VMware 2014 Annual Report Download - page 10

Table of Contents
providers to qualify for the VMware Ready logo. The VMware Ready Desktop Solutions program validates the reference architecture and
desktop specialization of solution providers that simplify VMware virtual desktop environments.
Our ISVs and other alliance partners, developers and additional VMware community members have distributed more than 1,700 software
applications as virtual appliances. We invest significant capital in testing and certification of infrastructure to rigorously ensure our software
works well with major hardware and software products. We have certified approximately 12,700 servers, storage, I/O and thin-
client devices that
are VMware Ready. We have successfully tested approximately 670 operating system versions for use with our solutions. We believe that the
scale and scope of this effort is a significant competitive advantage.
Research and Development
We have made, and expect to continue to make, significant investments in research and development (“R&D”). We have assembled an
experienced group of developers with system level, systems management, desktop, mobile devices, security, application development,
collaborative applications, networking, storage and open source software expertise. We also have strong ties to leading academic institutions
around the world, and we invest in joint research with academia.
We prioritize our product development efforts through a combination of engineering-driven innovation and customer and market-driven
feedback. Our R&D culture places high value on innovation, quality and open collaboration with our partners. 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 $1,239 million , $1,082 million , and $999 million in 2014, 2013 and 2012, respectively.
Sales and Marketing
We derive the 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 continue to primarily sell our software under perpetual licenses. However, our hybrid cloud and SaaS offerings, including certain
AirWatch offerings, are sold as software-as-a-service or pay-as-you-go and generally result in less revenue being recognized up-front than we
would otherwise recognize as part of a multi-year license arrangement. Sales of perpetual licenses require end-user customers to also purchase
maintenance. 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 our virtual infrastructure solutions in their data centers. Our sales cycle can
vary greatly depending on numerous factors, including the size and complexity of the proposed offering and customer’s infrastructure.
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