John Katsaros

BYOPC

With all of the fuss from Microsoft's big virtualization coming out party and the VMworld users conference, Citrix wasn't sitting around idle. Citrix announced its XenServer 5 edition, its partnership with Marathon and its cloud computing strategy -- Citrix Cloud Center (C3). At its analyst conference earlier this month, Citrix demoed its desktop virtualization product portfolio -- probably the most comprehensive suite of desktop virtualization products. Their "guiding light" is that ultimately CIOs will want to get out of the business of owning and managing desktops and instead will adopt the "Bring Your Own PC" for the modern workforce that wants the benefits of consumerism in order to use their own laptops and iPhones instead of clunky corporate issued devices. Two concepts -- BYOPC and "follow me desktops" form the foundations of the virtual desktop initiatives.

Atlas Blinked

It took VMware's new president and CEO Paul Maritz only 20 days to make the decision to give away its stand-alone ESXi hypervisor (it used to be priced in the several hundred dollar range). Most major server manufacturers including Dell, Fijitsu-Siemens, HP, IBM and NEC have embedded VMware ESXi. So the OEM community is probably delighted as are customers. (When asked, VMware customers told us that they welcomed Microsoft's entry into the market if for no other reason than to keep a lid on pricing -- so they got that wish.) This move focuses VMware on making money from higher level value add functionality. VMware has a broad enough product line to manage this shift gracefully. But now that this pricing decision is behind them, what's next? We know what it should be -- heterogeneous management -- managing not only VMware's hypervisors but also those made by other vendors (like Microsoft and Citrix). What we don't know is WHEN VMware will decide to manage products besides its own. Here's our brief timeline of the changes so far -- June 26th -- Microsoft releases Hyper-V to the market at $28; July 8th -- Management shakeup at VMware -- Paul Maritz takes over as CEO; July 28th -- ESXi hypervisor price reduced to free. We can't wait to see what's ahead.

Invasion Countdown

When we were at Microsoft's MMS conference in April they previewed their upcoming plans to enter the virtualization arena with a D-Day like invasion plan that would have made Eisenhower proud. At VMware's Industry Analyst conference you didn't get the sense that they were too concerned about it. And maybe for good reason. As VMware's president and CEO Diane Greene pointed out -- VMware has over 100K customers including all of the Fortune 100, 14K channel partners, 6K employees in 40 countries and 21 products which have won over 193 awards. Their most recent quarter of $438M grew 69%. That's a remarkable story for achieving so much in such a short time period. They've got a firm foothold and lots of loyal customers. And they're a really nice fun loving group. But still, you can't help but wonder what might happen as Microsoft flexes its marketing muscle. Certainly, Microsoft has missed its mark before, especially with its first volley into a new market. But as we all know, that Seattle bunch certainly can preserve.

It's the ILITIES Once Again vs Good Enough

As part of positioning themselves, VMware is emphasizing its ILITIES -- scalability, reliability, maintainability, serviceability, updateability, flexibility, runability, securability you-name-it-ility -- which on the surface sounds good but in fact, without measurable proof points illustrating the difference, it's hard to establish significant differentiation around the "ilities" because... well everyone says the same thing and the words without evidence don't carry substantial meaning. We've yet to have a briefing where the vendor flips a PowerPoint slide which states "We Don't Scale" or "We're Not Reliable." Every vendor claims that they've got more of the "ilities" than do the other guys and customers don't have a simple way to judge for themselves. So without evidence, then "Good Enough" becomes just that. The "ilities" are deceptive because one can fool oneself into thinking that you've successfully used the "ilities" to establish a firm marketing position. It's fine if someone wants to claim title to the "ilities" but when they do they should recognize that they still need to establish differentiation. What's clear is that both sides -- Microsoft and VMware --agree that the battleground will be all the value add stuff -- starting with data center management (physical and virtual?), operational excellence (H/A, DR?) VM management (Live Migration?), scope (heterogeneous?), and for Microsoft extending to model driven (see Oslo article below).

Cross Roads

At Vision, Symantec announced its Veritas Virtual Infrastructure which basically combines storage management capabilities from Veritas Storage Foundation with the Citrix XenServer virtualization technology from Citrix Systems. It's an interesting idea -- to extend a server virtualization platform with its own built in storage management functionality, but it does raise the question of whether Symantec should partner with VMware as it has successfully done with its award winning NetBackup for VMware products (also including PureDisk) and with similar partnerships as it moves its security products into the virtualization world? Or is it better in the long term to compete head on in the virtualization arena directly against products like VMware's ESX and Microsoft's Hyper-V? Perhaps co-opetition is to the point where you can do both. WE always love a good fight -- we're looking forward to see how these battles shape up.

The $28 Question

When asked "Why Twenty Eight Dollars for Hyper-V?" at the MMS analyst meeting, Microsoft's VP Bob Muglia said something to the effect -- "Well, we thought about it a lot and $28 seemed to be the right answer." You might remember that the last time Microsoft had to make a pricing decision for an add on product was of course when it decided to bundle Windows Internet Explorer for free. That eventually became a full employment opportunity for lots of lawyers and government agencies with Microsoft narrowly escaping some dire consequences (during which time Netscape basically faded away). So if "zero" was the wrong price back during the browser wars, then what's the right price for the hypervisor wars? Has Microsoft found a price that strikes a balance on a lot of fronts while not being so high that it would drive away customers and twenty eight dollars seems to have been the answer nor so low that it invites nasty government regulator inquiries? Usually it's not clear exactly when a product goes from an innovation to a commodity. But in the case of hypervisors, the day the price hit $28 could be that day the hypervisor became a commodity.

System Center By The Numbers

As the Microsoft vs. VMware Virtualization Wars heat up, the management questions are important because 1) the management system can influence which hypervisors get deployed and 2) as hypervisors become commoditized, much of the profit to be made in virtualization will come from the management systems side of the business. Since the majority of the servers being virtualized are Windows Servers, its Microsoft's belief that customers will find it more appealing to extend the management system already in use -- System Center -- to manage both physical and virtual servers, rather than having separate management systems. Further, Microsoft is adding support for VMware's ESX products so that customers can manage both ESX and Hyper-V from the same console. So then the question is -- "How much of the market uses Microsoft's System Center?" We're told that on the server side, 45% of enterprises use it with 40% penetration rate (penetration rate refers to the percent of attached systems inside an organization), and on the desktop side, 56% of enterprises use it with an 80% penetration rate.

Nothing Personal

The sense that you get after watching Microsoft describe its upcoming virtualization product portfolio is that they're throwing everything including the proverbial kitchen sink into this battle and it's a battle that no one there is willing to lose -- future career options are at stake. Bob Muglia puts it on a more personal level when he talks about being half way down his ten year mission to improve datacenter operations. It's always hard to tell how the battle for the virtualization market will shape up -- VMware has a huge lead, a good product line and satisfied loyal customers -- at this stage the thing that is clear is that the team from Redmond is prepared for a long siege.

Microsoft's Secret Weapon

In the looming virtualization war, Microsoft's Viridian delays have led many to believe that Microsoft has lost too much ground to leader VMware in this fast moving market.  But a visit to the Citrix iForum user conference at the end of October showed that Microsoft's co-opetitive partner Citrix is in in peak form and moving quickly to establish itself as a force especially when it comes to the desktop variety.  Although the ink was hardly dry on Citrix's $500M acquisition of XenSouce, what they previewed at iForum -- server virtualization and desktop virtualization, was an imaginative combination of technologies from the two companies.  The picture is Wes Wasson Citrix's Sr. VP and Chief Marketing Officer kicking off the second day of the conference using his Second Life avatar.

First Mover Advantage

The energy that was around at VMworld was electric -- the type of energy that comes from being around an exciting market disruption.  Things are moving fast in the virtualization world -- customers are racking and stacking VMware systems at breakneck speed.  Vendors want to partner with VMware in the hopes that some of its magic will rub off in the process.  Channel players are moving to get a piece of the action.  For you business school majors, VMworld was a hands-on look at First Mover Advantage.  Since most of the server virtualization taking place is around Windows servers, you'd expect Microsoft to chime in pretty soon which, from the looks of things, won't happen until Microsoft's new hypervisor ships which will be about six months after Windows 2008 ships.  In the meantime, VMware is moving quickly to consolidate its first mover advantage.  Unlike what's happened with emerging markets in the past, Microsoft has no margin of error -- they've got to "get it right the first time" just to remain in the game.  There are those legendary stories about how Bill Gates had to personally intervene to get Microsoft to take the Internet seriously.  From the looks of the virtualization world, Microsoft is going to need a similar monumental course correction or else this market slips away without even a fight.