John Katsaros

New Positioning

If you've got all of this "infrastructure stuff" that makes virtualized data centers operate efficiently, then why not wrap it up in a nice bow and call it an operation system? Paul Maritz could have used words like "platform" to describe it but it really doesn't matter. What's important is that VMware has built a lot of special stuff and once they get customers using it it'll be hard for them to switch to something else. Is this a new category like VMware claims? Who cares? The phrase Data Center Operating System is functional enough to serve as an overarching name for this collection of virtual infrastructure stuff. So why not fight the battle against Microsoft this way? Interestingly, Maritz spent a lot of time talking about their virtual desktop plans which, apparently, he felt has been underfunded and for which we'll see a big investment in the future. It seemed that Maritz's vision of where VMware is heading served the dual purpose of informing customers as well as telling VMware's own internal employee base where they need to head. If one of his goals was to politely close the book on the Diane era ("we own the market") and start dealing with the competitive threats from Microsoft and Citrix, then that was successful.

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.

Market Shift

Frequently we've had people tell us that virtualization is still in the "experimental" stage and not yet generally deployed in production environments. That might have been the case a couple of years ago but today there are more than enough production virtualization case studies to validate the claim of the production readiness of virtualization. Last week's VMworld with 14,000 attendees provided ample proof of virtualization's production deployment status. VMware handed out the results of its periodic customer research survey which shows EMX production deployment at 94% of its customers -- a remarkably high deployment rate -- and that 47% of VMware's customers use virtualization as the "default build" for new server deployments (up from 25% in 2007). What's more, their survey showed an increase in the percentage of customers who run in production virtualized versions of higher payload applications like databases and Microsoft Exchange. The more significant change from VMware users is that their CIOs are asking the question -- "What are you going to do for me this year?" These CIOs like the initial returns from virtualization but now want incremental improvements from datacenter operations -- like improved server consolidation ratios, improved management, Disaster Recovery, High Availability, Fault Tolerance... Now that the initial virtualization steps are underway, the market is shifting to operational improvements. So if you think the market is still experimenting with virtualization, you're likely to miss what's actually happening.

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.

Seething

In last week's press release announcement of Diane Greene's sudden departure you could almost feel Joe Tucci's tension jumping out of the page. Tucci, who has multiple roles as the chairman of VMware's board as well as chairman, president and CEO of EMC, has had to sit back and watch EMC's share price drop -- being pulled down by VMware -- since Microsoft launched Hyper-V. That's because EMC owns such a big piece of VMware which, in turn, accounts for a significant amount of EMC's current valuation. Until VMware's IPO last year, EMC's stock price was fairly typical for a large high tech company. But for the past six months EMC's stock price has been as volatile as they come. You can't blame him for wanting to get things under control.

Virtual Thru and Thru

During his introductory analyst conference call on Thursday, VMware's new CEO Paul Maritz indicated that his market focus is on "virtual data centers." Since he's brand new we probably shouldn't try to pin him down on the precise language, but from our conversations with data center managers it seems that future data centers aren't going to be purely virtual or purely physical but instead will be a mix of physical and virtual and, on the virtual side, is likely to be a mix of different hypervisors. While a small difference in words, it's a much bigger strategy question when it comes down to how VMware is going to position its virtualization management products (which account for the bulk of its revenue). Will these products let users manage physical and virtual machines from the same pane of glass (as Microsoft is intending to do)? Will these products support non-VMware platforms? So many decisions...so little time.

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.

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.