Surprisingly, VMware (NYSE:VMW) has become a top contender in the cloud-based email market space with its product Zimbra. VMware acquired the cloud-based email company from Yahoo! in 2010, and is becoming a strong player in the cloud-based space, especially when it comes to government contracts. 
- VMware Reports Positive Q3 Earnings, Robust Outlook For 2016
- VMware Earnings Preview: End-User Computing, Network Virtualization To Drive Growth
- VMware’s Services Division To Benefit From Sustained Growth In Global Cloud Computing Market
- VMware Earnings: Hybrid Cloud, End-User Computing Services Drive Top-Line Growth
- How Has VMware’s Revenue & EBITDA Composition Changed Over The Last Five Years?
- What Will VMware’s Revenue And EBITDA Look Like In 5 Years?
Traditional hosted email has historically been a two-horse race between International Business Machines‘ (NYSE:IBM) Lotus Notes and Microsoft’s Outlook. For organizations with 500 email seats and above, Microsoft had a mammoth market share of close to 75% as of 2011, while Lotus notes had less than 10%, according to Microsoft. The market shares were comparable in smaller sized organizations, but all of this changed with the entry of Google’s Gmail, hosted on the cloud. It was easier and cheaper for smaller organizations to implement Gmail, and the market quickly went for the enterprise version of the successful email service.
Google also successfully acquired market share because of its collaboration tools and a web-based office-like suite with Google Docs. Microsoft was quick to adapt to the changing trend and introduced Microsoft Office 365, and the market is now again a two-horse race, with Google and Microsoft contending for the top spot. However, IBM is gearing up to launch its own web-based documentation suite with IBM Docs as part of its smart cloud initiative. The service is currently available in the beta phase.
But here we will analyze VMware’s hold in the cloud-based email market space.
VMware Gets A Foothold In Cloud-Based Email
According to the General Services Administration, there were 42 federal government contracts for which Google, Microsoft and others competed for in 2012. Out of this, Google won 23 deals, Microsoft 10 and the rest went to Zimbra. IBM, which is one of the top players in traditional hosted email did not feature prominently as its Smart Cloud Initiative, IBM Docs, is fairly new. This is a big win for VMware and is likely to drive its revenues in 2013.
With the market share data reported by Microsoft, we calculate that the market size of large enterprise email is upwards of $7 billion in 2013, and this is just the market size of large institutional email and does not factor in small businesses and cloud clients, which is likely to become a much bigger market as smaller players can afford cheaper cloud based email services over traditional hosted email.
The worldwide hosted email installed base for 2013 is expected to be around 3 billion mailboxes and is a big market opportunity for VMware, which is looking to diversify from its core virtualization business as it faces competition from players like Microsoft. We expect VMware to have revenues of about $5 billion in 2013, and this may grow based on how its email service gains traction with institutional clients.
According to our analysis, virtualization software is is the largest division of VMware and accounts for nearly 90% of the company’s value. We have a $110 Trefis price estimate for VMware, which is around 25% above the current market price.Notes:
- Microsoft vs. Google Apps: Surprise Winner VMware Zimbra?, www.thevarguy.com, Jan 1, 2103 [↩]