As The PayPal Vs. VMware Story Turns

In the past week, a story that was originally reported in InformationWeek, among other places, said PayPal was adopting OpenStack. Then the story took on a life of its own -- as some outlets reported that eBay was booting VMware off 80,000 servers and replacing it with OpenStack. Let's examine what conclusions can be drawn about this saga -- and VMware's future.

When InformationWeek first asked a PayPal spokesman, Saran Mandair, about PayPal's plans, he responded with a minimum of information, omitting any reference to replacing VMware. Boris Renski, a spokesman for the consultant on the project, Mirantis, was theoretically in a position to know the scope of PayPal's plans and he offered the "80,000-servers conversion" line. InformationWeekdeclined to report something PayPal itself was unwilling to say, even though a seemingly knowledgeable source was claiming it.

Two other sources, however, reported the story as Renski represented it. "In A Dangerous Sign For VMware, PayPal Chooses Rival OpenStack," said the headline on Business Insider on March 25. Reuven Cohen in his column in Forbes, picked up the theme on March 26: "PayPal To Drop VMware From 80,000 Servers and Replace It With OpenStack." The source was Renski, not PayPal.

PayPal doesn't have 80,000 servers; it has closer to 9,000. But part of the appeal of the story was the presumption that if PayPal converted, parent eBay would as well. And in that way, a magic wand was waved over 9,000 servers and they became 80,000.

At the peak of the story's twists, one knowledgeable observer tweeted, "I'm replacing 80,000 calories with OpenStack," as an equally sensible statement.

[ Want to learn more about how Mirantis is converting PayPal to OpenStack? See OpenStack Deployment Tool Goes OpenSource. ]

There's an assumption in these headlines that VMware and OpenStack are two different things, and a customer has to choose one or the other. PayPal might be focusing on OpenStack for its future cloud management, but that doesn't rule out continued use of VMware. In fact, VMware joined the OpenStack board of directors last fall in part to ensure that ESX Server workloads would workin an OpenStack cloud.

In listening to what PayPal was actually saying, it was always possible, in my opinion, that PayPal would use OpenStack for its new cloud applications and a growing part of its infrastructure, but continue to operate VMware, either independently or under it. PayPal could announce it was converting to OpenStack and still use VMware for many years to come. This would be true even if someone inside PayPal said he expects all of PayPal to one day run under OpenStack. Those who disbelieve this don't understand the staying power of effective systems, once installed.

The Forbes and Business Insiderheadlines, however, made PayPal a tipping-point story. If PayPal was ripping out VMware to put in OpenStack, then VMware had reached its crest of data center success and was about to fall into a steep decline. Savvy companies, such as PayPal, were about to cut it back. That could happen someday, I don't know. But somehow I don't see PayPal seeking a major upheaval right now in exchange for a few saved VMware licenses.

But such subtleties are not what tipping-point stories are about. It's better if a one-time innovator, VMware, is shown to have been on a phantasmagoric roll which came to an end one morning when Wall Street woke up and discovered virtualization was nothing but smoke and mirrors. If the relationship between VMware and OpenStack is not well understood in the technical community, you can be sure it's not well understood on Wall Street. From the time these stories broke until the opening of trading Thursday, $2 billion in value emptied out of VMware as its stock dropped below $76. It has since recovered about three-quarters of the loss to $78.89.

PayPal's Mandair initially told me in an email for a March 25 InformationWeek story that PayPal was deploying OpenStack "to help transform our global infrastructureinto an agile and open cloud platform." Mandair is senior director of platform engineering and operations; it sounds from this like all of PayPal's infrastructure is undergoing the transformation, but few details were offered.

PayPal's Nat Rajesh Natarajan, VP of platform engineering & operations, then offered up a more specific statement used in VMware senior VP Bogomil Balkansky's March 27 blog. While PayPal was implementing OpenStack, its purpose was to "enable agility, innovation and choice. We're not interested in a 'rip and replace' approach. In fact, this collaboration will help us utilize robust virtualization technologies, such as VMware. They are a valued PayPal partner and we intend to continue leveraging their core strengths ..." Natarajan said, according to the blog.

If you combine that obvious statement of support for VMware with comments from Mirantis CEO Adrian Ionel, you get a fuller picture. Ionel told IT Pro that Renski was "exaggerating the use case" of OpenStack at PayPal and that Renski's "knowledge of the project is secondhand and therefore limited."

Renski is an outspoken founder and executive VP at Mirantis and would have had a hand in hiring Ionel. You can imagine the tensions between Mirantis and its consulting client PayPal if Ionel is now issuing statements of this sort. But Renski's statements, describing PayPal's intentions when PayPal was unwilling to do so itself, hurt a PayPal business partner. For whatever reason, PayPal chose to stand by VMware. There was little else Ionel could have done besides countermand some of Renski's statements.

Renski, the last time I contacted him, was exercising a self-imposed gag order.

Which leaves me with two conclusions: It's a mistake to think VMware will not find ways to work with modern cloud services, especially OpenStack. That's true despite VMware COO Carl Eschenbach's intemperate remarks about the need for VMware partners to beat "a company that sells books." As Amazon CTO Werner Vogels tweeted afterward, as long as competitors believe that's all Amazon does, Amazon Web Services "will be fine."

VMware knows the public cloud is here to stay and is busy not only competing with it but accommodating itself to it as well, hence, its membership in OpenStack, support for the OVF format and ability to send workloads to EC2.

Second, Wall Street's and investors' ongoing confidence in VMware is shaky. Wall Street analysts don't have a deep understanding of virtualization or how central a role it will play in the data center of the future. Wall Street wonders if VMware's version of it is somehow now outdated. VMware stock suffered a similar plunge as it came out of its fourth-quarter earnings call, having missed analyst expectations on revenue growth. VMware has been and remains a results company. It got to where it is by providing software that ushered in both savings and a new era of managed, virtualized resources. It's still tuning up its approach to the next era, the era of mixed public and private cloud resources, but it's much too early to dismiss VMware.

And if I can add a third conclusion, it's that a sense of militant support on behalf of OpenStack is going to lead to momentary unsupported claims or reality distortions. Partisans are necessary to battle forward against opposition, but OpenStack is so broadly accepted that it's time to start guarding against any exaggerated claims being made for it.

Renski, you may remember, was the member of the OpenStack board of directors who voted against the admission of VMware to the board on the grounds that its proprietary interests were inimical to those of the project's. I disagree with that vote, but I respect someone who states his conviction -- plausible under the circumstances -- and acts on it. It is good, in my opinion, to have a critical, watchdog personality on the project's board.

On the other hand, I wouldn't turn to Renski for advice on whether to invest in VMware. I wouldn't even turn to him for advice on an OpenStack company. Cloud users are sorting out for themselves how they will operate in house versus how they will connect to the cloud. PayPal is one of those large Internet companies that will lead the way, but the uniform, online nature of its digitized services makes it a different case than the typical, mixed-application enterprise.

Much work remains to be done before anyone can be declared a winner or loser in the new hybrid cloud era. The customers paying the bills will invest little energy in who wins debates at this early stage, but plenty of energy with the parties willing to help them map the way.

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