A wise man once said in a meeting:
If you want to see how indispensable you are, stick your finger in a glass of water and measure the size of the hole left when you pull it back out.
This week I’ve been reflecting a lot on that statement given the radical licensing changes that have originated out of VMware for vSphere 5.
I want to reflect on the background to the “are they right or are they wrong” argument here – I think every business is entitled to make a fair and reasonable profit. I also say this as an outsider – my area of interest remains backup and recovery, not virtualisation. In short, for me, virtualisation is a tool, a means to an end – it’s a butler, not the work.
So I think I can look at this as someone who is exposed to the business of virtualisation, but isn’t directly bound by it.
For any company that sells software rather than hardware, there are going to be times when licensing is re-evaluated and new cost models are developed. NetWorker for years had a licensing model that was growing in complexity. Over the last few years EMC has been working at simplifying that, with the most recent change being the capacity licensing. This hasn’t been a big hit because it’s more aimed at people who can’t quite step up to the enterprise license, rather than the average business, but it’s still a step in the right direction, and a portent of things to come.
VMware has clearly hit the point where they’re having to say to the market, “the way we’ve previously been pricing this is no longer sustainable”.
As has been so often the case within the IT industry over the past 20 years, pricing has raced to the bottom, and once it’s hit the bottom, there’s a need for an adjustment. I do partly blame Microsoft on this front – they’re renown for dropping their pricing pants in order to smack around the competition. That’s not a healthy business model.
Much is premised around a false sense of entitlement. “Someone produces X so I should get X for as cheap a price as possible”. It’s the logic of the IT industry, it seems. Yet let’s look at say, the car industry as a comparison. That business model – “get customers by giving it to them as cheap as possible” almost wiped out the US car industry. It was reported, for instance, that between the rebates and the discounts on offer by 2008, some US car companies were losing up to $500 per vehicle sold.
Selling volume at discount is fine.
Selling volume at loss isn’t.
VMware are by no means indispensable in the IT industry. The pricing model change will undoubtedly drive some companies to consider the alternatives out there – Hypervisor, Xen and Parallels, for instance.
But I think we, as an industry, have to take some responsibility here – we have to accept our part that this is a mea culpa of sorts: we’ve allowed the “race to the bottom” pricing model to become too pervasive, and are now getting to reap the rewards of that.
We may hold our own responsibility when it comes to race-to-the-bottom pricing, true. However, the customer/client has a responsibility to managers, C-levels, and shareholders to secure the best pricing possible for a given implementation. No one is going to ever want to hear “Well, we went with the more expensive model, because we don’t want to support race to the bottom pricing.”
Maybe there’s some room with that even with Networker. Where I live, they’ve pretty much been giving Networker away lately. So even where another product would be a better fit, and the customer understands that… they go with Networker. The bottom line rules the day.
As Brendan says, it isn’t a sense of entitlement but rather the customer doing their due diligence. No looking for the best pricing is irresponsible.
And the car analogy doesn’t add up. Each car costs X amount of dollars to manufacture. Once a software product ships, subsequent copies of that software have a minimal cost. R&D costs money, but I don’t know how much that pushed VMWare to this new licensing model.
Expecting people to pay a premium for a product when less expensive, albeit less advanced, alternatives is short sighted thinking in my opinion. It reminds me of how Novell conducted its business while Microsoft destroyed them in the server software business.
My point is actually that this abrupt pricing change is indicative of the whiplash reaction when a company goes too far one way on pricing, and has to flip around a goodly distance in order to start to set things on a different course.
And I’m afraid I don’t really agree with the notion that subsequent copies of software have minimal cost. Recouping engineering effort takes longer than most “iSupply” style analyses show (just using that as an example), and there’s more to ongoing costs than R&D – there’s support costs, there’s overall operational costs, etc.
Unless, of course, we think that a software company should produce all the software it can, then fire a high percentage of their staff because the software’s already been written…?
Are you saying that VMWare is not a profitable company and was forced to do this or go out of business?
I understand that this is what publicly traded companies do. They try to maximize profits for their share holders. My point really was that you can’t make a change as abrupt like this without losing customers. Microsoft specifically wants VMWare to lose customers. At this point they may not even care all that much about turning a profit in the short term if they know they can build their own customer base and grab “the loot” later. It seems to be a short sighted plan by VMWare. The idea of high density was the whole point of virtualizing and now there is a premium on that.
Granted, I’m going based on my own knowledge of the licensing, how it impacts me, and what I’ve read from others around the web and on the community forums so I may be seeing a skewed picture of the situation. I hope there is a reason beyond a simple money grab.
Also, unless you’re talking about some support other than tech support, customers pay for that.
I’m saying that after years of running a licensing scheme that may not be suitably profitable, whiplash reversals are all but inevitable.
I also fully admit that I’m looking at this as effectively an “outsider”, and rather than speaking of the individual situation here, reflecting that the “race to the bottom” attitude of the industry overall ultimately leads to this sort of situation.