Welcome! This week we’re talking with Sanjay Poonen, the former Chief Operating Officer of VMware. Sanjay was previously a President and Corporate Officer at SAP and a software engineer at Apple.
Tien: Welcome Sanjay! Just recently, SaaS revenue at VMware exceeded its on-premise license revenue. That’s a huge transformation for a company that had no subscriptions just a few years ago. Talk to me about VMware’s journey to subscriptions: how did it come about and how have you been able to turn around the aircraft carrier?
Sanjay: Sure. So VMware had seen enormous success as in the on-prem world — lots of big up-front deals — but we saw a lot of our customers moving their workload to Amazon and other cloud services. And our thesis was that if we don’t follow our customers’ shift into the cloud, we’re going to become a legacy company. So out of necessity, we needed a cloud strategy. We needed the VMware stack to thrive in places like AWS and Azure and Google.
Tien: It’s great that you’re starting with the customer here. Lots of people think of shifting to subscriptions as simply taking your existing product — a piece of hardware, a piece of software — and trying to figure out how to sell that asset over time. But the more you learn about this process, the more you realize you’re actually just aligning to your customer’s ever-changing needs. And when you look at it from that perspective, you realize this really wasn’t a choice about process. This was a choice about relevancy.
Sanjay: Absolutely. When I joined VMware, Amazon was considered an enemy. It was a lot like the Cold War between the United States and the Soviet Union. And it fit the mood at the time. We were thinking very defensively. Our stock was at a low point. We were never at risk of going bankrupt, but it was clear that we were facing an existential crisis. Your passage in the book on Adobe is a really good analogy.
Tien: Right. And that makes sense from a product perspective. Amazon was a clear competitor. But from a customer point of view, Amazon was an important part of the landscape. It would be silly to pretend it didn’t exist.
Sanjay: Yes. We had to think of ourselves as another service, which meant that we had to be a SaaS offering, just like Amazon. So four years ago we started the first organic efforts of the company to shift our on-premise virtualization capability in the data center to a SaaS capability.
Tien: Like Wayne Gretzky said, you have to move where the puck is going.
Sanjay: We decided to have a Berlin Wall moment. We brought the leaders of both companies together and had a big event, because it made sense for all of our customers. Of course, we still work with a lot of companies in highly regulated industries that require private cloud infrastructure. Big banks, for example. That’s just how it is. Certain companies are always going to want to own their own servers. But the market was moving towards hybrid models, the wall had to come down, so that’s where we went.
Tien: That makes sense. The Berlin Wall didn’t fall down because of poor maintenance. The Berlin Wall fell down because people wanted to move from one place to another, and it was in the way. But you’ve been in technology for a while. This isn’t the first time you’ve seen this kind of mass migration.
Sanjay: Certainly not. You know, I used to work in hardware and security: laptops, devices, productivity applications. And it seems hard to believe now, but personal cell phones also used to be the enemy. They were considered unsafe. It was another kind of Cold War. And then the iPhone came along and changed everything. People were working on their phones now. We had to move with the market. So we bought a SaaS company called Airwatch out of Atlanta that handled device security. It was a big deal for us at the time, because they were a pure SaaS offering.
Tien: What advice would you give to a large technology company with a nascent subscription business. How do you nurture that?
Sanjay: Well, the CEO at AirWatch reported to me, but I left him alone for a couple of years. But then to really get scale, you need to take advantage of the mothership right? You need to leverage the VMware brand the help land more deals. In order to multiply this SaaS offering from $100 million to two or three or four times that, you need to give it autonomy, while building hooks into the mothership. And so far it’s going really well.
Tien: So you start off small, you incubate, but then at some point you turn it into the consciousness of the entire organization.
Sanjay: Look, I would be happy to burn the boats. I would be happy to go all SaaS. This is clearly where things are headed. Look at the auto industry right now. If you’re not thinking about EVs, you’re dead. It’s the same with software. But I have to be realistic. We work with the US Army, the Navy. They want their own cloud. If I dropped that part of our business overnight, the stock would tank. The bigger the company, the harder the change, because you’re dealing with the law of large numbers.
Tien: It’s hard to find an incentive to change when things are going really well.
Sanjay: When you’re landing these huge deals, and the reps are all high-fiving each other, that situation doesn’t really lend itself to much introspection. The good news is that the COVID crisis forced us to take a step back. To see that some big changes got accelerated and that we need to adjust, or we’re not going to be able to compete.
Tien: I think that’s a process that we’ve all shared this year. So what’s next for VMware? You just made an announcement about a new platform called the “Anywhere Workspace.”
Sanjay: Yes, this is the result of all those deliberations I just mentioned. Today, work is what you do, not where you do it. This is our new reality. So we’ve created a whole suite of tools to help empower distributed workforces. Speaking of companies re-imagining themselves as services, Anywhere Workspace is really about creating a digital-first culture that puts the employee experience first. It’s something we’re really excited about.
Tien: Work is what you do, not where you do it. Amen to that. Thanks, Sanjay!
Sanjay: Thanks, Tien!
Watch Tien’s interview with Sanjay Poonen here.