1 Virtual Appliance Marketplace MGP Competitive Strategy in Network and Information Industries Amit Bhatnagar Dave Lasley David Wong

2 Virtualization Concepts What is Virtualization? – Allows creating multiple machines on a single computer What is a Virtual Machine? – Isolated software container that runs its own operating system and applications – Contains its own virtual CPU, RAM, hard disk, Network card

3 Virtual Appliance Pre-build software solution that is comprised of one or more virtual machines Contains application and integrated thin OS Benefits to customersBenefits to Independent Software Vendors (ISV) Quick deployment No configuration required after deployment Easy Scalability Simplified Software Management approach Reduce development and distribution costs Lower support costs Better Performance Better Quality More Secure No hardware to manage

4 Virtual Appliance Marketplace Online platform for distributing virtual appliances ISVs (sellers of virtual appliances) on one side and enterprise customers (buyers of virtual appliance) on other side (2-sided network) Expanding to become a place for online review and discussion forums for virtual appliances

5 Platform Structure Virtual App Marketplace Independent Software Vendors Buyers VMware provides Virtual App Marketplace at Independent Software Vendors may market Commercial, Evaluation and Free Virtual Applications Buyers may download virtual appliances to evaluate and potentially purchase Platform enjoys strong cross-side network effects

6 Subsidization and Revenue VMware subsidizes buyer side by providing free VMware Server and ESXi softwares for deploying Appliances. VMware’s seller side revenues are on “VMware Ready” certification and education fees. VMware’s buyer side revenues are on upgrades to vSphere cloud environment and support contracts

7 Winner Takes All Heavy subsidization and present 78% market share indicates VMware is playing a WTA strategy: – Multi-homing costs are high – Cross-side network effects are positive and strong – Neither side has strong preference for special features

8 Business Model

9 Revenue Generation Model On Seller-Side (ISVs) – Free VMware Studio for developing Virtual Appliance – VMware studio allow developers to create VA in industry standard OVF format – Free listing of evaluation or community version – Charges for listing commercial version $2,500 for certifying the Virtual Appliance $3,170 for certification and education fees

10 Revenue Generation Model On Customer-Side – Free Marketplace – Free online discussion forum – Free online reviews of virtual appliances – Offer free basic products such VMware Server, Free VMware ESXi products to deploy virtual appliances – Charges customers for VMware Product Support (per incident or per processor), for Professional Services (certification, training) and for Premium products (vSphere – Cloud OS)

11 Industry Trends and VMware Open Virtualization Format (OVF) – Format for packaging and distribution of software in virtual machines Just Enough Operating System (JeOS) – Include only base elements that are needed to support application Cloud Computing and Software-as-a-Service (Saas) – Increased demand of cloud computing is driving the demand for virtual appliances

12 VMware’s Strategy - Marketplace Doesn’t facilitate any financial transaction Generate modest revenues from ISVs Provides a central repository of certified as well as non- certified virtual appliances Ease in finding virtual appliances as well as ease in deploying them is creating a spillover effect of increased demand for virtualization and for VMware products – Virtual Appliances - Complementary products for VMware products. – More Virtual Appliance Sales -> Potentially more VMware product sales

13 Feasibility of Business Model For existing VMware customers, the switching costs are high, so the customers are more likely to buy virtual appliances in order to leverage existing virtualization infrastructure. Since Virtual Appliances support OVF format, same appliances will work on non-VMware products if they support OVF format. So, in case of better alternatives (price and support), new customers can choose non- VMware products.

14 Feasibility of Business Model Virtual Appliance Marketplace model is not sustainable in itself – Modest revenues from ISVs – No direct revenues from customers

15 Recommendations Keep the focus on building community through this marketplace Educate the market (Software Vendors, Customers) Provide quantity discounts to ISVs who list more than a certain number of virtual appliances on marketplace Make partnerships with Operating System providers so that more number of JeOS are available Keep the evaluation and community based virtual appliances free to list and browse

16 Questions?