Seven signs VMware is doubling down its bet on SMB

When you achieve 32 per cent year over year growth in a tough economy on a revenue base of over $3 billion, it’s likely you’ve either got really hot technology and/or your business strategy is right on target. VMware (Nasdaq: VMW) has both going for it right now.

And, as they look to propel themselves into a broader position as the #1 cloud services development platform, their performance in the SMB market is a fundamental tenet in how they’re going to get there.

Company execs at this week’s annual Partner Exchange event shared current research that shows SMB customers have only virtualized about 20 per cent of their IT infrastructure. And, clearly, the trend toward desktop virtualization delivered as a cloud service is attractive to these companies. However, in the past the virtualization giant was criticized (including by us!) for doing a major land-grab for SMB partners before their portfolio or channel programs were ready. They got overdistributed, ran margins down for all partners and actually stalled their more successful enterprise partners from building meaningful services practices. We still don’t think they have a well articulated product or services strategy today for really small companies (<50 employees), but we do think they've come light years in their products, programs and partner enablement efforts to take a good run at Microsoft, Citrix and others in the broad SMB market.

Here’s what we’re hearing this week that gives me reason to believe that they are putting their money where their mouth is and really making SMB penetration a company big-bet:

1. Executive reorg – When you’re serious about something, it starts at the top. They’ve reorganized their senior management and put a unique HQ and field focus on SMB execution. Julie Eades now runs the overall SMB initiative, with sales leadership in each major geo. Brandon Sweeney, their previous North American channel chief, will now run North America SMB sales.

2. SMB specialization – They announced a new specialization program here this week. All the details are not available, but watch for announcements about phone support, lead passing and extra incentives. Just the fact that they acknowledge that SMB is indeed a market specialization is a great step in the right direction, although they’ve got some serious competition from Microsoft in this area.

3. Program incentives – they’ve announced a doubling of their Advantage Plus deal registration incentives (to 20 per cent) focused on new business. And, given their penetration in enterprise, “new business” really mostly means SMB.

4. Leveraging outsourced partners – VMware has been leveraging outsourced companies like Marketstar and Harte Hanks to bolster their sales and marketing coverage of the SMB market. Insider sources tell us that the Marketstar team is blowing the doors off their VMware sales quotas in working small transactional details with/through SMB focused VARs. They’re adding to that.

5. Service providers as RTM – There’s been a big focus in the last 18 months on enabling hosting providers and carriers/service providers to build virtualized infrastructure and team with other smaller VMware resellers and SI’s. That seems to be gaining momentum and several of their leading service providers are very SMB focused (iLand and being the two most notable).

6. OEM revenue – about 30 days ago, VMware began allowing partners to count their VMware OEM revenue from HP and Cisco as part of their overall sales performance toward program level attainment and quotas. This is a BIG deal, and a much complained-about issue for VMware partners and distributors in the past. This doesn’t uniquely benefit SMB focused partners, but makes VMware easier to do business with and allows partners the ability to accelerate through the channel program benefits faster.

7. Distribution consolidation – they’ve been making some quiet changed to their authorized distributor landscape as a means to create few, more leveraged relationships, especially in EMEA. They are also turning the screws on these relationships to make their distributors more uniquely focused and accountable to the growth of smaller partners, which ties right into their SMB development strategy.

Now, VMware is still a pretty enterprise-centric culture with at least one weighty competitor in the SMB space.

But, their senior management infusion from Microsoft (Paul Maritz – CEO, Todd Neilsen – COO, Rick Jackson – CMO) and others has accelerated their market vision and their sense of urgency around SMB success. SMB market dominance for virtualization is a story currently without an ending right now. A story that won’t be over until the fat lady sings .. or, I guess in Vegas, until the all-night buffet starts to actually serve breakfast.

Beth Vanni is Vice President of PartnerPath (formerly Amazon Consulting). Please contact her at [email protected]

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