How VMware became a secret superpower in the cloud wars and why Amazon Web Services should not be happy but Google and Microsoft are thrilled

• Google's cloud boss, Thomas Kurian, had a triumphant moment this week when he announced a partnership with VMware.
• This new deal will give Google's cloud an important opportunity to grab business from VMware's customers, who number nearly half a billion.
• And there were some intriguing details that went on behind the scenes, sources tell Business Insider.
• Click here for more BI Prime stories.

Earlier this week, Google's cloud boss, Thomas Kurian, triumphantly announced he had expanded Google's partnership with VMware - bringing VMware's core technology, and hopefully its customers, to Google Cloud.

This gives Google's cloud an important on-ramp to just about every medium- and large-sized business in the world, almost all of whom rely on VMware.

There were some intriguing details that went into forging this deal, sources tell Business Insider.

First came AWS

Remember, VMware is already best friends with Amazon Web Services, the king of cloud computing and Google Cloud's single biggest, most important competitor.

Amazon's partnership with VMware is sweeping. It was negotiated by VMware COO Sanjay Poonen - also its chief dealmaker - who went to Harvard with AWS CEO Andy Jassy. The two of them agreed that AWS would be the only cloud that VMware's vast salesforce sells alongside its own products, and that it would be the only cloud provider with which VMware engineers work with directly.

In fact, VMware veteran Raghu Raghuram is leading that co-engineering team, sources tell us. He helped build VMware's core products. He's played a key role in the ongoing development of VMware's virtualization products, its core technology that allows companies to manage their software applications, and move them around from one server or data center to another, with no downtime.

Read: How this programmer landed a job on Amazon's disaster relief squad, which has delivered $15 million of goods to displaced people worldwide

The partnership is important to both companies. VMware gives Amazon access to the deep-pocketed corporate customers who use products like VMware vSphere to run their most important business applications, like accounting software from SAP.

VMware has about half a billion customers using its data-center software, it says. Those are the types of customers all the big cloud players are fighting to win.

Those companies were coming to AWS anyway for bits and pieces of their IT needs. But, by bringing VMware's core technology to Amazon's cloud, they can now more easily "lift and shift," as the industry calls it. This means they can move more apps, even all of them, from their own data centers to AWS. A growing roster of enterprises are choosing to do exactly that, in fact.

VMware originally wanted to be Amazon's biggest competitor, and once upon a time had a home-grown rival to Amazon Web Services. But Amazon ate its lunch, and VMware sold its cloud platform and opted to partner with AWS instead.

Without this partnership, VMware could have been left out of the cloud computing revolution entirely, perhaps suffering a fate similar to its previous owner, EMC: oblivion by acquisition.

However, once it locked down a partnership with AWS, VMware's tech became so important to the cloud market that Microsoft eventually elbowed its way into a deal with the company earlier this year, too.

And here's where the intrigue begins.

The way Microsoft forced VMware to the negotiating table had a kickback effect. It allowed Google to do a similar thing, albeit in a more friendly way.

Read: A Microsoft partner tells us that there's an 'obscenely large' opportunity for its cloud as customers are forced to give up a very old version of its database

Not so simple

The intrigue centers around a startup called CloudSimple.

It launched about three years ago and immediately bagged a $20 million round led by Microsoft's VC arm.

It was founded by Guru Pangal, who sold his previous startup, StorSimple, to Microsoft in 2012. Pangal stayed at Microsoft working on Azure for about four years - the traditional lock-up period for stock-related acquisitions - before leaving to found CloudSimple.

CloudSimple became an authorized partner of VMware. Its goal is to allow VMware customers to run their apps on public clouds.

Not surprisingly, Microsoft, who had been a bitter rival to VMware for decades, partnered with CloudSimple.

Microsoft was going to use CloudSimple to bring VMware to its public cloud, Azure, with or without VMware's permission.

That permission is important because without it, when something breaks, a software company can just shrug and tell an IT department: "Not my problem. This isn't an authorized use of our software."

VMware was not pleased. AWS had already been declared VMware's favorite cloud. And because Microsoft and VMware share a lot of the same customers, this could have helped Microsoft grab those cloud customers away from AWS.

Read: There's a growing list of signs that new CEO Thomas Kurian is starting to make Google Cloud more successful with big companies

So Michael Dell, who became a billionaire building Windows PCs and always had close ties to Microsoft, brokered a peace. After its blockbuster merger with EMC, Dell's company now owned the majority stake in VMware. His deal gave Microsoft formal permission to run VMware's software on Azure using CloudSimple.

But he made one big change. He put one of Dell's own companies, Virtustream, in the middle too, competing with CloudSimple.

CloudSimple wouldn't be entirely cut off; it had been engineered from the get-go to run VMware on Azure. And CloudSimple's founder CEO Pangal points out "Our solution is deeply integrated with Azure."

But Virtustream would be the primary partner in Dell's eyes to help VMware's customers move, manage and secure their apps on Azure, sources say.

Enter Thomas Kurian

When Thomas Kurian joined Google to lead its cloud, he started talking to Poonen about a partnership almost immediately, sources tell us. The two of them went way back. Kurian spent most of his career at Oracle, while Poonen worked at its arch-rival SAP, for years. But they were always on personable, friendly terms, sources say.

First, they struck a small-ish deal to make VMware's networking technology work with Google Cloud. This made it easier for VMware customers to put some apps on Google's cloud and link to their own data centers.

But Kurian needed the bigger partnership. He needed to be able to "lift and shift" VMware customers to Google's cloud the way they could with AWS or Microsoft.

So, according to multiple sources, Google approached the spurned CloudSimple, wanting it to build an integration on Google Cloud the way it did with Azure.

With CloudSimple on board, VMware's Poonen had a way to say yes to Google and Kurian without violating its true-love marriage vows with AWS.

For CloudSimple's part, although Microsoft is still one of its investors, the deal between Azure and Dell's Virtustream wasn't good news.

Interestingly, some people don't think this means Google will try and acquire CloudSimple, although that still could happen.

Our sources say Google has the technical chops to build its own integrations with VMware's tech and that VMware has quietly given Google the blessing to do so. But doing so on its own could take years, and CloudSimple provides a shortcut, at least for now.

CloudSimple's Pangal emphasizes that the company is still "partners with both VMware and Microsoft" and "couldn't have developed this technology without their help."

He also emphasized, "Microsoft invested in us and Google, after extensive engineering due diligence, chose to work with us exclusively." And he pointed out, "For three years we've had fifty engineers developing the platform which is an unusually large investment of time by some very senior engineers."

VMware's fail became its superpower

Ironically, this means that VMware's total failure to become an AWS competitor has become its superpower.

As Poonen gleefully tweeted after the Google deal was announced, all the major cloud players have partnered with VMware: AWS, Microsoft, Google, Alibaba and IBM.

Interestingly for those cloud players, that also means that VMware isn't just the mechanism for AWS, or the others, to grab enterprise customers. It's also the method by which these platforms can lose them.

Enterprises don't like to be locked in to a single vendor. By keeping VMware's software, they can fairly easily move their apps and data to another cloud.

Google actually already offers a "cloud migration" tool to move customers from AWS to Google Cloud. This week, it launched a beta version to help customers take their apps from Microsoft Azure to Google Cloud, too.

The double irony: IBM was the first VMware partner, back in the days when VMware still hoped to best AWS. IBM now owns VMware competitor Red Hat, but IBM still has the most VMware customers to date on its cloud, at over 1,700, according to a 2018 blog post.

A VMware spokesperson tells us that despite deals with other cloud vendors, AWS is still VMware's top partner in the cloud, and the partnership is going strong.

"VMware has great relationships with AWS. AWS is our strategic and preferred partner in cloud, and together we have jointly engineered and delivered our VMware Cloud on AWS service. This service is doing very well in the market and is now in 16 AWS regions globally."

A Google spokesperson said the partnership with CloudSimple will help companies use multiple clouds (aka the "hybrid" cloud): "We're excited to bring Google Cloud VMware Solution by CloudSimple to market. CloudSimple are great partners, and we have a lot of early interest from customers. We see this as an important announcement in making the hybrid cloud a reality. "