see some App-only guys.

Next: The iPad Opportunity

How much development opportunity are you seeing with smartphones and iPads?

I have Wyse PocketCloud. This is kind of cool. This is VMware View. So I can do a virtualized desktop right from my iPad. This will pull up a desktop from VMware's data center. Desktop virtualization and the change in end user computing is once again another area we see as a big opportunity for partners. This new wave of devices opens up access from any device, anywhere, anytime.

Talk about the work VMware is doing around iPad?

(VMware) View works with iPad. We do have a product called Fusion that allows you to virtualize a Mac. And you can run Windows on a Mac. You hear people talk about it. And I am actually evidence of it. We are starting to hear about companies that are starting to say, 'We don't buy desktops anymore.' What we do is go to the employee here is $1,000, $2,000, here is your allowance you go buy what you want to buy. We are going to provide you with a desktop via (VMware) VDI (Virtual Desktop Management).But if you want to go buy a Mac go buy it. You want to go buy a Dell go buy it. It is your choice.

We see an increasing number of end users that say to their employees: you go determine what device you want. We'll manage the user and the data not the device anymore. So IT departments are no longer managing break/fix (of laptops or handheld devices).

What do you see as the biggest challenge from a business model perspective for the channel?

I think cutting across silos is huge. Over-focusing on product sales and not focusing enough on services. The other thing we see is partner to partner networking is going to become big for us. At a 15 X drag that is going to be important. Some partners can grab 15 X, but not everybody has a security practice. Not everybody has a networking practice. We think partner to partner networking is going to become really key for us. Hooking up our top OEMs, our top hosting providers, our top solution providers and having them work collaboratively to solve customers' problems together is going to become key for us.

Who is doing the best job on the vendor side making sure they are developing that next generation of cloud based solutions?

If I look across that entire ecosystem of partners, we try to take a very neutral stance on it. I see some good stuff in each one of them. That is a healthy community with a lot of great ideas coming out of them.

What is going to be critical in driving the next wave of growth with cloud solutions getting customers to buy services?

The first step to cloud computing is virtualization. You can't get to cloud computing without virtualization. Just that baseline virtualization we have all been doing over the last three or four years: virtualizing my tier two servers, my file and print, tier two apps. That is kind of the first stage that we see going in for end users. That is the first stage to becoming cloud ready. To become really cloud ready it is now virtualizing tier one apps.

Tier one apps is the next critical phase. Exchange, SAP. That is why you have seen with the solution enablement toolkits we did those toolkits around tier-one apps. Especially moving to the private cloud. The private cloud is where we hear about more activity from our partners right now. There is a lot more interest, by the way, in the public cloud once you get into more of a pure SMB play. The SMB might say: 'Why do I even go to the private cloud?

I am just going to fast forward to the public cloud. Why do I want to virtualize 10 servers? Why don't I just move off premise completely right now? That's what we see more around SMB.

In the midmarket, it is more how do I do a private cloud. That first stage of virtualization tends to be a little easier. It is that next stage where we are virtualizing tier-one Apps where we are all collectively going to have to do a little work together.

Next: IT Capital Expenditure Vs. Operating Expenditure

Do you have any insight into how much of the IT budgets you are seeing are going operating expense in 2011 versus project based capital expenditure?

I think it is going to be a gradual shift. It is a gradual shift. That shift is occurring. It absolutely is occurring. We have our own program called the VSPP (VMware Service Provider Program) program. It is our hosting model.

It is the rental model versus the buy model. We actually now have 1,400 partners in VSPP. A lot of them are our top VARs. However, 2011 will still be a big year of internal cloud perpetual licensing, buying my own hardware, buying my own Cisco gear. That will continue to exist in 2011. We definetely see a shift from cap-ex to op-ex. But you are not going to see it tip overnight.

Do you think there has been too much hype around that?

I think it is real. But it is like we are living in 1995 and people are talking about the internet is going to be big and we are still trying to figure out what TCP/IP is. And all of a sudden you wake up three years later and go 'Wow everything is on the internet!' It is definitely there, but it is early on.

What are the critical differentiators of the best of the best VMware partners?

It is the willingness to give back to the vendor some of their time and input so we build a better ecosystem together. As a vendor, you can't do it in isolation. These partners taking time out of their very, very busy schedules. Those partners are willing to take time to show us, help us improve our channel investments, our investments in people,time and money and help us do some course correction and get better. That is huge to us as a vendor! One thing we love about these guys is their openness and candor. That openness and candor is tremendously valuable to us.

As an industry we're heading into a little bit of a turn, these guys are good at skating where the puck is going. That is the difference! The market is going here. The puck is going here. Doing business the way I was doing business five years ago ain't going to cut it. I need to change my model. That is what you are seeing from some of these guys.

What should partners look for at Partner Exchange?

The VMware partner network is 18 months old. So I think you'll see us announce some things around the VMware partner network: new investments, new programs where partners can make money. Some additional competencies and some specializations. Competencies are around products. Specializations for us are verticals or horizontals for the end user customer base. I think you'll see us come out with a few more competencies, a few more specializations. I think you'll see us with some new investment opportunities for partners.

Next: Driving The Next Wave Of Sales Growth

You are 18 months into the partner program. What is key to driving the next level of growth and profitability?

One of the things we look at it is not just how many partners we have because that is an important metric, but I think we tend to all steer on that too much. We are actually looking inside of our partners to see who is selling. You have a VAR with 18 sales guys and only two are selling our product we don't have full capacity there. I look at this as definitely going narrower and deeper within that partner base.

If we have a VAR with 18 guys on board and two have their (VMware) accreditations or certifications. We want to take that up to 18. We want all 18 of those guys in that partner selling. I think the principal of that partner wants all 18 of those guys selling.

That is what the V Practice is all about. You have seen it too. There are people that gravitate to one thing or another and sell it. So those two guys sell it and 16 guys not selling it. We want all 18 guys fully engaged, plugged in, driving it. We are going to make some investments there. We think that is where we help the partner principal.

Doesn't that get down to breaking down the silos in a partner organization?

We think that helps break that down. We do have this thing called solution rewards which is a back end rebate. Once you have earned your competency there are certain products that automatically earn extra backend dollars once they are tied to that competency. Desktop is a great example. There are three competencies today (desktop, business continuity, and infrastructure virtualization).

And you are going to add more?

Yes. What we do initially is we offer them as what we call a Lighthouse. A Lighthouse is kind of getting out early-on, kind of a beta version of a competency working it through with a smaller group of partners so we know what these things need to be successful.

What are the Lighthouses right now?

We are doing a Lighthouse on Zimbra. We are doing some Lighthouse stuff around SpringSource and also around our (infrastructure virtualization) management tools.

Talk about the virtualization penetration rate and how much opportunity is still out there?

This is the first year where there is more virtual servers deployed than physical servers. How is that for a tipping point? There is no coming back from that. That tells you: there are a lot of physical servers that still need to be virtualized. A lot of those are tier-one Apps which are a little stickier. The business runs on the tier one Apps. We have still got a lot of physical servers that need to be virtualized.

What you find a lot of times is the lease is coming up and the server is being refreshed: Boom! That is when the server is going to be virtualized. That is why the partners have got to stay in the account. There are servers coming off of lease every quarter or every year. When that server comes off of lease -Boom! That is when it is going to be virtualized. There is opportunity everywhere you look.

Next: Tackling Virtualization Stall

Have you heard about virtualization stall where organizations are holding back on virtualization?

If we ware going to see a slowness around virtualization it tends to be moving to tier-one apps. That might be what you are hearing or seeing out there. It tends to be more around moving to those tier one apps. That's just because it might be a different set of economic buyers.

You are now talking to the business units. The low hanging fruit was virtualizing tier two apps, virtualizing file and print. Once you hit tier one Apps that is kind of that next wave. What we are doing on that is we do something called Solution Tracks for that. That is where we bring our partners in and do white-boarding sessions and training.

So we are doing a solution track right now around what we call the customer journey. The customers starts over here virtualizing file and print, tier two apps, then into tier one and eventually moves to the cloud. IT as a service is ultimately where that journey goes. We are actually doing this customer journey training in our solution tracks with our partners.

Our partners are key in virtualizing tier one Apps. That is usually where we see the pause. We see a customer all of a sudden hit the pause button for six months or a year.

Talk about your channel sales model.

We are a very very partner centric company. At VMworld what our CFO lets us talk about is 85 percent of our business goes through the channel. So we are overwhelmingly a channel company. When you throw that number out we have some small Web sales, a couple of renewals we do. Our go to market model is we are a channel company.

What is the difference between the U.S. push and the global channel push?

We look at it more as emerging markets versus developed markets. We look at Western Europe, North America and ANZ (Australia, New Zealand) as our developed markets. Those markets all have very similar buying patterns and are at similar stages in terms of levels of virtualization.

VMware brought in a new senior vice president General Manager Americas (Jeff Casale) last July. What changed as a result of that?

I have known Jeff for a long time. I am a big fan. I have known Jeff for a good 12 years or so. He was global channel chief at EMC in his prior role. He has got channel DNA and he is definetely a channel guy. But a fresh set of eyes and ears, questions that we might have asked two or three years ago and then you kind of move on. It is great to have somebody fresh come in and ask those questions again.

What kind of stuff?

Why are we doing that? Legacy programs. A quick one I am working on and Jeff is a big proponent of it: we are starting to build out better partner support around the web and call center to be more responsive. He has been very much an advocate of partner support and SAT (satisfaction) are very important to us. It was something in the fore front of our mind. But he has brought some new energy around it that has been helpful.

Talk about the Partner SAT data comparing 2010 versus 2009.

We do a partner satisfaction survey every year and we do a quarterly pulse. VMware President Customer Operations Carl (Eschenbach) has a great way of describing this. Carl says: 'We are pleased with our results but we are not content.' We are very pleased with the results we get back and what our partners saying about us, our business model and our commitment to them. Are we content? Absolutely not. Mr. Eschenbach is pushing really hard to say, you've got an A. You've got to do the Fosbury Flop now. You have got to change your game and jump higher.

Are you saying anything about partner profitability in 2010 versus 2009?

We have a registration program called Advantage Plus. So lots of our deals are registered. Advantage Plus an enterprise partner can earn 10 points additional margin. And a Premier Partner can earn 12 points additional margin. We think that is a huge investment there. And then the solution rewards piece: you can earn up to 10 points additional. If I am a premier desktop partner I can make 12 points on the registration on a desktop deal and 10 points additional from the solution rewards.