Analysis: Taking Aim at VMware

With the release of Hyper-V, is VMware in danger of becoming the new Netscape?

The image of Microsoft in VMware's rearview mirror is growing larger and more threatening as Redmond's new hypervisor comes to market, begging the question of whether VMware is in the same position as was Netscape years ago: dominating a new market with a strong product, but in danger of being run off the road when Microsoft bundles a similar product with an operating system.

Microsoft's hypervisor, Hyper-V, will be available some six months after the Feb. 27 launch of the Windows Server (WS) 2008 OS. Given the predominance of Windows in the server operating environment, Microsoft will have leverage with customers by including Hyper-V in WS 2008.

That bundling strategy is a lot like the early days of the browser wars. Like VMware, the now-defunct Netscape had a head start in its field. Then Microsoft determined there was a serious money-making opportunity, and decided to enter the market. Its first offering fell well short of its rival. The question now for VMware is, will the advantages of bundling overcome the negatives?

VMware's flagship hypervisor, ESX Server, has a lot more functionality than Hyper-V. But when a product is bundled, it tends to get test driven more often. Even if it doesn't measure up to the competition, it may only need to be "good enough," or functional, argues virtualization analyst Dan Kusnetzky of consulting and research firm Kusnetzky Group LLC.

Still, the VMware/Netscape analogy may break down because of what happened in the browser wars. Microsoft may have taken over the browser market, but the company now operates under tough antitrust regulations, with all of its bundling moves facing intense regulatory scrutiny.

"Microsoft has to be careful about how it bundles products together to not run afoul of antitrust regulations," says Al Gillen, a research vice president at IDC.

The analogy may falter in another way as well: Gillen says the playing field will change. As hypervisors, which merely enable virtualization, become ubiquitous, the focus will shift to software-management tools.
"Eventually, the hypervisor will be kind of generic, so that's not where the battles are going to be fought," predicts Gillen.

VMware Going Strong
VMware has a more-than-six-year head start on Microsoft, and dominant market position; 70 percent of virtualized x86 servers are running VMware, according to an Enterprise Strategies Group (ESG) user survey. But even with that large a lead, trouble for VMware looms, says ESG analyst Mark Bowker.
Of the companies ESG surveyed that are planning to adopt virtualization, 69 percent are evaluating Microsoft, while only 59 percent are evaluating VMware.

And Microsoft is betting that admins will want to get their OS, hypervisor and related management tools from the same company.

"I want to be able to go to one vendor whom I trust so I know who to call for support," says Zane Adam, senior director of virtualization in Microsoft's System Center group.

Competition from Microsoft and other rivals was part of the reason VMware's $412 million revenue in Q4 2007 fell $5 million short of analysts' forecasts.

That doesn't mean VMware's in trouble, though; it enjoys first-to-market advantage as 76 percent of VMware-virtualized servers run Windows, says ESG's Bowker. Those customers have been sold on getting their virtualization from a single vendor.

VMware argues that it has a significant installed base from which to grow. It's in 91 percent of the Fortune 1000 companies, 46 percent of which use VMware management software for provisioning new physical servers for virtualization, says Bogomil Balkansky, VMware's senior director of product marketing.

"Customers have made the decision that going forward they're going virtual and they're standardizing on VMware," Balkansky adds.

Covenant HealthCare Systems, a 700-bed hospital and array of satellite clinics in Saginaw, Mich., is one of them. Covenant uses VMware to virtualize 60 of its 200 servers, says IT Manager Jim Maher. Despite being a Windows shop, it sees no need to consider another virtualization solution for now.

"We haven't looked at anything in the Microsoft realm for virtualization," Maher says. "We're pretty happy with VMware."

Standardization Question
But for other Windows shops, it could be an easy move for them to use Hyper-V for virtualization, says Microsoft's Adam. Microsoft's System Center management software suite includes Virtual Machine Manager (SCVMM) 2007, which also supports ESX Server. VMware's VirtualCenter management software only manages the virtual servers, while Hyper-V's management tools manage both physical and virtual servers, which could make VirtualCenter unnecessary.

"Should the customer have two different management products, one for virtual and one for physical?" Adam asks. For him, it's a rhetorical question.

It's not for Michael DiPetrillo, principal systems engineer for VMware. He points out that SCVMM is an add-on application that, even though it's included in Microsoft's System Center license, has a different interface than other components. Furthermore, SCVMM only manages Windows machines, and is not a data center-wide solution for the typical heterogeneous IT infrastructure.

"It sounds good on paper, but when it comes to reality, it's not all that great," DiPetrillo says.

In the end, rather than crush VMware like it did Netscape, Microsoft and VMware may simply sell to different customers, says Bowker. For instance, VMware announced a partnership with enterprise software vendor SAP AG late last year. Leading server vendors have certified SAP software to run on their machines, on either Windows or Linux operating systems, with VMware ESX Server as the hypervisor.

"If an enterprise virtualized its SAP apps on VMware, they're not likely to switch over to Microsoft when Hyper-V becomes available," says Bowker. "VMware's going to be focused ... on much larger deals than Microsoft is."