In-Depth

VMware: The View from Above

The most important and influential company in virtualization reigns supreme -- but could a revolt be coming?

It has a huge share of its particular niche in the software market -- what amounts to a near -- stranglehold. A large ecosystem of products has developed around the company's core software offerings -- more than 140 companies were exhibitors at its last U. S. conference. It doesn't hesitate to buy third-party companies that can extend its products' functionality. Some of the chief complaints about the company are the proprietary nature of its software, the high cost of its products and a fear from some competitors that the company is becoming too powerful -- all of which comes with being "King of the Hill. "

Sound familiar? We're not talking about Microsoft, but instead the company some might call "The Microsoft of the virtualization industry" -- VMware Inc.

In the same way that Microsoft dominates the desktop, Palo Alto, Calif.-based VMware dominates the virtualization skyline. In fact, the case could be made that VMware's spectacular Aug. 14, 2007, IPO put virtualization on the map. When its shares skyrocketed 76 percent in the first day of trading, a signal was sent to the rest of the IT sphere, and reached into the broader business community beyond: Virtualization is a serious technology that's here to stay, and is poised to continue its surge into data centers and on desktops. And growth is raging. Fourth quarter sales grew 80 percent year-over-year to $412 million.

Adding to Its Arsenal
VMware owns about 85 percent of the market, according to research firm IDC. The company likes to boast, in fact, that it's in 100 percent of the Fortune 100, and 84 percent of the Fortune 1000. And it's in an aggressive expansion phase, both by buying companies, and introducing new homegrown products at a dizzying rate. Currently, VMware lists 25 separate products in its lineup, far more than any other virtualization vendor. These include products for server virtualization; virtualized infrastructure; high availability; desktop infrastructure; lab management software; and more.

Its flagship hypervisor, ESX Server, is the industry standard. But VMware, perhaps sensing that hypervisors may be moving to the realm of commoditization, is quickly adding to its portfolio of non-hypervisor-based offerings. For instance, the company recently bought Thinstall, which makes application and desktop virtualization products; and released a beta of VMware Stage Manager, which manages the entire app environment, from testing through deployment.

Given its hugely deep pockets from the IPO and strong sales -- and a long history of virtualization innovation -- VMware is uniquely situated to move beyond the hypervisor and into other areas of virtualization such as management, storage, networking (Cisco Systems Inc. owns a chunk of VMware shares), I/O and backup/disaster recovery.

Like any market segment-leading software company, VMware faces challenges, both from within and without. One problem it doesn't face that Microsoft does with Windows and Office is market saturation, as fewer than 10 percent of servers are currently virtualized (according to Burton Group Analyst and Virtualization Review columnist Chris Wolf), there's plenty of room for growth.

Capturing the rest of that market is looking like it's going to be a bare-knuckle fight. "VMware is facing challenges on multiple fronts," says Dan Kusnetzky, principal analyst and president of Kusnetzky Group LLC, a consulting firm with a special focus on virtualization. He lists Microsoft's Hyper-V and the Xen-based hypervisors from Citrix/Xen, Sun Microsystems Inc. , Oracle Corp. , Red Hat Inc. and Novell Inc. , among others, as new -- and feisty -- competitors.

Competitors' Advantage
A key advantage of the upstarts, says Kusnetzky, is price. VMware's "window of opportunity to charge higher prices is closing pretty rapidly," he believes. Kusnetzky notes that a standalone version of Hyper-V, Microsoft's hypervisor that's also bundled with Windows Server 2008, is less than $30. "That basically sets the proprietary, vendor-sponsored price at $25." ESX Server is substantially more (the price of ESX, like most enterprise products, is volume-based and subject to change).

On the other hand, Hyper-V is a brand-new, untested product, while ESX is a mature and proven solution -- and it includes a number of features that Hyper-V won't be offering out of the box. Still, Kusnetzky says, those differences may not matter to many admins. Hyper-V "doesn't have to be better than VMware; it just has to work." And with the large Windows Server user base, Microsoft could quickly build its own ecosystem of third-party vendors supporting its new hypervisor.

If it does, Hyper-V and free, open source hypervisors have a chance to make real inroads.

"As far as their share of the industry's mindshare," comments Kusnetzky, VMware is the "dominant supplier and able to charge premium prices; but that's under attack from Microsoft on one side and the open source players on the other. "

VMware certainly understands that, and has moved well beyond just hypervisors and virtual machine management. Kusnetzky likes VMware's attempts to branch out, but says it has a ways to go. "VMware doesn't have a strong story for scalability or performance ... they have a good story about managing their own software, but they don't manage OSes inside their machines. They do it primitively, but not very well. "

Withstanding Assault
Any industry leader is going to take a lot of shots from the competition; witness Oracle's Larry Ellison comparing VMware with Netscape, the browser that was once at the top of the mountain, only to be knocked off and left for dead when Microsoft bundled Internet Explorer into Windows.

Mike Grandinetti, vice president of virtualization vendor and VMware competitor Virtual Iron Software Inc. , doesn't think the IE/Netscape analogy holds. "On some level, some customers will say 'no way, I'm not spending a dime [on a hypervisor]. ' But IE isn't a corporate asset or mission-critical tool for a company. If your data center fails, though, now you're putting your company at risk. "

There is, however, one way in which VMware would like to be very much like Microsoft: Redmond's ability to withstand multiple assaults over the years has kept it firmly entrenched on its Windows and Office throne. VMware can see the enemy charging over the hills; can it beat back the hordes and stay on top? The next few years will go a long way toward determining that.

More Information

Q&A: Greene Computing
By Ed Scannell

While VMware Inc. may have stubbed its toe, with revenues in its most recent quarter falling just shy of Wall Street analysts' expectations, it remains one of the hottest software companies in one of the industry's hottest markets. The company did surpass the $1 billion mark in revenues in 2007, to $1. 3 billion, an 88 percent growth rate over fiscal 2006. In 2007 the company also went over the 100,000 mark for customers and now has more than 10,000 partners.

Adding to that good news was a successful conference in Cannes, France, in February. During the show, Greene took time out to talk to Virtualization Review contributor Ed Scannell.

What's been the overall vibe at VMworld Europe? What seems to be front of mind for users and partners?
People seem really excited about the future of virtualization. I would almost characterize 2008 as the year for automation and management of the virtual data center. People are starting to understand that once you have these virtual machine containers, you really have the power to automate things like they've never been automated before.

Do your hypervisor bundling deals with large OEMs give you new access to markets?
Yes, the 3i Hypervisor announcements we made with IBM, Dell, HP and Fujitsu have got people excited here. So people are really interested in the idea that we now have a great way to reach the SMB markets and how much they will benefit from that. It will bring VMware virtualization to a much broader audience because when you buy these servers that are 3i enabled, people can try out single server consolidation and actually experience it. What we've seen is that when people use our products they usually like them and then they'll want to do more with virtualization.

"People tell us it's been really important to see the huge power savings possible through virtualization."
-- VMware CEO Diane Greene
Diane Greene, VMware

Will embedding the hypervisor in these servers increase the price of them? ESX, after all, is not a free product.
We've already lowered the price of ESX. But ESX 3i, which is separate from ESX, is much thinner with only 32MB [footprint], and is much more secure. Now, different hardware vendors will handle things [like pricing] differently, but 3i is available off our Web site for $495. The nice thing for users is when they get their server, it's preinstalled, preconfigured and ready to run.

You made some product announcements at VMworld that help crystallize your vision of the data center itself being one, big, self-managing, flexible utility. Are some IT shops and business partners buying into this?
I really think they are. Having a server come virtualization-enabled with a hypervisor makes it very clear that you are buying your server with 3i and so it's ready to do single-server consolidation, but there's so much more you can do. And by separating the two -- the VMware infrastructure and the 3i hypervisor -- it brings the idea home to people. And I think people here are seeing our automation product for disaster recovery [DR] systems, where maybe for the first time people can actually test a DR system. I'm seeing people now thinking about this as software in a VM they can get at to run on all those hypervisors, and that you can actually have aggregated in a virtual data center.

What's your plan for connecting laptops and a range of other mobile devices to be a seamless part of a virtualized environment?
I feel we have a pretty broad solution around the virtual desktop at this point. We have products for larger corporations where you can put policies around the virtual machine running on the laptop. You can control what cache level it is and where it comes into the corporate network, when it expires and what it's allowed to do. In fact, maybe the sexiest announcement we made here was this portable virtual machine where you can post a desktop virtual machine on a server and then you can check it out onto a USB key and take it with you and run it anywhere in a disconnected state and then, of course, check it back in. So you get all the advantages of a centralized, managed and updated desktop, but you can also check it out and take it with you if you're not going to be on the network. We've also shown that by hosting a desktop on a server you can save as much as 35 percent of the power requirements.

And has there been a lot of priority shown for green computing at VMworld?
Yes, that's another big theme of this conference. People tell us it's been really important to see the huge power savings possible through virtualization. We have a green calculator up on our Web site that's pretty cool. Basically it's a translator that tells you things like, for every server you have virtualized, that's the equivalent of 1. 5 cars off the road, or 55 trees planted means 4 tons of CO2 eliminated.

Microsoft and Citrix have formed a closer working relationship since the last time we spoke in the fall. Do you get the feeling this alliance is aimed squarely at VMware?
[Laughs] I think it's entirely possible, yes. It's actually a testament to our leadership.

Speaking of that, how do you handle the pressures on VMware? You're the clear leader in one of the fastest-growing market segments, and now you have these larger companies teaming up on you.
Well, I certainly think about Microsoft as a competitor all the time. That said, I think we're doing some pretty good things for customers like saving them time and money and power and space, as well as operational things and Cap X and Op X savings. So that's our focus, along with making sure things really work well for our partners. There's not a lot more we can do. We work as partners with Microsoft and Citrix to the extent possible.

With the looming recession in the United States and abroad, are you getting any sense that customers are growing more reluctant to spend money on virtualization products, at least over the first half of 2008?
I think it depends. I think in the financial sector where you have some pretty major losses, I think it's on their minds. Elsewhere, we're not so much seeing it. Of course there's this realization that by going with a virtual data center you could actually do more with less, and save money on your budgets that you can deploy elsewhere.

What did you think of Microsoft's recent announcement promising to work more cooperatively with open source vendors? Will this have any ramifications for how they'll deal with virtualization?
We really don't know yet. We're still trying to sort that out. We're certainly hopeful that it's good for opening up the virtualization markets. But I can't see exactly what it means yet.

VMware has been criticized in some quarters for being a closed-proprietary company. Is this criticism justified, and what steps are you taking to cooperate in the area of open standards?
Well that's a bit surprising to hear. We contribute actively to the management standards in the DMTF group. We've opened up our source code -- we have over 70 partners with source code licenses. We've published our APIs. We've published our format for the virtual machine. Not sure what else we could do. We hold onto our IP but, other than that, I think we've been groundbreakingly open, given the lead we have in a brand new market.

About the Author

Keith Ward is the editor in chief of Virtualization & Cloud Review. Follow him on Twitter @VirtReviewKeith.

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