Tuesday, September 22, 2009

Microsoft's Latest Threat: VMware

VMware will make a big push into the desktop and notebook market, with technology to allow users to do work even when not connected to a network. In data centers, VMware wants to demonstrate that the next frontier beyond hardware savings is the reduced operating costs that result from increasing the number of servers that are "virtualized."

Microsoft 's No. 1 rival is a household name, Google. But a strong candidate for No. 2 is a company scarcely known outside the technology industry: VMware.
"VMware is definitely a threat," said Gary Chen, an analyst at IDC, a research firm. "After Google, it is the company Microsoft fears most."

Google and VMware, which is based in Palo Alto, California, pose a broadly similar challenge to Microsoft, by potentially undermining the dominance of its most lucrative desktop software and operating systems. Google represents the attack from above, while VMware is the assault from beneath.

Google, the search giant, is offering free and advertising-supported software for e-mail, word processing, calendars and spreadsheets online as alternatives to Microsoft's popular Office products. For Web-based programs like these, it is the browser -- not an operating system like Windows -- that is the vital layer of software on the computer.

VMware is the leader in so-called virtual machine software, which allows a computer to run two or more operating systems at once. Its software resides on top of the hardware and beneath the operating system.

But as VMware's technology becomes more powerful and adds more features to its products, it is starting to supplant the operating system from below -- just as the browser can from above.

VMware's leadership adds an edge to its challenge. A year ago, Paul Maritz, a former senior executive at Microsoft, took over as chief executive. In the late 1990s, he was regarded as Microsoft's third-ranked executive, the person with the most responsibility and authority after Bill Gates and Steven A. Ballmer.

Mr. Maritz walked away from Microsoft in 2000 a very wealthy man, and he focused mainly on philanthropic work like microfinance, conservation and rural development, especially in Africa (he was born and raised in Zimbabwe). In 2003, he founded a small Web start-up company, but his business interests were a far cry from the mainstream of corporate combat.

The lure at VMware, Mr. Maritz explained, was the chance to lead a company riding a wave of disruptive, game-changing technology. "It's a rare opportunity to be part of a paradigm shift," he said. "That's what attracted me."

In January, Mr. Maritz was joined by Tod Nielsen, another former Microsoft executive, who became VMware's chief operating officer.

As 11,000 business partners, developers and customers gather in San Francisco for the start of the company's VMworld conference on Monday, the strategy under Mr. Maritz is clearly taking shape. This month, the company said it planned to pay $420 million to acquire SpringSource, a maker of open-source software development tools, some of which analyze and tweak the performance of software applications. Adding such features could allow VMware's technology to essentially sidestep an operating system like Windows.

So far, virtualization technology has been used mainly to achieve cost savings in data centers, where it lets companies handle computing chores with fewer machines, using less energy and floor space. Now, companies are increasingly starting to use virtual software to manage desktop software that is being delivered to their workers on PCs across the corporate network.

VMware plans to make a big push into the desktop and notebook market, introducing technology next year to better handle high-end graphics and allow users to do work even when not connected to a network.

In data centers, VMware wants to demonstrate that the next frontier beyond hardware savings is the reduced operating costs that result from increasing the number of servers that are "virtualized."

Today, VMware says companies typically have one human administrator for every 50 server computers, while data centers with more than half of their machines virtualized can fairly quickly increase that to one to 200.

"We have to go beyond capital costs to speak to doing more for our customers by using virtualization to reduce operating costs and operational complexity," Mr. Maritz said. "We are entering a significant turn in this market."

And, he observed, "We do have the footsteps of Microsoft behind us."

Indeed, Microsoft is coming. And its game plan is a rerun of the strategy it used in the Web browser market -- bundle its free virtual machine software into its operating system. Last July, Microsoft introduced its HyperV virtual machine in Windows Server 2008. New features that help it catch up to VMware will be introduced in October.

"Our strategy is to integrate virtualization into our product line in Windows, with our management software and the familiar Microsoft developer tools," said Mike Neil, a general manager in the Windows server division.

Microsoft has a long way to go. At the end of last year, more than 80 percent of virtualized computing workloads ran on VMware, analysts estimate, with the remainder shared by Microsoft, Citrix Systems' Xen, Virtual Iron and others. But only 15 percent of servers have been virtualized, and with that percentage likely to at least double or more over the next five years, there is still plenty of opportunity in the market.

There is considerable interest in Microsoft's bundled offering, analysts say. A recent report by Gartner projected that Microsoft's share of installed virtual machine software would increase to 29 percent by the end of 2012 from 8 percent at the end of last year.

"Microsoft is going to be very formidable in this space," said Stephen F. Shuckenbrock, president of Dell's large enterprise division, which is a partner of both VMware and Microsoft. "Many customers, at the very least, are intrigued by the free virtualization software bundled by Microsoft."