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Feedback: Dead Wrong on VMware Pricing

I wanted to share some feedback I got from a reader about VMware's pricing. He's responding to an article in the July/August print issue -- the lead item in my "Take 5" column. Here's what I wrote about VMware's top challenge:

"Ask 100 VMware customers what their greatest complaints about the company are, and 99 of them are likely to list price at the top. VMware recently took a step in the right direction when it made ESXi free, but there's more to do. It's still the most expensive solution out there -- by a mile."

Jason Boche e-mailed this thoughtful response (used with Jason's permission):

"I respectfully disagree with your #1 Take: Price. I think statistics would more accurately reflect that 1 out of 100 VMware customers would complain about price. The 99 complaints on price you speak of usually come from the Hyper-V and XenServer zealots, usually in the form of anonymous blog responses.

The price of a hypervisor did not become such a large topic of discussion until Microsoft came onto the scene, in typical fashion, slashing prices on its host based products and then ultimately Hyper-V, thereby bullying competitors into doing the same or raising speculation from the uneducated market as to why Microsoft is essentially free and VMware is not.

There is much more to be considered in the cost formula of a virtualized datacenter than the up-front sticker price of a hypervisor and management tools. The cost of VMware is completely reasonable and VMware's features pay dividends for VMware administrators daily. Have a conversation with a Hyper-V user and ask them about the flexibility of hot migrating a VM from one Hyper-V host to another, and what the associated cost of downtime is each time. It adds up in the form of server unavailability, downtime during maintenance windows (or unplanned downtime during the day), change management labor and paperwork, etc.

I get tired of people like yourself perpetuating the "cost" discussion. Looking solely at list price of a product to determine its worth or value in the datacenter is foolish and naive as is basing virtualization solution decisions for the datacenter solely on price of the shrink wrapped product.

Admittedly, VMware and Microsoft are not on a level playing field when it comes to financial backing and diversity in different product lines/offerings. For those that continue to pester VMware about cost, I challenge those to propose a model on how a company like VMware can continue producing their market leading innovation without collecting revenue on products. I am a VMware customer and I guess I am the 1 out of 100 people you speak of that are satisfied with VMware's products AND their costs."

Well argued, Jason. I think your reasoning has merit. My rebuttal would start at ESXi. If customers were always willing to pay more for a superior product (which ESXi is), VMware wouldn't have made it free. What I believe this shows is that market forces are finally starting to work in the virtualization space.

Until now, VMware essentially had a monopoly. As we all know, monopolies dictate their own pricing. Once that monopoly power was broken (with the introduction of Hyper-V and, to a lesser extent, XenServer from Citrix), VMware had to respond.

We don't yet know what Sytem Center Virtual Machine Manager 2008 (VMM 2008) will cost, but I bet it will severely undercut a comparable VirtualCenter/VI3 offering. Of course, VMM 2008 will also be behind, and likely far behind, the functionality of the VMware solution (at least initially). The question potential customers will be asking themselves, though, is "Are the offerings from Microsoft/Citrix/Virtual Iron/Red Hat/Novell/etc. good enough, even if they're not at the same level as VMware?"

I believe as this shakes out that we'll see VMware drop prices on many, if not most or all, of its products. It's no longer the only game in town. Yes, their stuff is good, as anyone who's used it will tell you. But in the past, the quality of their offerings was only part of the price equation. The other part was the stranglehold they had on the market. With that loosening grip comes lower prices for all.

VMware still has a big head start on the competition in terms of technology, and under the leadership of Paul Maritz, will continue to produce excellent tools, I believe. They may get even better now, since they're being pushed as never before. But they won't be able to set their prices in a vacuum anymore. They will be keenly aware of what Microsoft, Citrix and the others are offering, and will have to be competitive on costs -- really, for the first time.

What's your take on this issue? I'd like to hear from you.

Posted by Keith Ward on 09/03/2008 at 12:48 PM


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