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What’s Behind Greene’s Departure?

Diane Greene’s exit from VMware for the most part was a bolt out of the blue. Clearly many in the industry were caught by surprise including several analysts I spoke with. But companies, like virtual machines, also have lifecycles or more properly speaking maturity curves. They have to grow and evolve to stay competitive.

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 PM


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