On this episode of the Six Five Webcast Infrastructure Matters, hosts Camberley Bates and Keith Townsend discuss how earnings can significantly influence infrastructure decisions and the latest changes to VMware’s licensing.
Their discussion covers:
- The impact of corporate earnings on infrastructure strategy and investment
- Detailed analysis of VMware’s new licensing model and what it means for customers
- The broader implications of licensing changes on the cloud and data center industry
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Disclaimer: The Six Five Webcast Infrastructure Matters is for information and entertainment purposes only. Over the course of this webcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors, and we ask that you do not treat us as such.
Transcript:
Camberley Bates: Well, good morning folks. It is Infrastructure Matters number 61. And I am here with my co-host, Keith Townsend. I think we’re both getting into the winter season. You’ve got a little bit of a great sweater going on there and it’s getting chilly out there.
Keith Townsend: It is. I’m calling in, I think we still say that, calling in from Chicago. So yeah, it’s that time of year. We’re recording this the day after Halloween. Halloween was a little bit warm, but we’re getting a proper November 1st.
Camberley Bates: Yeah. And we got snow finally this week.
Keith Townsend: Finally.
Camberley Bates: Covered, finally. So we’ll keep giving the snow report so the people can figure out when they want to come out to Colorado and invade our mountains again.
Keith Townsend: Little known fact, the Townsend family spent Christmas in Colorado last year, and it was about as magical as you could ever imagine. I recommend.
Camberley Bates: Yeah, it is worth it. I’ve done many, many a weekends up there. It’s fabulous. So what we have on tap today is we are going to be talking earnings and impact on earnings. So this week there’s a whole bunch of them pulling out, some of them that I haven’t even had a chance to really get into and take a look at. And then some VMware licensing. Are we tired of talking about this yet? No, I guess not.
Keith Townsend: No. No.
Camberley Bates: Just like we’re not tired of talking about AI or cybersecurity, right? So there we go. So we’ll kick it off here. Maybe, Keith, if you want to start out with maybe talking about the VMware licensing stuff, what’s going on there, what’s happening there?
Keith Townsend: Why are we talking about this again is a good question. We had a pre-briefing on the announcements for VMware Explore EU next week of this recording. And VMware snuck in a really interesting announcement that hit on Halloween, which was that they’re returning the SKU, like Hock Tan has been merciless when it comes to reducing the SKUs. They’re bringing back Enterprise Plus licensing. So before this decision, your only two real options for VMware vSphere on premises was VMware Foundations, VVF, which is basically just the hypervisor and vCenter. And then you needed to jump up to VCF, the full cloud solution to get VMware licensing. One was $50 a core, the other one is a $750 a core. There was no in-between Enterprise Plus, which I think a lot of customers will really be rejoiced to hear is returning, which is about $350 a core. So a good in-between offering.
Camberley Bates: Well, what does Enterprise Plus include?
Keith Townsend: Enterprise Plus includes VMware vSphere, the hypervisor, vCenter, and some advanced functionality. So I think the important thing to understand, what does VMware Foundations not include? VMware Foundations includes vMotion because you need vMotion, but DRS is not there. So DRS, dynamic resource scheduling I think is the acronym, the ability, basically if you have a large number of clusters or large number of virtual machines, this auto balancing of the VMs, the maximums are higher when it comes to the sizes of VMs. It is just the, I think it’s today the floor or where you want to get in when it comes to technical capability around vSphere. And then it’s also the only one of the originally, and I didn’t get to ask this question, but if you wanted to add HCI to your platform, you couldn’t do that with VMware Foundation because it didn’t have all the features you needed for HCI. So just much more feature rich product. What most enterprises actually use is in Enterprise Plus. It used to be the king of the SKU.
Camberley Bates: Okay. So that makes life a whole lot more palatable for the enterprises, so this entire migration thing might just blow up and go away?
Keith Townsend: I think people are still pretty mad, but from a practical sense, yes. I mean, I was doing some back of the napkin math for basic cluster, something that we would have in our lab. If we had to pay for VMware licensing, we would probably have to pay somewhere around $21,000 or $24,000 a year for VCF. This is just a three pod cluster with eight cores per cluster. That number basically gets cut in half for VMware Enterprise Plus, which is the functionality we need. We don’t need realize for to monitor performance, all of the things that come, the vCloud director, etc, all of these cloud enabled features. And I think that mimics the enterprise. Most enterprises, especially in the midsize company size, the not top 2000 customers, they just basically need basic virtualization and some of these advanced features. So I think this will stop the bleeding for a lot of VMware customers looking to exit VMware.
Camberley Bates: Okay, so what you’re saying is… Now I need to go. I couldn’t be on that, I had to be on another call, but that could have some significant impact on a couple of other companies.
Keith Townsend: Yeah.
Camberley Bates: So if you look at the Nutanix situation, their target is that mid-enterprise. It’s not always the mid-enterprise. I mean, they have very large companies as well that use their system, but they’re going after them. Now, that doesn’t mean to say the people that aren’t already saying, “Hey, I have an option here to move to a AHV, which is their virtualization. I won’t consider it now.” Because it’s relatively good and solid piece. It’s less of a solid, it’s more better than the Red Hat option, let’s put it that way.
Keith Townsend: It is absolutely a more enterprise family than some of the other open source based solutions. And I think price wise it gets to be a bit more competitive now, right? Because now I don’t have to refresh my entire hardware stack. I know Nutanix had the relationship with Dell and PowerStore and separated the compute from the storage a bit, but if you still want an AHV, you still needed to buy net new hardware. And this I think changes the math for a lot of, not just customers but competitors, people who are looking at OpenStack to replace VMware vSphere, which is more of a competitive VCF than it is to Enterprise Plus. I’m surprised the mainstream tech media has not picked up on this, because this is a big deal.
Camberley Bates: Well, it’s a huge deal. I mean, when I also think about clients that are using, being from the storage side, of course I have to bring it up, but if you’re using network attached storage to support this, now I have a real option to do it. I mean, I don’t have to go to vSphere-
Keith Townsend: Exactly.
Camberley Bates: Which is what they were forcing you to do. Well, weren’t forcing you to do, but you were forcing you to buy it, but you weren’t using it. So it’s kind of like, oh, I don’t know about that. I don’t know about that.
Keith Townsend: Yeah, they were very much encouraging to use it. And then another, which you will actually love, I didn’t put this in the show notes. They’ve increased the base, not price, but increased the base capacity of vSAN by 2.5 X for the same licensing point. So instead of one terabyte, you get 2.5 terabytes of HCI storage.
Camberley Bates: Wow. Well, I kind of expected this to happen in some way. I mean, it was one of those things, it’s kind of like the Overland window thing. When you go to negotiations, you’re going to throw the window way back up and the wife brings it partially the way or the other way around. I’m the one that throws the window up and he brings the window down.
Keith Townsend: That sounds pretty accurate.
Camberley Bates: So somewhere along the lines, you find out where those pressure points are, which is what he’s done. And what I was looking at is saying somewhere in December he was going to start saying, “Okay, now I got an idea about what the impact of this is. What do I need to do?” Which is a super smart move in terms of a negotiation position, in terms of re-looking at the market and resetting the market. So kudos to Hock Tan and the team for doing what they’re doing. And there we go.
Keith Townsend: One last gem from the whole VMware thing. I talked to one of the 2000 strategic customers, and he told me that they ended up in a really good place with their Dell VxRail and VMware licensing. He’s satisfied. So I think Broadcom has become more reasonable than what they initially put out.
Camberley Bates: Yeah. Well, okay, cool. So we’ve got a couple, as I said, there’s a whole lot of earnings coming out, and I always go through the transcripts and that kind of stuff and take a look and see what kind of gems we can pull out of it other than just the big earning numbers, and trying to look at that more from a CIO’s perspective, not as an investor perspective, but how are people doing, what’s the success? Where is the trending going, and what are people doing in that? So I’m going to take the first one, and then we’ll take the Google and Microsoft and a couple of others here. But first one that, and I spent some time with it, is Commvault. That’s a data protection company close to a billion dollars in terms of what they’re in the market. They were always a sleeper back when I was in the poor stuff of it. And they’re no longer a sleeper. Oh my gosh. I mean, I’m looking at these numbers and I was like, how do you pull this out? I mean, I’m looking at numbers. They’re saying year-over-year, 16% revenue up, 37% subscription revenue. Free cash flow, 34% up.
Normally I’m not citing these things. I mean, I’m looking at these numbers of what they have done, and it’s like my problem with the numbers is what are you going to do next quarter? It’s going to be really, really dramatic in terms of can you keep this up, keep this up to where it is going? So very, very substantial. I mean, when you look at what’s going on with here, Keith, one of the things that is really cool is looking at the, well, it’s looking at how the AI is driving some of this, which it is driving some of that discussion of it. But really the big piece of it, of course, is the cybersecurity. But those two are now linked together. Where those linkages come together is that as I roll out my AI, there is exposure. There’s exposure for people worming their way into your inference engine and altering it. There is exposure in terms of some maybe internal person going in there and saying, “I’m leaving the company. I don’t like this company, and I’m going to put code in there that causes faulty outcomes or sleeper code that’s in there.”
So all of this kind of stuff, you start looking at the cybersecurity issues that we have and data protection, which has never been part of HPC market. We’ve never used it for that. Now it becomes core to what’s going on in the AI, and we’re going to start to see these companies like the Commvault coming and bringing out some of the things that will really, really address this market as it evolves. So it takes a bigger stage, and we figured it would take a good year for this kind of stuff to come out to actually be of importance because everybody’s focusing on the first thing, which is going out and training. And they still are, but they’re also concerned about how everything is going to end up panning out in the long run in terms of when they roll these applications out the door. So that’s kind of my thoughts about that. I’m not sure.
The other piece to the big thing is the hybrid multi-cloud stuff. So you’re seeing, and we’re going to see some more rollout, especially as we get to the nighttime when we’re talking with Microsoft and re:Invent coming up. We’re going to see a series of announcements coming out on this side of the house, but looking at really how do I tie these two environments together and keep the cost down, because it does get pretty pricey up there. If you don’t watch it, you get surprise bills. So that’s kind of where that one came out. Any thoughts, feedback, whatever?
Keith Townsend: Yeah. Commvault has been a really interesting play over the past few years. They’ve made that big purchase of the hyper converter solution a couple of years ago or a few years ago now. It has been a steady product. They came out with Metallic, which is their hybrid cloud data protection solution. And data protection in general has become, I want to say in vogue. A lot of these companies have rebranded themselves as security plays. They’re not truly security companies, but to your point, they’re a critical part of not just ransomware recovery, but the types of recoveries that you’re talking about, these snapshots in time. People are getting really serious about high availability, disaster recovery, and the real RTO, recovery time objectives, and being able to recover from, whether it’s malicious attempts or natural disasters.
And Commvault, ironically, we could look at Commvault as one of the more traditional legacy players in the market, but they’ve become pretty critical to most enterprises because they back up the stuff that’s still super mission critical, and they’ve adjusted well with the Metallics of the world. So absolutely agree with you. This is a critical part of your infrastructure plans. If you are not paying attention to companies such as Commvault as part of your security posture or as part of your AI data mobility planning, you absolutely should refresh your knowledge on them.
Camberley Bates: One of the things they did buy, so you mentioned Metallic, which is heavy, is their piece that was the SAS offering that’s out of Azure. They recently picked up Clumio, which had focused on AWS. So they’re going to bring out equivalent pieces on both of those sites, so that should be really successful. Let’s go into the other. You had some time with Google this week, so we had some Google earnings that came out. You want to talk about where they’re at? How are things going with their cloud?
Keith Townsend: I think the big thing, they’re up. Google Cloud, not Google the big company. Google the big company is up, I think-
Camberley Bates: Alphabet.
Keith Townsend: Sorry, yeah, Alphabet is big, but Google Cloud, since they’ve broken out the reporting a couple of years ago, up 35% year-over-year. They are, I think the term is killing it. That is exceptional growth. And I think one of the things that surprises me about that number is that when I’m talking to customers, still to this day, Google Cloud is very much still the third cloud provider of the big three. AWS still dominates the conversation. Microsoft with their special licensing agreements and positioning with most enterprises is the second dominant one that I run into when I talk to customers. And Google Cloud has maintained this secondary third tier option within multi-cloud scenarios. I’m not seeing enterprises adopt them as their primary cloud. This 35% year-over-year growth gives me pause to think that Google may be finally getting into their groove, obviously with earnings and growth, to become the primary cloud provider for a lot of, not just SAS and SAS first companies, but enterprises.
Camberley Bates: When we looked at the cloud providers, must’ve been three years ago, and how people were looking at the different companies, we saw Azure being the primary because you had 365, you were used to it and that kind of stuff, that there was an easy lift for the enterprise. AWS, because they were the dominant player and the first guys in the block and were really ahead of everybody with the service that they brought. And then the third one was Google. And what we saw clients using Google for was anything that had to do with data analytics. They were doing a really good job of integrating their capabilities for data analytics, analysis, et cetera within their systems. And I can’t remember the names of all their products. I get them confused about who’s got which one, names. So companies that were looking at that big stuff at that time, which at the time we weren’t calling it AI, we were calling it data analytics or big data analytics.
Now fast forward to the AI. Of course, OpenAI and Microsoft paired up. So there was a huge push there. But Google’s been well known for search and analysis and algorithms. And they’ve had a couple of missteps on their LLM that we’ve seen, but they’ve pulled back and they’ve looked at, okay, so how do we make sure that we do this with diligence and making sure that we don’t have bias, et cetera, that we bring out there? So I’m not surprised that that they’ve picked up because of where customers were already looking at them for their smarts in the… I mean, three, five years ago, if you were going to talk to anybody in terms of analytics and algorithms, that’s who you went to talk to because they kind of had it, they had the search engine. And so that gives a halo effect I think, on terms of what they have and then what they know how to bring out. Plus the fact that maybe they were the Kubernetes lead. So I don’t find that unexpected, really.
Keith Townsend: Yeah, I don’t find that unexpected as well. Although I think 35% growth is pretty impressive. But we had them at AI Field Day 5, I believe it was, and they walked through calling Gemini from Cloud Run their Kubernetes container runtime solution. And their developer experience was really, really tight. So to your point, three years ago it was all about BigQuery and being able to run BigQuery and AWS against your data sets on-prem, et cetera. They were the multi-cloud of choice. But they’ve also strengthened where they’re at when it comes to developers and being able to consume Gemini and other LLMs from within their development platform. I think probably where if I was to assess their gap is at that business user level.
Business users can go in and use Amazon Q, which is I think a direct competitor to BigQuery. And I went in to do some stuff in Gemini and Cloud Run, and I very much had to put on my developer head. It was not intuitive from a business user perspective. So there’s a lot of opportunity to grow, capture not just that developer heart and that Linux geek, but also get to this business user and this ability to serve the generic business analyst.
Camberley Bates: And I think to get this AI to get to market, we have to go there because it can’t just be the developers that can deliver on this. It has to be ubiquitous across the different business units to deliver on for an ease-of-use standpoint.
Keith Townsend: Very much so.
Camberley Bates: Let me touch on Microsoft. Numbers there, they too, you’re looking at Azure as a 33% growth. Although the market gave them a ding on the stock because they said that they were expecting 32 to 33% growth next quarter and they wanted to hear 34%, which I’m going, “Really? Seriously?” I mean, again, I am not an investor. I give somebody else the responsibility to do that for me, but I was kind of whatever. I mean, it’s kind of like they have done and most of that they talked about is being driven by AI. And the AI has done incredibly well in their AI and they continue to grow in that space. So we’re going to continue to see that. But at the same time, the noise about bringing things on-prem is also there. So I think we still have quite some time to get through how this is all going to end up being deployed. But yeah, we’re going to see the AI training, et cetera, maybe in the cloud or continuing to bring it down onto prem because I don’t want to expose my data. We’ll see how this pans out. But the Microsoft numbers were really, really good for this last quarter.
Keith Townsend: Yeah. And actually, I was talking to Patrick Moorhead about just this overall concept of where we’re going to see AI. And I think our intuition is leading us to the same spot, which is companies, meaning end user organizations, are going to start to pause. I think me and you naturally understand the data silo problem. I think there’s a secondary problem that’s coming up with process silos. As companies figure out how they’re going to use AI, there’s no standards on how to transfer those processes from one AI solution for the next. So if I’m doing something in OpenAI and I want to accomplish the same thing using SAP Joule versus doing the same process in ServiceNow, how do I spread my technical resources to implement those same processes?
So there’s I think an opportunity for companies like Microsoft, Google, AWS, VMware to an extent with their infrastructure technologies, to create common platforms so that we can transfer processes. So Microsoft, this is not just about training. Software company, company with the chops to solve these types of problems, and not just solve the problem from a process portability perspective, but actually run the processes in Azure. So yeah, again, doesn’t surprise us at all.
Camberley Bates: When you talk about processes, I know we talk about getting the data through the pipeline and that kind of stuff, and there’s the processes for development is what you’re really talking about, right? So it’s the process about how can I, if I use any other, maybe we could talk about as a language, maybe looking at a large language model like a programming language. I bring down OpenAI as my large language model as opposed to whatever. And another time I want to use Granite from somebody else for IBM. But how those get used are different, so they’re not interchangeable. Is that… That’s what you’re talking about?
Keith Townsend: Yeah. And one of the things… Our Keith Kirkpatrick wrote a really great piece a few months ago now on the position that SaaS companies like SAP, ServiceNow, Smartsheet, these incumbents are advantaged that they can put the AI directly into the solution. So let’s say I built an AI process within SAP that took my order data, used that data to then do some level inferencing in SAP’s AI cloud that then generated net new advertising campaigns. So I’ve done that logic within SAP. Now I want to take that logic and move it to a different system within my environment, because I’ve spent the time developing the logic, I want to reuse it. Well, how do I reuse it? This isn’t a language that’s portable, in a sense. SAP did a great job of making it possible for my business analysts to create the logic, but it’s not like I’m lifting a Visio stencil and then taking it to another AI system and reproducing that output. I have to now go back and handcraft the solution again in basically a different language for a different platform. So this process portability problem is a second level problem. Let’s get the value, but it’s absolutely something to keep our eyes on.
Camberley Bates: Yeah, absolutely. And I think we’ll see some more tools coming out with it. So quickly, one last topic that we want to just touch on here, Supermicro. The news here is that the financial auditors resigned. Haven’t exposed why, but obviously there was some differences of opinion about what things were going on. And if you add into some of the noise that’s going on and the deferral of their financial submissions, I think it was the 10K report, those all give pause as to what’s going on, and I guess confidence.
Keith Townsend: Yeah. If you’re an enterprise customer and Supermicro is your primary server and infrastructure provider, develop a relationship with HPE, Dell, Lenovo, Cisco, whatever, have a backup plan. I’ve worked for an auditing firm for a while. Auditors, especially the big four of the world, and this is E&Y, they don’t easily fire their… Especially a publicly traded company, they don’t easily fire their clients. They bend over backwards to work with them. If they fire them and say that they will not stand behind the financial statements of management, there’s not smoke, there’s fire. We just got to find out where in the organization there’s fire. But absolutely have an exit strategy for Supermicro.
Camberley Bates: Well, and this gets back to what we saw with CrowdStrike. You need to have multiple vendors. Being a single vendor, single environment strategy is not the wisest thing. It makes it simpler.
Keith Townsend: It’s the risk. It’s not always possible, but you should have a tabletop exercise at least to how you would exit a vendor.
Camberley Bates: That’s a good point. Tabletop exercises around crises, any kind of crises, what’s all my risk and everything else. Well, I think that’s it. We’ve spent almost 30 minutes here together. It’s been great. I love talking to you, Keith. I learned so much, and I hope our listeners have learned a whole lot as well. We’ll just keep on going. We will be back. Are we back next week? Yes, I believe we are.
Keith Townsend: Yeah, we are back next week.
Camberley Bates: We are back next week. I know I won’t be on, I’m traveling, but it might be Dion and Keith on this. So thanks for tuning in, and nope, don’t forget to follow us, like, send it over to your friends, that kind of stuff. Thank you. Have a great day.
Author Information
Camberley brings over 25 years of executive experience leading sales and marketing teams at Fortune 500 firms. Before joining The Futurum Group, she led the Evaluator Group, an information technology analyst firm as Managing Director.
Her career has spanned all elements of sales and marketing including a 360-degree view of addressing challenges and delivering solutions was achieved from crossing the boundary of sales and channel engagement with large enterprise vendors and her own 100-person IT services firm.
Camberley has provided Global 250 startups with go-to-market strategies, creating a new market category “MAID” as Vice President of Marketing at COPAN and led a worldwide marketing team including channels as a VP at VERITAS. At GE Access, a $2B distribution company, she served as VP of a new division and succeeded in growing the company from $14 to $500 million and built a successful 100-person IT services firm. Camberley began her career at IBM in sales and management.
She holds a Bachelor of Science in International Business from California State University – Long Beach and executive certificates from Wellesley and Wharton School of Business.
Keith Townsend is a technology management consultant with more than 20 years of related experience in designing, implementing, and managing data center technologies. His areas of expertise include virtualization, networking, and storage solutions for Fortune 500 organizations. He holds a BA in computing and an MS in information technology from DePaul University. He is the President of the CTO Advisor, part of The Futurum Group.
