Why Everyone Are So Worried About The Acquisition Of VMware

Ethan
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VMWARE

Have you ever heard of a company called VMware? They’re a background company that specializes in creating virtualization software, and recently, they were acquired by another background company called Broadcom for a whopping $69 billion. These sorts of background deals happen all the time, but this one in particular has awoken the tech community. 


It’s barely been a few months since the acquisition closed and much of the community is acting like VMware is dead forever. “Am I the only one that thinks VMware isn’t going anywhere?” “Broadcom will stunt progress. Give it 3-4 years for alternative products to have total parity. I don’t see VMWare being on the cutting edge anymore after this acquisition.” “Broadcom ruined the culture.” This sort of sentiment seems to be extremely common within the tech community. 


Why Everyone Are So Worried About The Acquisition Of VMware


In fact, I bet you’ll find a lot of people in the comments section who believe the same thing, but why? What’s so special about VMware in the first place and why does it matter if Broadcom acquires them? Well, it turns out that VMware’s software is one of the backbones of cloud computing and basically every big company that you can think of uses their software. 


This includes the likes of Apple, Amazon, Microsoft, Walmart, Intel, Johnson & Johnson, FedEx, Wells Fargo, and so on. VMware was basically a monopoly but they were a monopoly that people liked. The reason they were so popular was not because of monopolistic practices or anti-consumer behavior but simply because their software was so good and reasonably priced. 


In fact, VMware is completely free to use for personal non-commercial use. But, people are worried that all of this will change with Broadcom, that the only thing that will matter moving forward will be the bottom line and everything else fall to the wayside. 


The Fortune 500 companies will probably just frown and pay the higher bill, but smaller companies and open-source projects that were reliant on VMware will have to look elsewhere leading to a massive shift behind the scenes. 


So, here’s why everyone is so worried about the VMware acquisition and just how important VMware has become over the years. 


WHAT IS VIRTUALIZATION?

Taking a look back, the story of VMware takes us back to a team of computer researchers at none other than Stanford. Professor Mendel Rosenblum and his graduate students were trying to create a supercomputer that could run multiple operating systems simultaneously thanks to virtualization. 


The project would end up being successful and garnered the attention of some tech-forward corporations. So, Professor Rosenblum and his wife Diane Greene decided to commercialize the technology and establish VMware, or virtual machine software on February 10, 1998. 


Now, you might be wondering, what the heck even is virtualization and why does any of this even matter? Well, in the most simple way, virtualization is basically the process of splitting up 1 physical computer into several smaller virtual computers. 


Each virtual computer will get a share of the physical computer’s hardware. For example, if the computer had 16 gigs of RAM and you wanted to split it up into 4 virtual machines, you could assign each VM 4 gigs of RAM. You could do the same thing with the computer's CPU and GPU and hard drive and so on. 


At first glance, this might seem a bit useless. Why split 1 larger computer into a bunch of smaller computers? Well, it turns out, there are actually quite a few significant reasons starting with the simplest one cost. Usually, it’s a good amount cheaper to buy 1 powerful computer instead of 4 or 10 or 20 weak computers, but honestly, that’s the smallest reason. 


The real beauty of virtualization is exponential gains in efficiency. Here’s the thing, how do you spec out a computer when you buy it? Well, you likely choose specs that will accommodate the most intense computer tasks that you do regularly. 


For example, if you were a gamer, you might choose the minimum specs that can accommodate 1080p at 60 frames per second. But, while this gamer might be taking full advantage of their computer during the 2-3 hours that they game per day, 80-90% of the time when they’re just surfing the web or watching videos, they’re probably only using 10-20% of their computing power. 


This is not that big of a deal for you or me, but for companies with massive computing needs, this is a costly sacrifice. Take an American Netflix server for example. On a weekday, the vast majority of Americans are probably watching Netflix between 6 PM and 4 AM, and Netflix is gonna have to spec out their servers at AWS based on this peak usage. 


But, for the other 16 hours of the day, maybe they only use 20-30% of the server capacity and this is where virtualization can help. Instead of using a different server to upload content, Netflix can use this same server to upload content whenever it’s not busy with the help of VMs. 


The same server can have 2 VMs, one that handles streaming which is the priority, and one that handles uploading. Whenever streaming usage is high, the uploading VM will step aside and give all the server resources to the streaming VM so that streaming is uninterrupted. 


Whenever streaming usage is low though, the uploading VM can step up and use up the server’s remaining capacity. This way, Netflix can ensure that all of their servers are always running at 100% efficiency and minimize how much they have to pay Amazon. And that’s just on the scale of a singular company. 


Zooming out to Amazon’s perspective, this can be scaled up to a whole other league. Obviously, Netflix is gonna try its best to use servers as efficiently as possible but most likely, they’ll only be able to reach 80-90% efficiency. That’s lot a better than the 20-30% that they would get without virtualization but there will always be some room for improvement simply because these companies will want some room to breathe. 


AWS and Azure, however, can leverage this as well. They can spin up a 3rd VM on the same server and sell the 10-20% that Netflix isn’t using to a completely different company that isn’t as concerned about uptime. 


Of course, Netflix would remain the priority because it’s their server, but essentially, you can rent out the server capacity that Netflix isn’t using at any given time for a discounted price. I think you can start to see how virtualization can increase the efficiency of servers severalfold and why it’s so valuable for companies, but efficiency gains are simply one benefit of virtualization. 


There are many more benefits like running test environments. You could clone a VM, make some updates to the software, test the new software on the same server, and then merge the new software to the original VM. VMs are also especially useful when it comes to disaster recovery. 


If a VM ever goes down, it’s only the VM that’s down not the whole server which makes it much easier to recover. Also, virtualization isn’t just limited to commercial applications. Virtually all processors nowadays come with virtualization. This is why multitasking is so smooth on modern computers. 

WHAT IS VIRTUALIZATION EXPLAING WITH DIAGRAM


Each application that you have open is basically its own virtual machine. So, virtualization isn’t just some background technology. It’s one of the backbones of modern computing as a whole. I think you start to see why people are so worried about this technology falling into the wrong hands. 


THE DILUTION OF VMWARE

I know I got into a bit of a tangent there about virtualization. It’s just such an interesting technology with so many applications, but let’s circle back to VMware. 

VIRTUALIZATION Working Process shown by a diagram


After being founded in 1998, the company launched its first commercial product VMware Workstation in May of 1999. 


The premise of the product was pretty simple. It allowed users to run Linux and Windows at the same time on the same computer. But, while some enthusiasts loved it, the market simply wasn’t all that big. To really scale VMware, they had to focus on large commercial applications like the server market which is exactly what they did in 2001. 


This year, they would launch the GSX Server and ESX Server which caught the attention of a server giant named EMC. They would offer to buy out the entire company with little revenue for $635 million in cash to which the founders would agree. 


Over the next several years, EMC would help VMware become a household name within the server market and help them get partnerships with big names like Cisco. But, despite the increasing notoriety and use of VMware, the company wasn’t all that successful from a financial perspective. 


Professor Rosenblum and his wife were far more interested in creating open-source software and launching VMware products that were free to use. To a lot of tech enthusiasts, this was really the golden days of VMware. 


When the company was far more interested in creating innovative tech and making it as accessible as possible as opposed to the bottom line. But while that was a great sentiment, EMC was naturally not a fan of and eventually in 2008, they would push out the founders and bring in a Microsoft executive named Paul Maritz to lead VMware, and honestly, this was a good move. 


Paul brought in a balanced perspective of profit and serving the community. He wouldn’t just make everything open source and free like the founders were doing but he did oversee some notable open source launches like Cloud Foundry in 2011 which was the industry’s first open source Platform As A Service. 


Soon after, Paul would get a promotion within EMC to head of strategy which brought in a new CEO to VMware: Patrick Gelsinger. 


Fun fact: Patrick is now the CEO of Intel.

But anyway, Patrick’s leadership of VMware was quite similar to Paul’s over the first few years. He had a pretty balanced approach between serving the community and focusing on profits, but all of this would change in late 2015 when Dell announced that they would be buying out EMC for $67 billion. 


Before the deal even closed, you could see a massive shift at VMware in preparation for the new owners and their differing visions. At the start of 2016 for example, the company underwent a massive restructuring. 


They would lay off 800 employees, a bunch of executives left, and they would completely eliminate the American dev team behind Fusion and Workstation which if you remember was their first product. Many would argue that by this point itself, VMware was very much a shell of its former self. 


And interestingly enough, it seems that the lifespan of VMware so far can be split up into clear 8-year segments. Between 2000 and 2008, it was community over profits. Between 2008 and 2016 it was community and profits. 


Between 2016 and 2024, it was profits over the community. And now, it seems that the community aspect is completely fading from the company thanks to Broadcom. 


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BROADCOM KILLS VMWARE

Broadcom initially floated the idea of buying VMware for $61 billion back in early 2022. They would face quite a bit of regulatory opposition from the UK and ironically China of all people. But eventually, they would get the green light in late 2023. And ever since then, the attitude at VMware has completely changed. 


These changes are actually super easy to point out because Broadcom isn’t even trying to hide what they’re doing. It’s not some sort of hidden cost increase or something. It’s more of, we’re increasing prices and you can’t do anything about it, sucks to suck. 


And honestly, respect Broadcom for doing it that way, at least they’re transparent about it. How exactly is Broadcom increasing prices you ask? Well, very simple. They’re basically just killing all of their perpetual licenses and strong-arming all of their customers into a subscription model. 


Honestly, I would argue that their corporate customers aren’t even allowed to complain because that’s exactly what they’ve been doing to us whether it be Netflix or Adobe or Microsoft Office or Apple Music or whatever else. And to their credit, they’re not really complaining. 


They understand that it’s just business and that they would do the exact same thing if they owned VMware. The ones that are actually affected are the smaller businesses and open-source projects that depend on VMware’s affordable perpetual licenses or open-source offerings. And that’s just what’s apparent from the outside. 


VMware is also facing a massive internal crisis as well. A bunch of executives including the CEO have left. We’ve seen massive job cuts. And the entire company has been shrunk down into 4 profit-centered divisions. 


Conclusion

So, the bottom line is basically just that VMware has officially become another soulless corporation. And while that itself is a shame, the bigger loss for the community is VMware’s innovative spirit. 


Over the past 2 decades, they have been at the forefront of virtualization technology which has proven to be tremendously useful. 


But under Broadcom, it seems that they’ll simply be milked for everything they got until there’s nothing left. And that is why the tech community is not even worried but disheartened by the VMware acquisition. 


It seems that the real winner of this transaction was not VMware or Broadcom but rather Michael Dell who gambled his fortune and won.

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