Virtualization Notebook

The company now has a presence in 25 countries including Belgium, Singapore, and Nigeria and sells primarily to business markets through distribution partners. Segal says they have yet not tackled the U.S. market and are still deciding whether to approach it from a  consumer or business standpoint. He also believes that the company's product aligns very well with the goals of the One Laptop Per Child foundation. Developing countries can use the technology to great advantage and chip away at the digital divide in which 75 percent of the world's PCs are deployed in only 15 countries.

A Few Notes on Greene’s Departure. When Microsoft's Hyper-V was made available last month, I remember wondering if VMware was going to come up with some news designed to take some of the wind out of Microsoft's sails. Well, problem solved. Based on a lot of conversations I've had with industry insiders and analysts, Diane Greene was a much admired and well respected figure in the virtualization market and within the company she founded and built into the powerhouse it is today. Although I haven't yet had the pleasure of meeting her, I did take notice of her unique and personable management style as CEO which, while not "fitting the mold" from an investor point of view, was certainly refreshing. Let's hope we see more of Diane Greene in the IT industry going forward.

Posted by Tom Valovic on 07/21/2008 at 12:49 PM0 comments

VMware vs. Microsoft: The Battle Is Joined

While VMware's success in virtualization will undoubtedly continue, what analysts like to call the "total available market" is still up for grabs with about 10 percent of servers virtualized, the hosted/local desktop segment (including application virtualization) still formative, and storage only in early innings.

So questions abound. Can VMware now under Paul Maritz keep up the momentum and kick-start the kind of strategic market positioning that investors seem to have wanted from Diane Greene? Will her unexpected and possibly mishandled departure create a wave of attrition in senior executive ranks? (Note: Husband and co-founder Mendel Rosenblum still appears to be on the payroll.) And will Maritz, who left Microsoft eight years ago when it was, for all intents and purposes, a different company, be able to parlay his experience there to ready VMware for more competitive battles ahead?

The annals of IT market history are full of examples of early movers who pioneered a market, did the heavy lifting and tackled the missionary marketing only to have a much larger company stroll in at just the right time to not only fully legitimize that market but scarf up a large portion of market share. Will this be VMware's fate if EMC's increased involvement turns out to steer the company in the wrong direction?

What are your thoughts? Weigh in here or fire off an e-mail.

Posted by Tom Valovic on 07/14/2008 at 12:49 PM3 comments

Management Conflicts, Strategy May Be Behind Greene Exit

While theories abound, Greene's determination to maintain the autonomy of the company is well known. She has stated publicly her desire to disengage from EMC at some point in the future.

In addition, Greene reportedly differed with Joe Tucci, EMC's Chairman and CEO, over this issue as well as fundamental aspects of how the company should be run and how deals should be structured.

According to Rachel Chalmers, an analyst with the 451 Group "the tension has existed for a least a year, maybe more with EMC management." According to Chalmers, "EMC wasn't even allowed to sell VMware products tightly integrated with EMC storage."

The issues of both company financial results and the handling of strategy were also in the mix, according to analysts. At issue was whether the company has been properly positioned to meet the demands of the next phase of competition involving companies such as Microsoft and Citrix, as well as large systems vendors such as HP, IBM, Oracle and others.

Frank Gillette, a vice-president with Forrester Research, said the company was in good shape to stay on track until 2010 regardless of competitive activity, but noted that while "VMware executed very well on the paradigm it built," it may now be "lacking the marketing, strategy and leadership to jump up to the next level."

In terms of financial performance, investor concern was heightened last year when fourth quarter results failed to meet expectations. Although the numbers got back on track in the first quarter of this year, the company has lowered forecasts for the current quarter and said in a statement, "We expect revenues for the full year of 2008 will be modestly below the previous guidance of 50 percent growth over 2007."

Posted by Tom Valovic on 07/09/2008 at 12:49 PM0 comments

What’s Behind Greene’s Departure?

The hazards for a technology and engineering-driven company that has a better mousetrap that “sells itself” are well established. The challenge is to make a kind of quantum leap to optimizing their marketing game. There’s a long list of companies that couldn’t make the adjustment. Banyan, DEC, and many others spring to mind.

VMware’s success has been tied to its ability to provide a broad and deep best of breed product portfolio in virtualization. But success in a sole source market is a very different from success in a highly competitive market.

At a Sanford Bernstein conference a few months ago, Diane Greene was pressed hard by financial analysts on the need for the company to change the company’s pricing model. She was asked repeatedly and somewhat aggressively about this and in my view did not come up with entirely satisfactory responses preferring instead to sidestep the issue by stressing the ROI that customers enjoyed with VMware products.

My analyst’s alarm bells went off at hearing this and I took it as a bit of a warning flag. Just a hunch of course but my take at the time was that Greene and the company were digging in on pricing at just the wrong time.

What many in the industry seemed to have wanted from VMware was a sign or a signal that the company was not only reading the handwriting on the wall but were capable of adjusting a winning game to meet changing market conditions. Adjusting a losing game is a no brainer. But doing the same when you’re way ahead of the pack is a special kind of challenge that sometimes only a fresh perspective can pull off.

Speculatively, these may have been factors involved in Greene’s surprise exit. These of course are my own ruminations and I’ll be digging deeper into cause and effect over the next several weeks. But at least one analyst I spoke with, Frank Gillett, a VP over at Forrester who knows the company inside out was also thinking along these lines.

Gillett said the Forrester view is that the company was in good shape to stay on track until 2010 no matter what competitors did. But he told me that while VMware executed well on the paradigm it built, “what I didn’t see was the marketing strategy and leadership to jump up to the next level.”

Another logical tack relates to financial performance. There was a lot of hand-wringing last year, when VMware’s fourth quarter results failed to meet expectations. But the numbers got back on track in Q1. At that time the company projected 2008 revenue growth of around 50 percent over 2007.

Interestingly, in VMware’s public statement about the Greene’s departure, the company concluded with a paragraph about financials and said “while VMware is not updating guidance for Q2, we expect revenues for the full year of 2008 will be modestly below the previous guidance of 50% growth over 2007.” Modest? Modest enough to send Diane Greene packing?

More likely this was less about revenues and more about future direction and the ability of the company to change its game in a new environment. But sooner or later a clearer picture of what happened to Greene will emerge and with it a clearer sense of where VMware is headed and whether it can maintain its position as industry leader.

Posted by Tom Valovic on 07/09/2008 at 12:49 PM0 comments

Network Virtualization: The Cisco Factor

Analysts get paid to have opinions. Some observers think that those opinions have gotten too homogenized over the last several years, more groupthink is evident, and analysts as a community are in general more risk-aversive than they used to be.

There may be some truth to this. But the analysts that I’ve always admired as colleagues were those who didn’t mind taking a contrarian stance now and then. That’s why when I saw a research report suggesting that three vendors --- namely Cisco, VMware, and Citrix --- would dominate the virtualization market in the next year, it caught my eye.

The obvious question of course: where’s Microsoft? I spoke with Charlie Burns, one of the report’s authors to dig a little deeper. At the root of their contention is a key premise. Saugatuck sees network virtualization as coming on strong next year. The report states that “through 2010, server virtualization will have the single largest impact on budgets for IT hardware and support. The second largest impact will be network virtualization.”

If you accept this premise, then of course it’s a breeze to pass through a logic gate to Cisco being a dominant force. But this is where it gets tricky because everything depends on how exactly you define network virtualization. And this is a segment of the market that in my opinion has the potential for lots of fuzzy logic and less than rigorous interpretations.

So let’s take a shot. There are really two kinds of network virtualization. First, what’s been around for years with VLANs, VPNs, and other virtual types of partitioning. And then there’s this new beast, what might be called network virtualization 2.0 which involves a new array of products to support server, desktop and other kinds of virtualization. Cisco is involved in both and, as a minority investor, is working with VMware on the next generation data center where a lot of these new products and approaches are still being developed.

So here’s the definitional problem I alluded to earlier: network virtualization 2.0 products are still in development. So as the Brits might say, not bloody likely that they’re going to make a huge impact on the market next year especially against the likes of Microsoft in other areas of virtualization. However, if you want to throw the first kind of network virtualization into the mix, sure Cisco is selling a ton of gear (such as Catalyst switches) that use virtualization (which, of course, has nothing to do with hypervisors per se.)

As to Microsoft’s conspicuous absence in the top three, Saugatuck contends that Microsoft will not be a fully engaged market force in 2009 as it continues the process of rolling out Hyper-V. “Microsoft’s new solution will not be production-ready for most users for 6 to 12 months after its release”, the report states. You could certainly argue that a lot of early deployments will be used for test and development. You could further argue that VMM 2008 still hasn’t gone into G/A and won’t be available until later this year.

In fairness to the report’s authors, Charlie Burns and Bruce Guptill, the report was issued earlier this year, well before the release of Hyper-V. And the report really got me thinking which is what good research is supposed to do even if you don’t agree with its conclusions. But without better distinctions between network virtualization 1.0 and 2.0, additional detail of which Cisco products we’re talking about, and some hard numbers on the same (which coming from Cisco might be pretty hard to get), I’m not prepared to buy into the “Cisco in the top three” conclusion.

Posted by Tom Valovic on 07/08/2008 at 12:49 PM0 comments

Microsoft’s New Direction

The trade press and blogland are full of stories about Microsoft milestones (Bill Gates stepping down, Windows XP’s end of life, to name a few.) This is lending itself to much speculation about the company’s future direction, given any number of business model challenges and emerging technology opportunities.

The list is long, but for the moment let’s focus on things like cloud computing, SaaS and other trends being fully exploited by Google as it quietly (or maybe not so quietly) takes over the world. (I tend to think of Google as the brontosaurus in Jurassic Park -- a large beast of formidable proportions with a somewhat likable demeanor that disarmingly belies its great power. But come to think of it, that metaphor only captures a piece of it and lacks sufficient scope and scale, which is why I love the Doug Coupland meme “Is Google God?”)

Clearly, Microsoft has even more reassessing to do and is at what analysts like to call an "inflection point", suggesting the possibility of an “extreme makeover” or at least some sort of major overhaul to capitalize on the shifting winds in IT models and architectures. But, hey, it’s not like the company is happy-valley oblivious to the various and sundry threats eroding its long-time hegemony as was the case for some other IT systems vendors (think IBM pre-Gerstner). The strategic changes are already evident, and virtualization is one of them.

One thing seems clear: virtualization is very much at the heart of the company’s new strategic direction. Analyst Judith Hurwitz sees much of the company’s overall growth potential tied to opportunities for Bob Muglia’s Server and Tools Business. She goes on to say that if the company can make the transition to being a leader in next-generation enterprise computing (including managing large data centers), it could end up “in an extremely powerful position”.

I like Hurwitz’s thinking along these lines. At Tech-Ed 2008, Muglia talked a lot about “Dynamic IT” and the idea of virtualization as a linchpin for data center transformation (although this is an idea that Frank Gens over at IDC has been bandying about for quite a few years, and Microsoft seems to have appropriated it.) System Center Virtual Machine Manager 2008 (VMM 2008), of course, will be a critical element in all of this with its capacity to manage both physical and virtual machines.

I’d love to hear your thoughts on how successful the company might be with this approach. Comment here or fire off an email.

Posted by Tom Valovic on 06/30/2008 at 12:49 PM0 comments

Hidden Costs of Server Virtualization

If you're doing server virtualization, the white paper points out that costs will typically cluster around four areas: infrastructure, management systems, server software and administration. For infrastructure, the more VMs, the more processing, memory, storage and networking for applications needed (ka-ching!). Additional software licensing adds to the tally, as well as increased costs for both management and administration (ka-ching again!)

All told, software licensing costs, admin time and the need for more physical servers tend to be the big ticket items. But if you create a VM and then siderail it with no workload, it's still going to contribute to TCO. Embotics talked to its customer base to get some workups on cost. Some IT shops said that anywhere from 30 to 50 percent of VMs were just not being utilized.

How much do these overprovisioned puppies cost? Total licensing (management, applications, OS) was estimated at $1,000 to $3,000 for generic Linux or Windows servers. One customer cited had about $50,000 worth of disk and license costs associated with VMs that were offline for more than three months. A few others came in even higher.

There are other costs as well -- what Embotics calls "soft costs." These include issues such as security problems associated with VMs placed on the wrong host and audit and compliance risks resulting from non-standard provisioning.

I'd love to know what are your experiences with this problem. Comment here or send me an e-mail.

Posted by Tom Valovic on 06/26/2008 at 12:49 PM0 comments

Virtualization Notebook

A Few Data Points on Virtualization Planning. Cirba's cofounder and CTO Andrew Hillier recently stopped by our offices to discuss the company's latest product announcement, version 5.0 of its planning analysis software, dubbed DCI.

I asked him whether large enterprise customers were doing the planning for virtualization themselves or hiring systems integrators or consultants to do it. His view is that there's not one dominant trend, and approaches depend on which vertical segment you're talking about.

Another interesting data point had to do with Microsoft's future direction in developing management tools under the System Center VMM banner. He agreed with our view that Microsoft's features and functionality would have a strong appeal to the SMB market given certain aspects of price/performance.

Netuitive Warns About Silos. Editor Keith Ward and I spoke recently with Netuitive Marketing VP Daniel Heimlich about the company's direction in virtualization. The Virginia-based company has been in the IT management market since 2002 but specializes in a patented algorithm which "learns" the best metrics for assessing physical server performance (as opposed to using preselected and one-size-fits-all metrics) and now does the same for VMs. That's one ingredient in their secret sauce.

The other (more specifically related to virtualization) is that their solution can gather data from VMware's B-hive product, which is more end user and applications-centric and correlate it with host performance. Interestingly, Heimlich observed that in some IT shops, there's a trend towards virtualization becoming yet another organizational silo which, over the long term, can put a dent in the efficiencies that virtualization promises.

Posted by Tom Valovic on 06/24/2008 at 12:49 PM0 comments

Keeping Virtual Sprawl in Check

If you happen to be a Star Trek fan, you might remember one of the more memorable episodes, “The Trouble with Tribbles”?  And if you do, you won’t have any problem connecting the dots to virtual sprawl. This is a topic of no small interest to a company called Embotics. Editor Keith Ward and I recently spoke about it with David Lynch, VP of marketing for the Ottawa -based company.

Embotics came out of stealth mode last year and its first product, V-Commander, went into GA in December. The product is a lifecycle manager for managing and controlling the process of creating VMs. The company is currently aligned with VMware and Lynch says they will do the same with Microsoft when VMM comes out of the chute.

Sprawl is an interesting problem with analogies to closing the barn door after the horse is five counties away. (What a surprise, management capability is often developed as an afterthought!) But cleaning up the mess is also a business opportunity.  With physical servers you can easily establish the identity of the box. But when you start mass producing VMs – and all it takes is a mouse click – that uncontrolled replication can easily become problematic. Lynch points out that in some companies there are as many as 6 or 7 sometimes trigger happy groups within the IT department creating VMs.

Like Tribbles, VMs can eventually “take over the ship”. The question is: how do you get this embarrassment of riches under control? Among the problems: security (of course), rogue VMs, and of course cost and sheer management complexity.

Finally, a bit of irony. An Embotics white paper points out that cost issues cluster around several different areas. But one that stands out: VMs not being fully utilized. Sound familiar? This is of course is one the problems that server virtualization is supposed to solve, not add to. (More later on the challenges and economics of virtual sprawl.)

Posted by Tom Valovic on 06/19/2008 at 12:49 PM2 comments

VMware’s Pricing Dilemma

At the risk of stating the obvious, one of the most critical issues about VMware’s future has to do with its strategy around pricing. There are some good reasons for the company to reassess at this point. For starters, there’s downward pricing pressure as a result of zero/low cost entry-level offerings such as Hyper-V and hypervisor commoditization.

Add to that more competition in general with Citrix coming on strong and moving into other segments such as application and desktop virtualization, as well as offerings from IBM and Oracle. And let’s not forget what some have described as “recessionary” forces that negatively impact IT spending.

VMware has two choices: It can hold onto its cards and leave the current pricing structure intact. Or  it can take the advice of some analysts (such as Gartner’s Thomas Bittman) and lower prices, most likely sometime between now and the release of Hyper-V in a few months.

What’s the company likely to do? Some good clues came from recent Sanford Bernstein event where Diane Greene was asked some pointed questions about the company’s strategy. While she did some ducking and dodging on a few of them, my take was that overall VMware is intent on staying the course at least in terms of its high-end enterprise offerings. (The SMB segment is more of a sticky wicket.)

As evidence for the defense, Greene pointed out that ROI for many (96 percent) of customers is two years and in some cases as little as three months. She also pointed to the more "competitive" pricing that’s already been established for some entry level products.

But overall, the strategy that Greene and the company appear to be favoring is to maintain the current structure and compete not on price but price/performance, i.e. making few changes to the cost of existing offerings while continuing to add value to the product portfolio and in effect being the “gold standard” for virtualization technology innovation.

At the high end of the market, this makes a lot of sense. But in terms of SMB market penetration where Hyper-V is likely to do well, I’m not so sure. What do you think about the company’s approach? Are there chinks in the armor? Weigh in here or send me an email.

Posted by Tom Valovic on 06/16/2008 at 12:49 PM5 comments

Too Much Information!

I used to be a great fan of John Naisbitt back in the day. And let's face it, the man has a great beard. I have no idea what he's up to these days although it would I suppose be easy enough to check [Editor's note: Here's a start, Tom]. In any event, I used the above quote in my second book Digital Mythologies (which is now sadly out of date but, thanks to Rutgers University Press, still in print.)

Not unlike the retrospective Joni Mitchell CD, the book contains a fair amount of both hits and misses in terms of predictions about the Internet and its impacts on culture (although sometimes the misses can be more interesting, don't you think?).

As a high-tech magazine editor, then analyst, and now editor again, I've thought long and hard over the years about the problem of how IT managers or anyone who needs to keep track and make sense of a fast-moving emerging technology can optimally do that.

For all of its conveniences, search, Googlized or otherwise, may have made some things easier but, as I wrote about in the book, with its "embarassment of riches" it also creates a whole new set of issues, challenges and, sometimes, it must be said, annoyances in the Great Information Hunt.

I've been more acutely aware of these paradoxes given the deluge of information out there on virtualization and have seen the process happen many times before with other emerging technologies.

There's an expanding universe of material out there, but where do you start, how do you organize your feeds and, most importantly, how do you makes sure your not missing with the obvious, a game-changing exogenous X factor? Or, more tactically, how to you avoid getting seduced by the attention deficit disorder that Web search can induce as you drift from link to link and then, like a non-virtual surfer caught by the tide, can no longer see land?

What are your thoughts about how to deal with virtualization information overload? Comment here or shoot me an e-mail.

Posted by Tom Valovic on 06/11/2008 at 12:49 PM0 comments

VMware and Wordperfect?

As you can well imagine, a magazine editor (i.e. human scanner) reads an enormous amount of material in the course of a week. One of the bloggers who is drawing my attention these days is Kevin Fogarty over at Computerworld. A recent posting of Kevin’s comparing VMware to Banyan, DEC, and Wordperfect was worth the price of admission. Here’s what he said:

I realize that it's a tradition in the computer industry, but I find it a little disappointing to see virtualisation giant VMware following the same competitive marketing obsession that made industry powerhouses of Banyan Systems, WordPerfect, Digital Equipment and Novell. Each of those companies, at one time, were considered absolutely dominant in their own markets and gradually lost those positions partially by focusing on the elegant engineering of their original product set and failing to recognise the point at which customers began to take that function for granted.

Another blogger I like to make sure I’m getting regular feeds from is Dan Kusnetzky. Dan was an IDC colleague back in the day when we both worked in the Enterprise Computing Group. He’s got a sharp wit and is a great observer of the virtualization scene. Dan has some interesting comments about Virtualization 2.0 in a recent posting.

Any interesting blog sites or comments you’ve run into lately? Share them here or in email.

Posted by Tom Valovic on 06/10/2008 at 12:49 PM0 comments