Blog Entry

Oct 4
2010 

The Virtual Revolution Will Not Be Televised

“The revolution will not be televised”, the singer Gil Scott-Heron once famously sang. I think he was trying to say that information and truth, cannot be packaged up in a nice “made for TV” special. In fact, by the time it’s happened, it’s probably already passed you by. I can’t help but feel this way about virtualization.  We’ve been hearing the hype for years. No one denies the unbelievable impact it has had, and the value it continues to promise. This is not one of those technologies where you think “if”, it’s really more of “when” and “how”.

Several enterprises are starting to leverage the power of virtualization, and are looking to software publishers to provide relevant offerings. And while the publishers may not be entirely clear on how they should price and package their offerings,  just about every software publisher needs to be able to respond to their customers with regards to their “strategy and roadmap for virtualization”. So the publishers have responded as one would expect. First, with a blitz of marketing campaigns and catchy slogans. Then comes the vision, the way said software publisher is going to leverage virtualization to their customers benefit. The familiar strains of “this is not a challenge, it’s an opportunity” permeate boardrooms and cubicle lined hallways of many very capable software publishers. Indeed none of these sentiments are misplaced. And several companies have responded as one would expect, by providing a means for their customers to adapt their offerings in virtual environments.

So where does the challenge lie?

Consider the virtual appliance as an alternative to the traditional hardware appliance. The benefit of hardware appliances were that the software vendor would provide a dedicated piece of hardware optimized to run the application. It saved the customer time in setup, installation and configuration costs. It also spared them from having to purchase costly and potentially excessive server hardware . So the premium that software vendors were able to charge was considered well worth the investment.

Over time the cost of hardware kept decreasing, but did not correlate to a decline in the price of these hardware appliances. After all, the customer was purchasing a purpose built, specially configured piece of equipment, and this was worth paying more for even even as off the shelf hardware continued to decrease in price. Ok, that isn’t true across the board, and certainly price pressures and competition have affected some appliance markets. But the margins are generally healthy. And the high price and value has been built around the costs of hardware.

And this is where virtualization really starts to get tricky. Customers expect to pay less for virtual appliances.  And since virtual appliances represented the exception, not the rule, a lot of software publishers obliged. After all there is no more hardware cost to cover. But is the reduction in price equal to the savings realized by eliminating the hardware? For many software vendors the answer is no. And this is just the tip of the iceberg. Virtualization represents an entirely new way to deliver and consume software giving the customer a lot more room to get creative in how they’d like to pay for certain products. In the past customers had to figure out what they’d need to cover worst case scenarios. Now with virtual appliance they can plan and purchase for median use and then ramp up as required. It doesn’t require the same complexities of installing appliances. I can have a farm of virtual servers ready for me to spin up on demand, and I’d like to only pay for them when I use them. Of course many publishers are going to be reticent to accommodate this model as it breaks the traditional model which these companies are built around.

Sound familiar?

In some ways this reminds me of the music industry when Napster first hit. The industry was completely oblivious and unprepared, and the record companies reacted with litigation and enforcement. But in spite of the piracy concerns, the main driver for Napster usage was convenience. The idea that one could download a song instantly, and without having to purchase an entire record was far too alluring. Several consumers that would happily have paid for the song were just too tempted by the sheer convenience of Napster. Now looking back it all feels a little foolish since the on line music industry is, by all accounts, doing quite well. On line music didn’t doom the industry, but the traditional model of selling a CD with 12-15 songs on it, has been replaced by selling songs on demand to a piece of hardware owned by the customer, like an iPod. Sounds eerily similar to how customers may want to consume virtual applications doesn’t it?

Managing customer entitlements is paramount

With hardware becoming increasingly powerful, with more efforts to reduce our carbon footprint, and with the continued adoption of cloud applications, the future for virtualization seems as healthy as ever. The question is how software publishers will price, package and license their offerings. Overcoming the technology hurdles is a relatively easy one. Adjusting ones business terms affects a company’s DNA: a much more daunting challenge. With the myriad of new and creative software licensing and pricing models that virtualization is likely to spawn, the need to manage customer entitlements will become that much more pronounced. Inventory for hardware appliances is easy to track. Back office systems are built around managing existing products. Virtual appliances will require vendors to be more nimble with their licensing and usage models. Software publishers will want to account for and control unlicensed use.

Support, licensing and pricing are often cited as top challenges to virtualization adoption. If software publishers truly want to turn these “challenges into opportunities” they will need to put more thought into how they want to control and manage the entitlements, for virtualized versions of their traditional offerings. As history has shown countless times before, when a paradigm shift in technology occurs, the market leaders are often the ones playing catch up. And nobody wants to be the one that blinked while the revolution passed them by.