VMware 2011 Annual Report Download - page 11

Table of Contents
sell them to our end-user customers. These resellers are part of our VMware Partner Network (“VPN”), which offers these resellers sales and
product training, pricing incentives, rebates and access to the worldwide network of VMware distributors and the VMware Partner Central Web
portal.
We offer several levels of membership in our VPN depending on a reseller's interest and capability of providing demand generation,
fulfillment, service delivery and education to customers and prospects. We also have certain resellers, as well as systems integrators, who obtain
software licenses and software support directly from VMware. The VPN agreements signed by the resellers carry no obligation to purchase or
sell VMware products and can be terminated at any time by either party.
We have a direct sales force that complements our channel partners' efforts. Our sales force works with our channel partners to introduce
them to end-user customer accounts and new sales opportunities.
In addition, our channel partner network includes certain systems integrators and resellers trained and certified to deliver consulting services
and solutions leveraging VMware products.
We generally do not have long-term contracts or minimum purchase commitments with our distributors, resellers, system vendors and
systems integrators, and our contracts with these channel partners do not prohibit them from offering products or services that compete with
ours.
We primarily sell our software under perpetual licenses, and our sales contracts generally require end-user customers to purchase
maintenance for the first year. Maintenance periods typically range from one to five years. Software maintenance and renewals are sold both
directly to end-
user customers and via our network of channel partners. The majority of professional services are sold via our channel, with some
professional services sold directly. End users can obtain licenses to our products through individual discrete purchases to meet their immediate
needs or through the adoption of enterprise license agreements (“ELAs”). ELAs are comprehensive volume license offerings that provide for
multi-year maintenance and support at discounted prices. ELAs enable us to build long-term relationships with our customers as they commit to
VMware's virtual infrastructure solutions in their data centers. Our sales cycle with end-user customers ranges from less than 90 days to over a
year depending on several factors, including the size and complexity of the customer's infrastructure.
The competitive landscape in which we operate includes not only other software virtualization vendors, but also traditional hardware
solutions. In establishing prices for our products, we take into account, among other factors, the value our products and solutions deliver and the
cost of both alternative virtualization and hardware solutions.
Our marketing efforts focus on communicating the benefits of our solutions and educating our customers, distributors, resellers, system
vendors, systems integrators, the media and analysts about the advantages of our innovative virtualization technology.
We raise awareness of our company and brands, market our products, and generate sales leads through VMware and industry events, public
relations efforts, marketing materials, advertising, direct marketing, social media initiatives, free downloads and our website. We have invested
in multiple online communities that enable customers and partners to share and discuss sales and development resources, best practices
implementation, and industry trends among other topics. Our annual user conference, VMworld, which is held in both the U.S. and Europe, has
grown in attendance each year. We also offer management presentations, seminars, and webinars on our products of virtualization and cloud
computing. We believe a combination of these efforts strengthens our brand and enhances our leading market position in our industry.
Our business is subject to seasonality in the sale of our products and services. For example, our fourth quarter revenues are affected by a
number of seasonal factors, including fiscal year-end spending trends. Such factors historically have contributed to stronger fourth quarter
revenues in any given year. We believe that seasonal factors are common within our industry.
Customers
Our customer deployments range in size from a single virtualized server for small businesses to thousands of virtual machines for our largest
enterprise customers. In periodic third-party surveys commissioned by us, our customers indicate high satisfaction rates with our products and
many have indicated a strong preference for repeat purchases.
During 2011 , three distributors, who purchased software licenses and software support from us for resale to end-user customers directly or
via resellers, each accounted for over 10% of our worldwide revenues. Arrow Electronics, Inc., Tech Data Corporation and Ingram Micro, Inc.
accounted for 15% , 11% and 10% , respectively, of our worldwide revenues in 2011 . Our distribution agreements are typically terminable at
will by either party upon 30 to 90 days' prior written notice to the other party, and neither party has any obligation to purchase or sell any
products under the agreement. No other channel partner accounted for more than 10% of our revenues in 2011 .
Competition
The cloud computing, end-user computing and virtualization markets are inter-related and rapidly evolving. We
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