Peter Christy

How Microsoft Lost the Virtualization War (when cheaper is wrong ...)

Microsoft didn't have to lose data center virtualization to VMware. It wasn't a question of inferior technology or product functionality. They lost because their business model was wrong.

Microsoft's Server and Tool Business (STB) has done extremely well by identifying markets where complex software functionality can be engineered for simple installation and use, and then brought to market at a disruptively low price point. Time after time this model worked: Windows Server, Systems Center, Exchange and SharePoint. Not surprisingly, when it came to virtualization, this was the business model: offer lots of functionality at a disruptively low-price. Why did it fail so badly in this case?

It failed because virtualization was different. Virtualizing a set of servers isn't like upgrading the operating system or Office. Virtualization enables significantly improved economics but along the way it requires significant changes in how the data center infrastructure is managed and how the data center is organized. Therefore it isn't surprising that customers didn't just jump into virtualization. Instead they brought in consultants to help them plan and implement, and along the way created a new channel focused on the delivery of virtualization solutions.

VMware had an "expensive" solution (although still a very smart investment considered by itself). Selling the VMware solution made a lot more sense for the channel because they made a lot more money doing it, and at beginning the VMware solution was domonstrably "better" than the Microsoft solution (more advanced functionality). So if a channel partner could make a lot more money selling VMware guess what they did?

As the Hyper-V solution caught up (and with System Center in many ways surpassed VMware) guess what happened? More or less nothing, because the channel had no incentive to switch brands. Yes, VMware has an "expensive" solution, and customers would like a "cheaper" solution, but that's not enough given the partner economics.

I finally understand what people were trying to say when they noted that Paul Maritz knew the Microsoft play book ("he had written it").  The genius wasn't just to understand your big competitor well; it was to jujitsu Microsoft (use their own weight against them).  The bigger question is why Microsoft didn't see it coming. The ultimate loss is enormous. Windows Server has done extremely well in the data center. System Center is remarkable management system. But now flanked by VMware on both sides it's going to be challenging to get out of the pincer.  Ballmer has changed the STB management. Microsoft is a smart and powerful company. Next move is necessarily theirs.

VMware VSphere 5: So What?

Last week VMware introduced vSphere 5 with a very professional, Web-based launch (best Paul Maritz talk I've ever heard). The reaction has been minimal... Why?  I think there are two reasons:

1. VMware doesn't really have any competition any more.
2. The adoption of Cloud solutions in the Enterprise is limited more by the rate at which the customers can evolve than by the state of the product offering (VMware is nicely ahead of the customers).

Two years ago, my thesis was that Microsoft would catch up with VMware in terms of virtualization functionality, and then bring the significant assets of System Center to bear competitively. But that just hasn't happened. Microsoft talks proudly of their share gain in hypervisors, but my friends at IDC say that really isn't gain against VMware in the data center. System Center is still a fine offering but Microsoft has nothing like vSphere as a platform offering on which to build private clouds (as you know, where I think the business is today). Microsoft is sandwiched between a VMware hypervisor and VMware service management. If that flanking continues, I don't Microsoft will thrive. 

This week both VMware and Microsoft announced earnings. VMware announced a very healthy 40% Y-o-Y growth rate. It's harder to parse out exactly what System Center revenue growth was but my best guess is that it's something in the 15+% range, not bad, but certainly not keeping up with VMW. A couple of years ago Microsoft argued that VMware and System Center were the only parts of the systems management segment that were growing, and that each was growing about the same rate. As you can see from the chart before, for a while VMware wasn't really growing license revenues: the overall growth came from a increasing service line with a growing installed base. But license revenue growth is back up.

 
Maybe there is another way to view the data, but it looks to me like VMware has sort of won this battle over the last year.

Citrix Acquires Cloud.com -- What's the Market?

Today Citrix announced the acquisition of Cloud.com.  Cloud.com is clearly a leader at providing an alternative to VCloud, and one based on Open Source and standards. They aspire to be the "Red Hat" of OpenStack.  From this perspective, they fit will into the Citrix Cloud initiatives. But all that said and done, I think it's worth asking the more difficult question about the market. Who buys Cloud platforms and why?

Some years ago, Microsoft argued that there was only a need for a small number of Cloud fabrics because of the economies and market value of scale. Others argued that there would be tens of thousands of Cloud SP's, each serving some valuable niche based on platform (Iaas, PaaS, SaaS), locality and vertical. The later argument is the basis of the energy in the market. Clearly if Microsoft is literally right then there ultimately isn't much of a market for something like Cloud.com.

To try and understand this interesting question better, we've actually talked to a number of SP's. We found some SP's that hadn't thought about the nuances much but also quite a few that had. The knowledgeable ones didn't think that competing with Amazon for what AWS does well was an interesting business opportunity, viewing it instead as a "race to the bottom." They were pretty uniformly focusing insted on some more specific offering, often based on a higher level platform (e.g., supporting SaaS offerings) rather than offering rented VM's.

Now here is where it gets interesting. Many of these more sophisticated SP's also wondered whether over time it would make more sense to build those offerings on something like AWS or Azure rather than having their own under pining fabric. So it's possible that in an important sense Microsoft might be right. The world may only need a relatively few fabrics, just like we need a relatively few power grids or telephony systems. At the same time, those who argued that 10,000 SP's would bloom might be right too, presuming they build on those massive fabrics.

Citrix didn't disclose the price of the acquisition so it's fair to assume it wasn't literally a big deal since it isn't material to Citrix stockholders. If that's true, the industry also may aslo believe that ultimately the market for Cloud.com was limited.

 

Intel's AppUp: A Hybrid Cloud for SMB (a clever example of the power of virtualization!)

Like EMC’s VCube introduction last month (VCubes — a really clever idea) Intel’s introduction of AppUp -- an SMB offering leveraging virtualization -- is at once pretty obvious and quite profound. To understand this duality you first need to have a realistic picture of the discouraging nature of SMB IT today. For example, in an auto dealership you’ll probably find many different Windows applications each running on a separate PC or small server. If one of these servers fails or needs an upgrade it means ordering and configuring a new and matching server, carefully reinstalling the application and then grabbing the old data. The power of the server is rarely an issue. With today’s multi-core systems, a single small server typically has more than enough power to roll up and run all these applications on a single, shared machine. The question has always been how to into a more attractive and modern Cloud-like vision with as little disruption as possible.

Intel's AppUp is new and innovative model for delivery IT services to an SMB, developed and operated by Intel, and delivered to SMB customers by Intel business partners (including SP’s, MSP’s and ISV’s). Technically, the customer gets a small, virtualized server and runs the applications they choose (selected from an Intel “App Store”) as virtual machines on that server.  Software and updates are delivered over the network by Intel.  The user’s data resides locally on the server (providing robustness in the case of communications failures) and is backed up into the Cloud.  The overall system is maintained and supported by the business partner.

The AppUp business model is unquestionably modern. There are no up-front costs for the customer (the server is owned by the business partner). The customer pays for the apps on an ongoing, as used basis, based on the number of enabled users.

So on the one hand, AppUp is a straightforward usage of existing ideas, but on the other hand, it’s revolutionary.

• From the point of view of the customer, application selection and installation is dramatically simplified: click and go; and hardware maintenance is greatly simplified as well since the applications share a server, and since any dependence of applications on specific server hardware is eliminated.
• From the point of view of the SP, MSP or ISV who provides support to the customer, the task is greatly simplified. The hardware is generic, based on an Intel definition, and then implemented and sold by multiple hardware OEM’s.
• Usage is moved to an on-demand, pay-for-what you use model. All costs are fees for use rather than up-front capital outlays. There is no need to buy hardware or software up-front. In Intel’s business model, the business partner owns the hardware and lends it to the customer.
• From the point of view of the ISV it’s a way of leveraging many of the benefits associated with the Cloud (no setup, on-demand access, pay for what you use) without changing the software architecture.
• Since the applications execute on the customer’s premises, it avoids entirely the issues of having sensitive data in the Cloud as well as making the solution robust with respect to communications failures.

AppUp is another good example of how a relatively simple use of virtualization enables quite dramatic changes in IT.

Performance is still an issue -- Velocity 2011

O'Reilly's Velocity 2011 Conference (http://velocityconf.com/velocity2011) is coming up this week. For the last couple of years it's been the scene of a very important reexamination of the issue of network-accessed application performance. Performance has been at the core of a lot of the infrastructure research we've done over the last decade and still an important area for further progress. Here's the story and why it isn't finished yet.

Over 30 years ago a seminal paper was published in the IBM Systems Journal (I'll send you a copy if you ask) in which standards for interactive program response were established to be in the range of .5 seconds (that's where the IBM data ran out). For the next 20 years, mainframe and minicomputer applications were designed to that standard.

Then the Web started to be used for commercial purposes. Early Web performance was pretty bad (20 second page load time), clearly unacceptable by the existing usability standards. But common sense said that 20 seconds was a lot better than (say) a couple of days to get something by USPS, so from that point of view 20 seconds was perfectly acceptable if less than perfect.

Then in 2001 Zona Research really messed things up publishing "research" that said, in effect, 8 seconds was OK.  What the research showed was that if 8 seconds was the commercial state-of-the-art (true at the time) and your Web pages were delivered in 8 seconds, you wouldn't suffer commercially (all true, humans are tolerant). The problem isthat for a lot of the Web generation, 8 seconds was now the "rule," not .5 seconds and that just ain't right.

Thankfully at Velocity there has been an ongoing discussion about the true value of performance and what is really adequate. Two years ago Google and Microsoft presented some real experiment data that showed, chillingly, what the effect on user behavior if just a few tenths of a second of artificial delay were inserted into search requests (video).

And last year, Google's Urs Holzle gave a keynote that went a lot further (Velocity Presentation). He said the right performance target was really .1 second, and certainly not the 6 second page load times that Google believes is typical in the US. Then he went further to point out that the issue was not the access bandwidth (fiber to the home won't fix it) and that even if all the Web performance initiatives currently underway succeeded. the results would still be sub-par (perhaps 1.5 seconds). This doesn't mean that excellent performance for internet-connected applications is impossible, but rather that they need to have some client intelligence (given the speed of light compounded by the nature of TCP/IP and the Web). It's an accurate realization that simple thin-client solutions will never suffice, but given the power in modern devices and technology like HTML5 there are lots of solution approaches possible.

So what? Performance is still an unfinished story.  There are far to many Web-based services with much less than ideal performance from the point of view of human usability.Two important tasks remain. First, we need to re-educate everyone on what excellent performance is (It turns out to be just what IBM identified in 1981.) Nothing since then has changed how humans read and think. The other open issue is getting more Web property owners to build enough performance logging and analysis infrastructure so they can see they relationship of performance to their business. In my experience when the relationship can been seen the importance of performance is clear; the issue is that too few business can measure these critical interactions.

Off to Velocity 2011!

Why You Should Really Pay Attention to the iCloud .......

In the recent newsletter, John talked a little about the recent Apple introductions at WWDC. I think that the implications go far beyond the surface and deserve attention. Here's why.

• Last year Mary Meeker pointed out that in 2012 more smart phones would be shipped than PC's. We're clearly at an important inflection point. Inflection points are confusing because they are about rate of change, not volume: the installed base of PC's is far greater than the installed base of smart phones and it will be for some time. But the world is changing and we're seeing that right now, unambiguously.
• If Jobs were to just watch, as a key particpant in the new platforms his position would get stronger over time, but he's accelerating the process in a very clever way.
• iOS 5 was introduced at WWDC and will be available later this year. With iOS 5 it will no longer be necessary to have a PC or MAC order to maintain your iPhone or iPad; they become "untethered". They will come from the factory with enough software built into do those functions by themselves as long as they have Internet connectivity.
• That still leaves the PC or Mac in the equation as the place you store al your content and keep your various devices up to date with each other. As Jobs pointed out, the coordination process is tedius requiring serial synchronication of each device, possibly more than once to get all the exchanges and updates done.
• iCloud fills in that gap (a shared content repository) and by implementing Groove-like synchronization greatly simplifes the device coordination as well and by doing so makes having a PC or Mac for those functions unnecessary.

It's likely that these new features will "canabalize" Mac sales. The rush for the iPad is pretty obvious; how many of these new Apple users also bought a Mac as well?  But Jobs clearly understands that accelerating the move to unteathed, mobile, wireless (and non-Windows) devices is all in his favor.

This isn't only about individuals and personal devices I think. We need to reimagine how IT will be done in the interconnected, mobile device, Cloud world that is rapidly upon us. To stimulate your thinking, imagine a small business running on iPad's, sharing and replicating data locally, and linking to shared applications that run in the (i)Cloud with no local "servers" whatsoever. What's wrong with that picture other than the implications for Microsoft?

The Exchange in the Clouds

(If you squint your eyes just right it looks like a bull!) The NYSE, in conjunction with VMware and EMC, announced a Financial Services Cloud offering. This is a really good example of what IBM introduced generically some time ago — an industry specific cloud. What's significant about this announcement is the participation of an industry segment leader (NYSE) and that it's built on VMware/VCloud, not what IBM would have used, not built on Microsoft Azure (although in some ways it is probably the more suitable platform). As I noted in the last issue with respect to Hyper-V, VMware is the putative winner in data center virtualization. Given that the enterprise data center is getting more enterprise attention than the public cloud, it stands to reason that VMware is going to have significant influence in what gets build in public clouds (perhaps multi-tenant clouds would be a better term), and that is certainly the case today. Many other vendors want to ignore this because it may not speak well to their future success (e.g. as a security provider) but that won't make VMware's success and influence go away.

Hyper-V: Is that the Fat Lady I hear?

For years I've waited patiently for Microsoft to catch up with VMware in enterprise virtualization, betting that Microsoft's experience with and investment in System Center would ultimately prevail and at least make the competition interesting. Last year things looked good for an intercept: Microsoft noted that more than 50% of Windows Servers attached to at least one System Center function, and that Windows Server was continuing to do well capturing more than 75% of enterprise sales. It certainly sounded like a winning combination, coming around the bend. But it's a year later and Microsoft still isn't really present in the Enterprise virtualization discussion, certainly not as a VMware peer. To be clear, Microsoft has lots of virtualization wins and System Center wins to be proud of, and Windows Server applications have lots of continuing success; my point is that they don't seem to have much traction being the overall virtualization manager. Furthermore, each year VMware integrates more and more of the system functions into the virtualization layer (e.g., components of the network, security). Over time these actions will be real competitive issues for the infrastructure incumbents like Cisco and Microsoft. (Microsoft was asked to comment on this but declined other than saying they disagree with the conclusion, citing IDC's reported 61% Hyper-V growth rate.)

Scott Charney: Internet Security as Public Health (take 2)

Microsoft's Security CVP Scott Charney regularly produces really provocative ideas. In the last 12 months Scott lofted the idea of treating computer infection like human infection and using network quarantine just like we do in the case of infectious diseases. He got quite a bit of feedback and he discussed that and his revised vision as part of his RSA keynote. There are a lot of infected PC's in the world that are used in BotNets to inflict all sorts of evil things. In most cases the PC owner is blissfully ignorant of the infection. So what if your PC-based VoIP phone has replaced your land line, and just when you need to make an emergency call your PC has been quarantined from the network (Charney's original suggestion). Obviously bad things could happen. In response to this criticism and others, Scott ingeniously folded in the use of Microsoft's Identity Claims architecture. A key concept here is that a user has many ways of satisfying an external request for identity credentials and which is used is entirely under the user's control. The idea here is that low value Internet uses could continue unabated on an infected computer (where the infection had been determined externally – all the security companies have lists of lots of known infected machines) but that sensitive transactions could require that some proof of health. For example, your PC is believed to be infected and you try and access your bank account. The bank replies by requesting a proof of identity that incorporates a health certificate (that could be provided by your security software). If the trusted security software believes that the machine is healthy (the security software is enabled and running with up to date signatures and a scan has been done recently) then the request would go forward. Otherwise the user would need to take a cleansing break until that certification was available. It's not as simple as the original quarantine idea but a lot more practical. It's clearly not a practical short term solution but could be an important component of improved network security and trustability downstream.

Mu Is Leaving the Building

January brought the startling news that Bob Muglia was going to be leaving his role as President of the Server and Tools Business at Microsoft. The formal press release didn't try to conceal the fact that there was a fundamental disagreement with Ballmer. Personally I'm really sad to see Bob go. I've known him since he was one of the first product managers on Windows NT, and admit to being a shameless Mu FanBoy. He ran a really big software business and still had passion for the technology and technology-based strategy; that is rare. Although I have no real insight into the specifics of the disagreement, the underlying issue seems pretty clear. Microsoft makes a lot of money selling a legacy product line but understands that's not the future of IT. As challenging as it is to build a forward looking strategy (I personally believe Microsoft has a pretty interesting one) the hard part is dividing investment between the past and the future. Microsoft has lots of money to spend but also has an investment community that's watching the bottom line. In the past Gates was the integrating force — the fabulously successful founder and owner of the company and the technical leader. But Bill's largely out of the picture. Steve was always a great partner for Bill but he isn't Bill in many ways and certainly isn't the visionary nor the technical leader. But Steve has responsibility for turning the great ship and keeping up a good head of steam, not an easy challenge in any way. Microsoft stock hasn't done much under Steve and the pressure must be building. I'm glad the decisions aren't mine.