VMware 2012 Annual Report Download - page 10

Table of Contents
We currently participate in numerous standards groups and VMware employees hold a variety of standards organization leadership positions,
including with the Distributed Management Task Force, the Standard Performance Evaluation Corporation, the Open Networking Foundation
and the Open Stack Foundation.
Our R&D expenses totaled $999.2 million , $775.1 million , and $653.0 million in 2012, 2011 and 2010, respectively. No R&D costs were
capitalized in 2012. We capitalized $86.4 million and $71.6 million of R&D costs that were in addition to our R&D expenses in 2011 and 2010.
Sales and Marketing
We derive a significant majority of our sales from our indirect sales channel, which includes distributors, resellers, system vendors and
systems integrators. The remainder of our sales is primarily derived from our direct sales force.
We have established ongoing business relationships with our distributors. Our distributors purchase software licenses and software support
from us for resale to end-user customers via resellers.
A substantial majority of our resellers obtain software licenses and software support from our distributors and market and 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 highly leveraged Go-to-Market strategy that includes a direct sales force that is complementary to our channel. 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.
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 the combination of these activities 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.
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