VMWare is running scared of Hyper-V, which is good enough now for most use cases and comes free with a Windows server license. For Windows shops, SMB's, etc this is a no-brainer.
On the cloud front, no one uses their expensive product. You'd use KVM, Xen, Proxmox, etc that you had the source for and could modify. If you're running linux you might as well run a linux hypervisor.
I suspect these layoffs were rational moves for a changing industry. We're testing Hyper-V at work to get away from VMware licensing, which is fairly stiff, for the few thing that aren't on the cloud/VPS. The industry is changing again and the room for big VMware shops is smaller than it was just a few years ago. There's way too much economic sense to move to cloud providers instead of hosting your own.
As a VMware employee from 2007 to (January) 2014 the only time I recall any fear from leadership or product teams about HyperV was in 2008 or so when it was about to come out and then for a little while after it first came out. We knew we had a several year lead over Microsoft and wanted to make sure we stayed ahead of them feature-wise. After 2009 I don't even recall people bringing up Microsoft or HyperV in conversation; we were more focused on competing with cloud platforms.
If you have such a good team, which arguably developed many features that also ended up being part of the VMWare Server product, and in fact bootstrapped the company itself, then you pivot your product and keep the team, not the other way around.
Or I may be wrong and established companies should play by different rules than startups regarding their more productive teams, because it's more cost effective.
Workstation and Fusion have never been free, and not even "cheap".
The problem is that really-free alternatives are now good enough for most uses: VirtualBox is the go-to choice for Linux and OSX and is fairly solid, while Hyper-V now ships with Windows and is overall quite good.
VmWare have also run out of mainstream features to add, so it got harder and harder to solicit paid upgrades for what is basically an old-school shrinkwrap.
What they will likely do is freeze the codebase and turn it in a mini-SaaS where you don't get Tools updates and new OS support unless you pay a yearly sub. In practice that's already the case, they will just make it more locked down. You don't need talent for that sort of thing.
Hyper-V also ships these days on client Windowses too. I personally was quite pleased that I didn't need to install third party virtualization solution anymore on my workstation.
Pretty poor, right now, unfortunately. I was looking at replacing VMWare Workstation with Hyper-V. However, when I installed Ubuntu Desktop on a brand new Hyper-V VM, I had to do some grub hacking to pass kernel parameters to get the display resolution right. Even after I got the display resolution right, there was a noticeable lag in the GUI refresh. I know that maybe with some more hacking I could have gotten everything to work just as well as it does on VMWare Workstation, but that proves my point. In VMWare, everything Just Works, out of the box. In Hyper-V, you need to tweak things to to work, and it's not clear what all things you need to tweak.
Allegedly that will be improving with Windows Server 2016, which is supposed to have better support for GPU acceleration for VM guests, but I'm waiting to see what actually gets delivered before I get excited.
On the cloud front, no one uses their expensive product. You'd use KVM, Xen, Proxmox, etc that you had the source for and could modify. If you're running linux you might as well run a linux hypervisor.
I suspect these layoffs were rational moves for a changing industry. We're testing Hyper-V at work to get away from VMware licensing, which is fairly stiff, for the few thing that aren't on the cloud/VPS. The industry is changing again and the room for big VMware shops is smaller than it was just a few years ago. There's way too much economic sense to move to cloud providers instead of hosting your own.