John Katsaros

Big Footprint – Even Bigger Plans

During his keynote at RSA, RSA's Executive Chairman Art Coviello had Richard McAniff, VMware's Co-President and Chief Development Officer join him on stage for a "discussion" about Cloud Adoption.  What strikes you the most is that these companies that are important in the virtualization world are owned by EMC (fully owned in the case of RSA and 80% owned in the case of VMware) which itself is very influential regarding virtualization.  And what's good for one isn't necessarily good for the other.  Security, for example.  It's not in VMware's best interest to focus too much on security issues – security concerns might slow down customer virtualization deployments.  RSA on the other hand would love to focus attention on virtualization security issues (especially ones that are mitigated through use of its products).  That might have been the case for server virtualization but with cloud computing this might be different.  Coviello's and McAniff's co-presentation was essentially a preemptive dividing up of cloud security – we'll do management and compliance, you do security controls and we'll let others do network and endpoint security.  Normally these positions would be competed for in an open arena.  But, for instance,  why would VMware or EMC (along with Cisco) the co-owners of VCE decide to open up the V-Block configurations to competing products when they can just as easily block anyone trying to fill the space.

They Eat Their Young

Microsoft has a reputation for being a developer's best friend as the Microsoft platforms are successful in larger part due to the support of their eco-system. There are many examples - SharePoint with several hundred partners and Microsoft's relationship with Citrix. VMware on the other hand doesn't have the same magic touch developing its ecosystem, in large part due to its product line expansion strategy. Probably the best way to think about being a VMware partner is that VMware will develop 80% of the functionality itself and take down 80% of the market opportunities unfortunately leaving partners with a much smaller and technically challenging market slice. At VMWorld there were new examples of this as VMware introduced vShield and in doing so changed the bar for companies trying to add security functionality to the VMware platform - setting the stage for VMware to roll up the bulk of opportunities in this space. And two announced acquisitions, single sign on vendor TriCipher and its $100M acquisition of Integrien for visibility must have taken the wind out of the sails of a dozen companies providing the similar capabilities. VMware is on top of its game so if its ecosystem rules are 80/20 then that's the way the games going to be played this time around.

What a Difference a Year Makes

At the end of August Citrix announced its plans to acquire VMLogix, a company focused on virtual datacenter service such as self-service. In July, Quest announced its plans to acquire Surgient which was largely in the same space. And of course way back in 2006 VMware acquired Akimbi which some people say formed the roots of project Redwood which launched at VMWorld as vCloud Director. While a year ago these products were focused on providing services to the test/dev world, today the focus has changed and they're viewed as the initial service platforms for service providers bringing virtual datacenter functionality on line.  Interesting how this category changed so quickly.

The Azure Appliance

One of the most interesting announcements of the year was Microsoft's Azure Appliance — a container of 1,000 servers, delivered to your data center, running an up-to-date private version of the Azure Cloud platform. Last year we saw the introductions of Cisco's UCS, the Cisco/VMware/EMC VCE consortium, V-Block system blueprints and Acadia JV, all intended to help their customers achieve utility computing more quickly. Well if that's the goal, isn't something like the Azure Appliance an even better answer? Of course you have to have some respect for the importance of the Windows software and business ecologies, and you have to think Azure is pretty interesting on its own, but with those caveats isn't the appliance version interesting! The initial package (presumably similar to the container level packaging which Microsoft uses to build out Azure and their other large properties) is inappropriate for most but not all (huge chunk of platform, specific cooling and power requirements) but is a natural first step. With the issues of non-Microsoft multi-tenancy and new network topologies understood, a next step of creating smaller packages seems pretty straightforward (Microsoft has already said they are moving to a smaller granularity for their own data centers). What Microsoft clearly understands (or at least Bob Muglia clearly understands) is the difference between having a customer build their own utility solution out of the pieces (Windows Server, Hyper-V, System Center and Virtual Machine Manager, SQL Server, Exchange, SharePoint,...) and giving them an up-to-date and evolving platform is pretty dramatic. UCS and VBlock customers are still dependent on the product development and release cycle of VMware, EMC, Cisco and others, and still fully responsible for the pain and anguish of integrating new versions.

Another Bites the Dust

We were sad to hear the news that the assets of Fortisphere were sold off to Red Hat for a small amount of money. Fortisphere was an interesting company that was focused on policy based virtualization management. Like others they made the unfortunate decision to back VMware's VMsafe API in its early days. We wrote a research report on VMsafe shortly after VMware introduced the concept at their European developers' conference in February, 2008. It sounded like a good idea — allowing third parties to develop to develop advanced security products — but we were concerned that at its introduction VMsafe wasn't far enough along and instead of seeding the market for security it would do the reverse by putting customers in a position of waiting. Unfortunately that's what happened and several startups (we've counted 4 so far) got caught between a rock and a hard place with good intentions but unable to garner sales as customers sat it out — resulting in their demise. Today, more than two years have passed, VMsafe has arrived and several vendors are using it. Using VMsafe is a different decision now than it was earlier and probably the right thing to do. Hopefully the virtualization security eco system may yet develop.

What Were They Thinking?

We all read with great interest VMware's acquisition from Yahoo of Zimbra the really cool e-mail/collaboration frontend. Yahoo, who paid $350M for Zimbra in Sept, 2007, maybe could have justified its acquisition by talking about increased eyeball monetization but that premise was doubtful considering the alternatives that were available. While we're not sure of how much VMware paid for Zimbra, it's hard to see how it fits in with VMware's strategic direction and, if it doesn't, then why should they take on yet another battle against Microsoft? Even if they didn't pay a dime for Zimbra, it possibly could end up diverting VMware's management attention away from its core issues. We have an old axiom that seems to hold up pretty well — if you're getting into the e-mail/collaboration business for the first time you need at least one if not two years to figure out a game plan — building and marketing collaboration products looks easy but is as much art as it is programming. Many have speculated that VMware wants to use Zimbra to compete with Exchange but that doesn't make sense either. Even if it did impact Exchange, VMware has more to gain by convincing customers to virtualize their Exchange environments (onto VMware platforms) than to try to replace it. The group that was most thrilled by this acquisition were the Zimbra users who, apparently, have felt neglected perhaps because Yahoo was slow in delivering new Zimbra features/function.

Is that a chip on your shoulder?

VMware spent a disproportionate amount of time in the Analyst meeting "explaining Microsoft's competitive playbook" (the Karl Rove perspective on industry competition) apparently in hopes of explaining how MS was lying and cheating and distorting the facts about virtualization. Given that a younger and brasher VMware in the not so distant past redefined vendor arrogance on more than one occasion, this seemed to fall in the category of "the pot calling the kettle black," and for us probably had the undesired outcome of demonstrating how much VMware really fears the Evil Empire from up north. Or are we unduly cynical for assuming that all vendors spin the facts to suit their pleasure? Isn't that the definition of "marketing?" Many of VMware's top execs spent significant successful portions of their careers at Microsoft and seem to be overly conscious of the Microsoft threat to the point where they may be caring more about Microsoft's reactions to what VMware does than to how customers may react. We had to sit through rather long diatribes about the "Microsoft Playbook" and what to expect from Redmond. There's an old adage in the advertising business that says you're winning the battle if you can get your competition reacting to what you do rather than paying attention to what customers want. Without even firing a shot across the bow, Microsoft is commanding more of their mindshare than it may be due. Let's hope that's not the case here.

Finally — A Major Acquisition

Unfortunately, where its ecosystem of software business partners is involved, VMware has been its own worst enemy. Potential partners have had difficulties building a business around the VMware platform not knowing what categories VMware is planning to compete in and which will be left to business partners to pursue. Compounding the problem, VMware has, until now, been low balling its acquisitions (see table below). Cisco is often accused of overpaying for startups it acquires but it surely makes it worthwhile for investors to back companies in new networking categories. On the other hand, venture capitalists have been cautious and overly negative about funding software companies in the virtualization space. Maybe the price it's paying for SpringSource might be an indication that Moritz intends to make a change here too and brighter days may be ahead.

  
 

Upgrade Status

In his keynote at VMworld, Paul Maritz predicted that 75% of customers intend to upgrade to VMware vSphere by the end of 2009. The chart below illustrates the anticipated adoption rate. Considering that vSphere shipments started in May and that VMware has such a large installed base largely made up of enterprises, meeting this year's end goal would be one of the more remarkable upgrade adoption rates in the software industry and a real testament of the customer loyalty that VMware has built. If this is the case, then many companies in the VMware ecosystem need to quickly understand the difference that vSphere adoption will make with regards to customer demand.

Is it Safe?

Last year we wrote a research report about VMware's introduction of its VMsafe APIs to enable selected partners to develop security products for VMware environments.  We interviewed most of the 20 VMsafe announced partners at the time and found that there was a lot of confusion about what VMsafe would actually be and when it would be available. We concluded that this was something that virtualization security start-ups should avoid getting intimately involved with VMsafe until there was a clearer roadmap with the possibilities of third party adoption and monetization.  Since then, several of these partners either had disappointing results and/or dropped out of the business completely.  So now that VMware has included its VMsafe APIs in its newest vSPhere 4 release, it's time to re-consider the situation.  As adoption of VMsafe 4 occurs, so will the ability to use VMsafe security partner products which, in turn, means that this may (finally) be the beginning of the market for security add-ons to VMware.