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VMware Arms for Microsoft Battle
Former Microsoft executives Paul Maritz and Tod Nielsen know a thing or two about how the software giant snuffs out budding threats. They helped Microsoft battle upstart Netscape in the late 1990s. Now they're on the receiving end.
Maritz and Nielsen run VMware, a software company with $1.9 billion in revenue that has become the standard-setter in the exploding market for computer "virtualization." This half-century-old technology started out as a scheme for allowing software to behave as if it were running on more memory than is in fact available by quickly swapping chunks of programs or data in and out of disk storage. The concept has been expanded to include all manner of carving up computer resources on the fly to extract the most from them.
Problem is, virtualization software crowds into Microsoft's space in the market for server software. It threatens to thwart Microsoft's desire for a central role in the next wave of data-center build-outs.
Microsoft remains a behemoth, with $60 billion in revenues and enormous influence over corporate data-processing departments. But VMware, in Palo Alto, Calif., has got the giant's attention-just as once tiny Netscape and Google became threats Microsoft couldn't ignore. "There's a part of Microsoft that's locked onto us," acknowledges Maritz, who became VMware's chief executive last year. "If you really want to look into the soul of Microsoft, what makes them tick is the ability to lock onto a competitor and chase that competitor down."
Maritz should know. A soft-spoken technologist, he was Microsoft's powerful number three executive for years. He often played peacemaker at the Redmond, Wash. firm, refereeing strategy battles between high-octane executives like Brad A. Silverberg and Windows chief James Allchin. (Both have since left the company.) He also mentored executives like Robert Muglia, who's now in charge of Microsoft's virtualization effort. But Maritz knew how to play hardball: He made decisions that helped vanquish past Microsoft rivals, including Lotus, Novell and Netscape.
His current sidekick at VMware, Nielsen, had a 12-year career at Microsoft, mainly prodding outside software developers to adopt Microsoft technology. One of his last jobs was helping the company coordinate its strategy during its antitrust trial. A federal judge found Microsoft guilty of illegally using its market might to crush Netscape.
That experience gives VMware an advantage over Microsoft rivals that were squashed like bugs. "Paul and I, we know Microsoft's playbook," says Nielsen, who joined VMware as chief operating officer in January. Nielsen and Maritz say they won't get distracted by Microsoft's well-funded attack. Microsoft says it is pouring $2.5 billion this year into r&d for new software applications and infrastructure. That includes virtualization technology.
Microsoft, meanwhile, downplays its concerns about VMware-just as it belittled companies peddling technologies like Web browsing. "VMware is a feature trying to become an operating system," declares Robert Kelly, vice president of marketing for Microsoft's infrastructure group. "I don't spend my days worrying about Paul and Tod."
Customers report otherwise. James Measel, a data systems architect at furniture maker La-Z-Boy in Monroe, Mich., says Microsoft salespeople have been hounding him on virtualization for at least nine months. He's sticking with VMware for now. Microsoft is "significantly behind VMware," says Robert Plankers, a VMware user and senior systems engineer at the University of Wisconsin at Madison.
The browser war of the late 1990s-which Microsoft won-is strikingly similar to what is unfolding now between VMware and Microsoft. Like Netscape's Web browser, virtualization threatens to become a starting point from which developers can branch into new programs. The technology is a new software layer sandwiched between computer hardware and the traditional operating system. It's a prime position that could relegate Microsoft's server software to mere plumbing, while the interesting stuff can be built around VMware's systems.
In big corporate data centers "virtualization is the place where it all happens," says Rene Bonvanie, a senior vice president at Serena Software, a big VMware customer. VMware's software performs tasks like managing computer memory, a chore previously done by Windows.
VMware was founded in 1998 by engineers including Diane Greene, a Silicon Valley tech veteran, and her husband, Stanford computer science professor Mendel Rosenblum. Its first products focused on desktop virtualization, which lets people run different operating systems on the same laptop or desktop PC. Someone with an Apple Mac, say, could use VMware to split his computer in two: One-half would run Microsoft's Windows, with its programs like PowerPoint and Exchange, while the other half would run Mac programs. Users could easily toggle between the two.
In early 2004 VMware's profile surged when it was scooped up by data-storage giant EMC for $625 million. EMC rightly saw that VMware's technology could be a game-changer for big server systems as well as for PCs. Most servers are woefully underutilized, like houses with big, unfinished basements. Virtualization would allow databases and other programs to be liberated from individual servers, where they take up a tiny portion of a machine's available space, and run in a big, combined "cloud" of computing power. It allows a company to use fewer physical servers and consume less power.
VMware hit a rocky patch after the EMC acquisition. Greene wanted more independence for her fast-growing company; EMC Chief Executive Joseph Tucci agreed to sell off a 10% stake in VMware in a $1 billion public offering in the summer of 2007. Later that year VMware's shares began slipping amid concerns about revenue growth and, to a lesser extent, stepped-up competition from Microsoft. Greene and Tucci continued to clash, and she was fired last summer.
Microsoft's competing Hyper-V virtualization product came to market in June 2007, several months late and with a key feature missing. Unlike VMware's software, Microsoft's didn't have the ability to move data instantly from one virtual machine to another. So a retailer seeing a spike in Web traffic couldn't shift that activity from one server to another without a delay. (That's fixed in an upcoming version.)
Maritz knows Microsoft can make up lost ground. "This is software," he says, "and if you have enough time and enough people, you can do it."
Microsoft has lots of both. It also has enough market power to undercut VMware on price and offer other incentives. Microsoft claims its offerings are two to six times as cheap as VMware's; VMware vehemently disputes this. Microsoft's base product is free and comes bundled with its server operating system; it hopes to make money on related software. VMware also sometimes gives away its base product but says it can do better than Microsoft with paid software because its products address critical data-center needs Microsoft's can't yet.
Microsoft used similar tactics against Netscape, bundling its Internet Explorer browser into Windows. It dangled sweeteners to potential customers like discounts on other Windows products. In one case Microsoft reportedly took a stake in a KPMG Peat Marwick networking unit to get KPMG to dump Netscape and adopt Microsoft's browser.
VMware can't match that kind of muscle power. But it can try to shift the debate from price to features, where VMware is winning right now. Nielsen says VMware talks to customers about topics like disaster recovery and how VMware's products can quickly shift important data to virtual servers for safekeeping during emergencies. Microsoft says its products can do that, too, though not as quickly.
Nielsen predicts Microsoft will try to distract VMware from its core product-development work by talking up its own virtualization products with existing Windows customers-a time-honored tactic. (Already, Microsoft is trying to play up Windows' ties to its virtualization product, declaring on a Web site that Windows is "The Platform You Know" for virtualization.) He figures Microsoft will try to create doubt that VMware can compete with the much larger Microsoft.
Nielsen says VMware won't play that game. At the April launch for the newest VMware product, "I don't think Paul even mentioned the word ‘Microsoft,'" he says. "If we were falling for trap number one in the playbook, he would have had ten slides on why we're better than Microsoft."
Maritz points out the 2,000 workers he marshaled to release VMware's latest product was "bigger than any team I used to release any version of Windows NT in the 1990s." VMware has 6,700 employees; revenues will likely grow 2% this year-far below its 42% growth last year but better than the data processing industry's growth. Its technology is much more complex than just "throwing a button on a browser and declaring victory," Nielsen says.
Some VMware customers say Microsoft has enough money and talent to come up with virtualization products that are "good enough," and cheaper than VMware's. "There will come a point at which Microsoft will probably make me a sweet offer that I'll have to consider," says Serena's Bonvanie. To survive, VMware has to stay one step ahead.
Source: prasenjit of www.ideationcloud.com