Broadcom Deal for VMware Highlights the Rise of Virtualization

The $61 billion acquisition of VMware reflects growing demand for software applications that replace expensive computer hardware

VMware helps businesses replace bulky computers and equipment with cheaper, more nimble software.

Photo: Jordi Boixareu/Zuma Press

Broadcom Inc.’s $61 billion acquisition of software maker VMware Inc. , announced Thursday, reflects a relentless drive by companies to run an ever-growing portion of their operations in the cloud, corporate technology leaders and industry analysts say.

VMware’s software provides an essential, below-the-radar component of that process designed to help businesses work across different cloud platforms—in part by replacing bulky computers, data and networking equipment with cheaper and more nimble software, they say.

The idea of virtualization is key to that modernization. It’s comparable to replacing a watch, a voice recorder, a phone and a camera with a single smartphone that supports digital versions of all of those tools. In recent decades, that concept has been used to replace expensive, hardware-based computing systems with more efficient software-based ones.

“Virtualization has become incredibly important,” said Karena Man, a consultant at management consulting firm Egon Zehnder.

Here’s a look at why VMware’s software virtualization is in demand.

How was VMware started?

Computer scientists Diane Greene and Mendel Rosenblum met at the University of California, Berkeley. They later married and co-founded VMware, which launched in 1998 with Ms. Greene as CEO. The company was acquired by EMC Corp. in 2004. After a series of ownership changes, Dell Technologies Inc. said last year that it would spin off VMware Inc.

Over the years, the company emerged as an important supplier of software to corporations looking to achieve more efficiency in their computing systems. In February, VMware reported $12.85 billion in total revenue for its 2022 fiscal year, up 9% from 2021, fueled by online software revenue.

What does VMware do?

VMware’s core virtualization software essentially converts hardware into software applications, or “virtual machines”, that run on a server and perform the same basic functions as a physical computer or data and networking equipment.

“Virtualization was the first step in untethering software from hardware,” said Sunny Gupta, co-founder and chief executive of software firm Apptio Inc.

Because each application has its own operating system, multiple virtual machines can operate independently on a single server. As such, they do not compete for computing capacity, said Andrew Lerner, a research vice president at consulting and research firm Gartner Inc. The virtual machines are held together by software called a hypervisor.

Ted Smith, president and co-founder of Union Square Advisors LLC, said VMware built a successful business by telling CIOs managing large data centers “we can help you manage these in a much more efficient way.”

Why does virtualization matter?

Virtual machines can be shifted among data centers, private clouds and public clouds. That enables companies to combine computing, data and storage resources across their own systems and those of third-party cloud vendors, which rent computing resources to their customers.

A key advantage of virtualization is the portability of applications, said cloud consultant and former VMware solutions architect Sarbjeet Johal. This is important, Mr. Johal said, because when companies have applications running in the cloud, they might need access to company data that typically lives in a private data center. VMware allows companies to easily transport that data where it needs to go, he said.

“Hybrid cloud is a concept where people can run workloads between public cloud and private data centers seamlessly,” said Milan Shetti, chief executive of Rocket Software. “It wouldn’t happen without virtualization,” he said.

Without virtualization, companies have to take a “peanut butter” approach to IT, where applications are “spread evenly throughout the organization and everything gets the same amount of storage,” Egon Zehnder’s Ms. Man said. With cloud computing, you have far more flexibility, she said

Write to Angus Loten at and Isabelle Bousquette at

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