VMware CEO: Not all IT service providers will survive cloud

Cloud computing represents a fundamental shift in the way technology services will be delivered to enterprises, forcing IT firms to re-look at how they operate now, according to Pat Gelsinger, chief executive officer of VMware, which provides software that enable creation of cloud computing infrastructure within corporate premises.
Gelsinger is convinced that not all major IT firms (including Indian ones) will survive this wave of technology transition.Change may mean sacrificing revenue in the short term said, Gelsinger, an Intel veteran rumoured to replace the retiring incumbent Intel CEO Paul Otellini, a rumour he denied.
The $4.6-billion (Rs 25,000-crore), Palo Alto-headquartered VMware is banking on its developer force in India as it steps into the public cloud market dominated by Amazon and Google. As part of expanding its India operations that currently employ 2,000 people, VMware will invest $120 million here over 2013-14, he told ET in an interview. Edited excerpts...
How do you see the competitive landscape evolving in cloud services market?
This cloud space is still very early, especially for public cloud services. Only about 10% of corporate workloads are running in public clouds infrastructure. Corporations are only beginning to take advantage of it.
We are already engaged with them through our software that enables them to set up private clouds. That puts us in a unique position to help them leverage the benefits of public cloud.
As corporations adopt more cloud-based services, how do you see it impacting the traditional IT services players?
There is an interesting dilemma and an opportunity. I worked with Intel for many years. We had an opportunity to bring out 486 series of chips — 386 was one of my children. The 386 series was working great, it was highly manufacturable and very cost-effective.
Then, we introduced the 486 — it was expensive and it was hard to manufacture. So what did we do? We got rid of the 386 as fast as we could and moved to 486. It was a lousy business decision, until a year or two later.
We had to eat our children — may be that is a bit too graphic — but if we didn't do it, there was the risk of somebody else doing it. That's how I see the dilemma that the IT services companies are facing.
The cloud is a radically more efficient model for delivering services and applications. They may see the revenue opportunity declining in the short term when they make the transition, as Intel did when they moved from 386 to 486.
Profit margins will be lousy, until you get to the other side. The transition will be painful. If they don't evolve and transition, they will increasingly become a boat anchor for the customer.
Are they moving in that direction, or are they in denial?
I don't think anybody is still in denial. May be a year or two ago, they were. There are some who are marvelling at the problem, some who are experimenting with the solution and some who are committed to the transition.
How do these service providers ensure that they don't just end up passing on benefits to somebody like VMware?
They have to sit back and ask themselves: 'What are my differentiable aspects?' What are they today and what can they be on the other side of the transition. They have to come up with strategies to build that into the value proposition they take to the customer.