VMware CEO Pat Gelsinger explains how the 'traumatic' decision to work with Amazon Web Services led to it becoming a secret superpower in the cloud wars
Horacio Villalobos-Corbis/Getty Images
VMware CEO Pat Gelsinger
- Business Insider spoke with Pat Gelsinger, the CEO of VMware, about his career and the company's rise to becoming a superpower in the cloud wars.
- When Gelsinger joined VMware in 2012, Amazon Web Services was seen as an existential threat. Gelsinger himself warned VMware partners that Amazon's growth in the cloud was poised to seriously undermine its business and pry away customers.
- Gelsinger says that it didn't sit well with his own management team when in 2016 he decided that VMware would stop fighting Amazon Web Services head-on, and instead form a landmark partnership to integrate their technologies.
- Amazon Web Services has a reputation for competing even with its own partners. Three years into the partnership, that threat remains. But the partnership has borne fruit with plenty of mutual customers.
- Gelsinger says it was a "traumatic" transition, but the company has come out stronger.
- "We want to be that platform where that can run both the past and the future in one common and consistent way, and do so whether it's in your data center or the cloud," Gelsinger says. "And if we accomplish that ... there's gold in those hills."
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Technically speaking, Pat Gelsinger retired in 2009.
He started his career at Intel at just 17 years old, and finished his 30 years at the company with a resume including a stint as the chipmaker's CTO. Every month, he receives a pension check from Intel, he told Business Insider. (Intel says it doesn't comment on matters of compensation.)
In reality, Gelsinger says, his retirement basically consisted of a good night's sleep. One Monday, he went into Intel to say his final goodbyes. On Tuesday, he started work as president and COO of EMC, the enterprise IT giant.
Three years later, he went to VMware, then an EMC subsidiary, replacing industry legend Paul Maritz as CEO. The company was the pioneer in the market for virtualization - a cornerstone technology to modern cloud computing. It remains a major IT industry standard: Every single company on the Fortune 500 counts itself as a customer.
But in the little over seven years since he took the role, VMware has also found itself undergoing reinvention, from a cloud computing also-ran into a key partner of Amazon Web Services, the dominant player in the market. It has also been cozying up to Microsoft Azure and Google Cloud, Amazon's chief cloud rivals.
Next up, Gelsinger says, is another reinvention, expanding beyond the virtualization technology that made its name, and making big bets on markets like cloud security - and especially on Kubernetes, the Google-created open source software that has since become something of a standard in the industry.
And all of that, against the more recent backdrop of Dell's $67 billion acquisition of EMC, giving VMware a new corporate overlord - an overlord, incidentally, which considered going public in an aborted plan to acquire VMware, much to the chagrin of investors like Carl Icahn. More recently, VMware announced its intentions to buy up Pivotal, a fellow Dell subsidiary, as well as cybersecurity company Carbon Black.
This second stage of his career has been a little different to the first, the 57-year-old Gelsinger told Business Insider.
"I'm just working for fun, now," he joked.
Business Insider spoke to Gelsinger about how the company shifted itself to a major player in the cloud wars, the internal strife that came with the decision to partner with Amazon, and what comes next for the virtualization giant.
Gelsinger goes way back with VMware
Gelsinger said that even he didn't fully get what was so great about VMware, back when it was just a startup getting off the ground. He says that VMware actually came to him not long after it launched in 1998, when he was leading Intel's server business.
"Here comes [VMware cofounders Mendel Rosenblum and Diane Greene], and they're trying to explain to me that they can make 10 servers into one," Gelsinger recalls. "I'm responsible for the server CPU business at Intel, and turning 10 servers into one is not in my best interest, so what am I not understanding?"
VMware's approach to virtualization turned the server industry on its head. Simply put, virtualization helps slice a single server into multiple so-called virtual machines, or VMs. Each of those VMs has its own copy of an operating system, and gets allocated a portion of the physical server's processor and memory resources, in line with the needs of the application (like, say, an email server) it's supposed to run.
Apply this concept more broadly, and you have racks of ten servers that can do the work of a hundred, or a data center packed full of 50,000 servers, carrying the computing workload of a million. It's a concept that makes for the kind of incredible efficiencies of scale that allow mega-clouds like Amazon Web Services to afford to offer their customers functionally unlimited supercomputing power for fractions of a cent per hour.
The promise of VMware's technology only truly clicked for Gelsinger at an Intel Developer Forum event in the early '00s, he said, where Rosenblum was a speaker. Backstage, the two geeked out over VMotion, a then-new VMware product for moving virtual machines from one server to another with no downtime. He described the conversation as a "brain explosion," with the two executives talking through all the possibilities.
At some point after that, he said, he tried to get Intel to make VMware an acquisition offer, "but I could never get the stars aligning to make that happen." Ultimately, in 2003, EMC swooped in to acquire VMware for $625 million.
He got his second chance to get involved with VMware a few years later - part of his job at EMC was to manage the IT giant's relationship with VMware, by then its publicly-traded subsidiary. On a personal note, Gelsinger said that period was exhausting, as he split his time between EMC's Silicon Valley headquarters, and spending time with his family in Massachussets, where his daughters were attending college.
Diane Greene had only recently been ousted as CEO by VMware's board after a period of poor financial performance, to be replaced by former Microsoft exec Paul Maritz. By 2012, VMware was back on track, and Maritz was ready to move on to the new challenge of running Pivotal Labs, a spin-out combining assets from EMC, VMware, and previous acquisitions into one new software company. Gelsinger was tapped as the logical successor to Maritz.
"They wanted somebody who was still technical, but more operationally focused," said Gelsinger.
The shift to the cloud
Gelsinger boasts that VMware has only gotten bigger and broader since he took over. In 2012, VMware pulled in $4.6 billion in revenue, almost entirely from its core vSphere virtualization product. In February, VMware announced that it booked almost $9 billion in revenue for its 2019 fiscal year, which Gelsinger attributed to the evolution of its business to encompass new markets like cybersecurity, and its embrace of the cloud.
"We went from a product, to products, to solutions and cloud," said Gelsinger.
VMware had a rocky road to its current cloud strategy, however: At the time Gelsinger took over, VMware was feeling the competitive threat from Amazon Web Services. The fear was that customers would abandon their VMware virtualization infrastructure, and instead move to Amazon's home-grown alternatives.
That would be bad not only for VMware, but also for the partners and service providers who built their business on VMware's technology. In 2013, Gelsinger told a room full of partners that if "a workload goes to Amazon, you lose, and we have lost forever." That same year, VMware launched vCloud Air, its own rival to AWS, to mitigate the threat.
Gelsinger said that while VMware saw "some success" with vCloud Air, it became clear that it wasn't the runaway hit it needed to be to play at the level of Amazon Web Services. That made it hard to justify the massive costs of running a global cloud platform, with all the data centers and talent that requires.
"While we were getting it right, we weren't really getting success with it at scale," Gelsinger said of vCloud Air.
And so, in 2016, VMware made the previously-unthinkable decision to stop fighting Amazon Web Services, and start embracing it. It gave up on vCloud Air, ultimately selling the business to French cloud provider OVH in 2017.
Partnering with Amazon
Gelsinger says that the "tough decision" to embrace, rather than fight, Amazon Web Services didn't sit well with many on his staff.
"We had the last and final decision-making meeting on this [Amazon partnership] seven times," Gelsinger said.
Putting aside the whiplash that comes with any major strategic shift, said Gelsinger, there were concerns over "Amazon's reputation as a partner." Just as in retail, Amazon is known in the cloud industry for being aggressive, and willing to compete with even its friends and allies.
"'This is just an on-ramp, they're going to steal your customers and workloads,'" Gelsinger recalled of the feedback he got. "Is this sustainable?"
The opportunity for VMware was too big to ignore, though, he said. Customers had spent years building all their applications on top of VMware technology; if those customers wanted to move to Amazon's cloud, there was an unmet need to help them do it without having to start over largely from scratch. Better yet, it provided a bridge between those existing servers and the cloud, enabling them to use a so-called hybrid cloud approach.
VMware's own cloud dreams may not have come fully to fruition, but it could play a major role in helping large companies take advantage of AWS.
A 'traumatic' cloud transition
Even with that in mind, though, VMware's own executives were less than certain.
"It was pretty traumatic, in that sense, for us," said Gelsinger.
There were technical questions around making sure that VMware's technology played nicely with AWS, to be sure. But there was the bigger question of whether the partnership was giving up a lot of ground to AWS for not enough in return.
"It wasn't just giving up on what we were already doing with vCloud Air," Gelsinger said. "It was, can we really go execute on this partnership? Are they going to be good partners as well?"
Gelsinger said that he stood his ground, and got all the technical and product people to handle all the little details that go into such a big partnership, from networking to storage to hardware.
Crawford Del Prete, president of analyst firm IDC, told Business Insider that Gelsinger's success in helping VMware navigate this transition highlights his best traits as a CEO and leader.
"He's this rare combination of how to motivate employees, how to paint a vision for employees...[but] also he's super, super technical, and understands what needs to be built, and what needs to be created,"
For all that drama, VMware looks to have come through it stronger. He said that VMware has signed up "major customers" for its AWS-specific offerings, and that the VMware/AWS combo is now available in 18 international regions.
"We have executed. Not that any of these partnerships are perfect, but this is pretty good," he said.
Still, as Del Prete cautions, VMware isn't out of the woods yet: Amazon is "constantly innovating on its platform," he said, meaning that it could still come up with technology that undermines the VMware partnership, even as customers increasingly build their software using Amazon's own tools.
A maturing business model
VMware is now established as a key player in the cloud wars: While AWS remains VMware's preferred cloud partner, it also recently inked technology integration deals with Microsoft Azure and Google Cloud. That means that any VMware-using company can more easily move their infrastructure to those clouds.
Next up, Gelsinger said, are some further shifts to the business. As VMware entrenches itself in the cloud, Gelsinger wants to pivot the company to fully embrace a subscription-based billing model, likening it to Microsoft's increased focus on software-as-a-service like the Office 365 suite.
It's an important transition for VMware, Gelsinger said. The bulk of the company's revenue comes from traditional software licensing, but subscription-based pricing based on usage is just how things are done in the cloud. While its largest customers often still operate their own data centers at large scales, that may not be true in the years or decades to come, and it falls on VMware to still support the old way while embracing the new.
"We've said, we're not getting rid of this business model, but we're adding to this business model," Gelsinger said. "I don't get to just flip you to the new busines model."
He highlights the acquisitions of device management company AirWatch and cloud monitoring service Cloudhealth, both of which bill under this kind of subscription model, as signs of VMware's growth in this area. Gelsinger said that those companies are actually helping VMware's sales and marketing teams rethink their overall approach, and that the company is making a lot of progress.
"Every one of these [acquisitions] has sort of helped us in that transition," says Gelsinger. "And we're well underway, you know, but I think we've got a solid year and a half or two years until I can declare us done."
A better platform
Technologically speaking, there's a big opportunity ahead for VMware, too. The company has staked its bets on Kubernetes, an open source software project that's proven extremely popular amongst cloud developers. VMware even last year acquired Heptio, founded by some of the former Googlers who invented Kubernetes.
What's funny about that is that Kubernetes is a technology for managing containers, a new way to run cloud applications considered by many to be an alternative to VMware-style virtualization. Indeed, many thought the rise of Docker, the company that popularized containers in their current form, would do irreperable harm to VMware.
Instead, Gelsinger said, it's proven to be yet another opportunity for VMware. It's true that a lot of new cloud software is being written with Kubernetes in mind, he says, but also, larger companies are still reliant on that more traditional virtualization approach. Gelsinger said that Heptio is already giving it the technology to help customers manage software running in both kinds of environments.
"The Heptio acquisition for us is maybe one of the most strategic things that we've done over the last year or two," Gelsinger said.
Del Prete, the analyst, said that VMware's push into Kubernetes is important for making sure that developers keep building on the company's tools. As developers increasingly move to Kubernetes, Del Prete said, it also falls on Gelsinger and VMware to make sure it moves with them, or else get left behind.
Gelsinger might have a broader vision in mind, however. He said that "Kubernetes and containers is the software abstraction that we believe will define the next two decades of software," in much the same way that Java remains a standard in enterprise IT after decades. By bridging the old and new, across both clouds and traditional servers, Gelsinger said, VMware is poised for success.
"We want to be that platform where that can run both the past and the future in one common and consistent way, and do so whether it's in your data center or the cloud," Gelsinger said. "And if we accomplish that...there's gold in those hills."
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