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VMware's Maritz Promises Changes

Lots to chew on following yesterday's earnings call/Q & A session with CEO Paul Maritz. First, CFO Mark Peek discussed why the company's earlier projections of 2008 revenue are going to fall so far short of projections. Then Maritz took over and discussed a number of issues related to future direction.

First things first: the big news, of course, is that ESXi is going to be given away, starting next week. This isn't exactly shocking news, as most of us expected something like that to happen sooner rather than later. Still, it's good news for the industry, and can only benefit VMware. More potential customers will now try ESXi; when they do a comparison, they will likely find that it's still the most advanced, stable hypervisor out there with the best functionality. The question will then become whether they can afford the superior management and infrastructure tools VMware provides on top of it.

As Senior Director of Product Marketing Bogomil Balkansky told me, there's "no question that making it free gives us an advantage and levels the playing field." I'm in full agreement with that assessment.

Maritz, when it was his turn, spoke in very general terms about everything. He kept repeating that "I've only been here two weeks," and asked, quite reasonably, that his remarks be taken in context. He mentioned Diane Greene's time helming VMware very briefly. I still can't understand why VMware has essentially erased all traces of Greene from its memory banks. No tributes, no rememberances, nothing that gives her proper credit for her central role in founding and building the company. It's quite shocking to me that her legacy has been treated so shabbily by VMware.

Maritz talked at length about where VMware was headed, but offered few specifics, other than making ESXi free and announcing a hiring freeze except for "strategic personnel," whatever that means. Couldn't any and every hire be considered strategic? I'd like to see the non-strategic hires: "And here's Sally McGuire. We're not sure why we hired her, or what she'll be doing; we had some money lying around, and had to do something with it." As I mentioned in the news story, nothing was said about possible layoffs, but I'm sure that VMware employees must be more worried about their jobs than they were a month ago. "I expect to see expenses grow more slowly," Maritz said.

Maritz did say, in answer to a question, that he hasn't "noticed attrition related to Greene's departure." He said he's canvassing employees to get a sense of their morale in the wake of the transition. "One has to expect a certain amount of trauma" when a management shakeup of this magnitude occurs, Maritz commented.

Maritz mentioned serveral times about VMware moving in the direction of cloud computing, which is the current buzzword. No details were offered as to VMware's specific strategy, but it's clear that Maritz will be pushing that direction much harder than Greene did. It's not surprising, considering his focus with Pi Computing.

A great deal of discussion centered around Enterprise Licensing Agreements (ELAs) and the dramatic affect it had on VMware's bottom line. VMware first started offering ELAs in 2007, and they were extremely popular. This year, they became a much harder sell, and have dropped off considerably. Peek attributed the majority of that decline to the "macro" economic environment, meaning the global slowdown. He related an anecdote about one customer who was considering purchasing an ELA worth $2 million. Eventually, the customer decided against it, and instead bought $800,000 worth of products and services. That scenario has become increasingly common this year, to hear the company tell it. Of course, that hurts the steady revenue stream so important to any large company.

Microsoft factors large in VMware's planning as well, despite the company's insistence on trashing Redmond at every turn. Maritz implied that he understands how Microsoft does business (and he's right, of course, although it's been a long time since he was a top guy there), and that VMware is ready for the challenge. VMaritz alluded to Microsoft's marketing and financial might, and how the company can afford to be patient as it chips away at VMware's dominance. But VMware still has a big lead in terms of technology, and will do everything in its power to maintain that gap. This is a company focused on one thing -- virtualization -- while Microsoft is pulled in a thousand different directions daily. That is an advantage VMware will surely press.

My impression of Maritz, from the little bit of detail he offered (again, he was wisely cautious given the fact that he's barely dipped his toe in the pool), was that he's a go-getter who sees lots of new opportunities. That doesn't make him much different from Greene, though. What will he bring to the table that she didn't? I guess we'll find out soon enough.

Posted by Keith Ward on 07/23/2008 at 12:48 PM


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