VMware 2012 Annual Report Download - page 17

Table of Contents
Existing and future competitors may introduce products in the same markets we serve or intend to serve, and competing products may have
better performance, lower prices, better functionality and broader acceptance than our products. Our competitors may also add features to their
virtualization, end-user and cloud computing products similar to features that presently differentiate our product offerings from theirs. Many of
our current or potential competitors also have longer operating histories, greater name recognition, larger customer bases and significantly
greater financial, technical, sales, marketing and other resources than we do. This competition could result in increased pricing pressure and sales
and marketing expenses, thereby materially reducing our operating margins, and could harm our ability to increase, or cause us to lose, market
share. Increased competition also may prevent us from entering into or renewing service contracts on terms similar to those that we currently
offer and may cause the length of our sales cycle to increase. Some of our competitors and potential competitors supply a wide variety of
products to, and have well-established relationships with, our current and prospective end users. For example, small to medium sized businesses
and companies in emerging markets that are evaluating the adoption of virtualization-based technologies and solutions may be inclined to
consider Microsoft solutions because of their existing use of Windows and Office products. Some of these competitors have in the past and may
in the future take advantage of their existing relationships to engage in business practices that make our products less attractive to our end users.
Other competitors have limited or denied support for their applications running in VMware virtualization environments. These distribution,
licensing and support restrictions, as well as other business practices that may be adopted in the future by our competitors, could materially
impact our prospects regardless of the merits of our products. In addition, competitors with existing relationships with our current or prospective
end users could in the future integrate competitive capabilities into their existing products and make them available without additional charge.
For example, Oracle provides free server virtualization software intended to support Oracle and non-
Oracle applications, and Microsoft offers its
own server virtualization software packaged with its Windows Server product and offers built-in virtualization in the client version of Windows.
As a result, existing VMware customers may elect to use products that are perceived to be “free” or “very low cost” instead of purchasing
VMware products and services for certain applications where they do not believe that more advanced and robust capabilities are required.
Competitors may also leverage open source technologies to offer zero or low cost products capable of putting pricing pressure on our own
product offerings. By engaging in such business practices, our competitors can diminish competitive advantages we may possess by
incentivizing end users to choose products that lack some of the technical advantages of our own offerings. Even if customers find our products
to be technically superior, they may choose to employ a ‘multiple-vendor’ strategy, regardless of the technical merits of VMware’s products,
where they purposely deploy multiple vendors in their environment in order to prevent any one vendor from gaining too much control over their
IT operations.
We also face potential competition from our partners. For example, third parties currently selling our products could build and market their
own competing products and services or market competing products and services of third parties. If we are unable to compete effectively, our
growth and our ability to sell products at profitable margins could be materially and adversely affected.
Industry alliances or consolidation may result in increased competition.
Some of our competitors have made acquisitions and entered into or extended partnerships or other strategic relationships to offer more
comprehensive virtualization and cloud computing solutions than they individually had offered. In 2012, Citrix Systems continued to invest in
desktop virtualization marketing by continuing its close collaboration with Microsoft and acquired smaller players like Zenprise and Virtual
Computer. Moreover, information technology companies are increasingly seeking to deliver top-to-bottom IT solutions to end users that
combine enterprise-level hardware and software solutions to provide an alternative to our virtualization platform. For example, in 2011, Oracle
brought to market integrated hardware and software solutions that utilized technologies from its 2010 acquisition of Sun Microsystems, and
Microsoft and Hewlett-Packard continued their collaboration based on Microsoft’s cloud computing and virtualization platforms. In 2011, Citrix
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the ability to effectively run traditional IT applications and emerging applications;
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the proven track record of formulating and delivering a roadmap of virtualization and cloud computing capabilities;
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pricing of products, individually and in bundles;
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the ability to attract and preserve a large installed base of customers;
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pricing of products, individually and in bundles;
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the ability to attract and preserve a large number of application developers to develop to a given cloud ecosystem;
• the ability to create and maintain partnering opportunities with hardware vendors, infrastructure software vendors and cloud service
providers;
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the ability to develop robust indirect sales channels; and
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the ability to attract and retain cloud, virtualization and systems experts as key employees.