Some VMware partners are blaming the company's rapid ascent and aggressive strategy in the server virtualization market for creating channel conflict.
VMware's strategy, according to these value-added resellers (VARs) and independent software vendors (ISVs), has been to fill gaps in its market coverage by acquiring partners in those specific segments and integrating new technologies into its hypervisor. And the more niche markets the vendor enters, the more competition it creates with its partners.
"They have a go-it-alone approach," said Erik Josowitz, vice president of product strategy for Surgient Inc., a VMware ISV partner in Austin, Texas. "They're predatory in a certain sense."
Surgient felt the effects of VMware's strategy first-hand in 2006, when VMware acquired Akimbi Systems, a competitor of Surgient in the virtual lab management market. The acquisition did not hurt Surgient's sales, because virtual lab management is not a core focus of VMware's business, but it did illustrate a "philosophical" problem regarding channel conflict, Josowitz said.
"Microsoft and Citrix, they have a very different approach to partnering," Josowitz said. "They make it very clear what they want to own and where they want partners to fill in the gaps. ... We do see lots of customers that are uncomfortable with VMware's all-or-nothing approach. Enterprise customers like to have choices."
Chris Wolf, senior analyst for the Salt Lake City-based Burton Group, recently blogged that VMware has generated channel conflict by integrating Storage VMotion into the ESX 3.5 hypervisor -- a move that has created competition with VMware's storage partners. VMotion lets users move live virtual machines among physical servers.
"Vendors that offer storage virtualization as an integral part of their products have seen one of their key value-adds move to the ESX hypervisor and as a result see Storage VMotion as a threat to their bottom line," Wolf wrote. "Most storage vendors I spoke with [at VMworld Europe] see VMware's competitors (namely Microsoft, Citrix and Virtual Iron) as opportunities where they can partner with a virtualization vendor and still offer a valuable piece of the virtualization puzzle. … Continually adding value to the hypervisor is a key part of VMware's long-term strategy, but where do they draw the line?"
The vendor, which leads the server virtualization market, says it plays fair.
Steve Houck, VMware's worldwide channel vice president, said the company consults its Partner Advisory Council before rolling out a new product or expanding into a new area.
"We often enlist the advice of our partners early on, about how it will impact their practice," he said. "To date, any time we talk about a new product or a new technology, it's always received with enthusiasm. … I haven't been hearing [those complaints] from the partners."
Meanwhile, some VMware partners are seeing shrinking margins, according to an executive at one VAR partner who did not want to be identified.
"They are taking a very aggressive path to owning all of the market, all of the ancillary types of solutions around their hypervisor," the executive said. "Including bundled services, the margins they offer the resellers are a fraction of what they used to be. They are trying to conquer the world."
Houck said that complaint surprised him because it was "absolutely the opposite of what we've been hearing." VMware announced changes to its VIP Partner Program last month to provide bigger margins to the channel, he said.
"This was all about increasing partner profitability," he added.
The VAR executive acknowledged that VMware's plan of action mimics what Microsoft, Oracle and other large software companies have been known to do over time, but he said VMware's case is unique because of the company's relative youth.
"VMware has to deliver to high expectations on Wall Street, and I predict some of their challenges are [because] they've already successfully picked all the low-hanging fruit in test development environments," he said. "Now they are addressing production environments, and it's a much bigger challenge."
Sales into production environments take longer and the process overall is more painstaking, he said.
Competing vendors don't hesitate to point to what they call VMware channel conflict. A rival executive who did not want to be identified said VMware is offering customer site evaluations, implementation resources and other services that VMware partners have traditionally provided.
"Diane [Green, VMware's president and CEO] is looking for every revenue source," the executive said.
But Keith Norbie, storage and virtualization director for VMware partner Nexus Information Systems in Plymouth, Minn., said that's not the case. VMware's focus is more on market penetration, he said.
"I don't see them getting too hung up on trying to get the most money out of every account," he added.
Marvin MacKay, sales and client relationship director for VMware partner William Ives Consulting in Charlotte, N.C., said his company has not experienced channel conflict or lower margins. William Ives Consulting's communication with VMware has also improved since it moved from the professional to enterprise partner level late last year, MacKay said.
"It has increased tremendously," he added. "Becoming an enterprise partner is the best thing we could have done. … We're probably higher on the food chain. They're passing more leads to us now."
Norbie agreed that all is well in the VMware partner universe -- and the problems that have existed are improving.
"They've been very open with us, very active," Norbie said. "It seems like they have much more focused and organized programs this year. VMware's becoming much, much more channel-friendly."
In addition to changing its partner program, VMware has also announced its first formal partner conference, Partner Xchange 2008. The three-day event -- scheduled for May 5-8 in San Diego -- will combine VMworld's Partner Day and the annual TSX partner training event with several new features.
"We want to really dive deep both on the technology and the business planning with partners," Houck said.
Senior news editor Barbara Darrow contributed to this report.
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