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Can VMware maintain its market leadership position?

VMware may be the market leader in virtualization today, but its weakness in physical systems management, its potential for redundancy, and the emergence of Hyper-V could signal change on the horizon.

VMworld 2008 begins on Monday, Sept. 15, and that has prompted virtualization observers to ponder the future of VMware Inc. as a continued leader in the virtualization market as well as the company's strategy and relationships with other major vendors.

While VMware is the current undisputed virtualization leader, it faces serious competition in the arena of physical systems management tools and other areas where major vendors like Hewlett-Packard, IBM and Microsoft can lay claim. In addition, given VMware's recent upheaval and the emergence of Microsoft's Hyper-V, there are legitimate questions about VMware's ability to maintain its first-class position in the virtualization marketplace.

Now, that's hardly to say that I'm anti-VMware. VMware has helped increase information system utilization, improve server management, improve systems availability, lower deployment and integration costs, and much more. And VMware software helps decrease energy consumption (and thus the greenhouse gas generated by power suppliers). VMware is to be lauded for these contributions.

Still, I have reservations about VMware's current market position and strategy -- as well as questions about the strategy of VMware's parent company, EMC Corp.. Here are some of VMware's potential problems going forward:
  • potential major channel conflict;
  • increased competition; and,
  • technology redundancies.
In my view, the current strategies of EMC and VMware place the two companies on a collision course with VMware's major systems infrastructure and management distributors (Hewlett-Packard and IBM in particular). Further, EMC's incursion into the business process management market (as the result of two acquisitions), also places EMC in direct conflict with HP, IBM, Sun and Microsoft.

Increased competition in the areas of integrated virtualization/physical systems management also has the potential to cause VMware major heartburn as it continues to try and grow its revenue stream in markets where Sun, HP, IBM, Microsoft and other vendors are currently focused.

Finally, as HP, IBM, Sun and Microsoft improve their virtualization products, customers may see that they have spent twice as much for the same IT functions (such as backup and restore), and may choose to go with the larger vendor's virtualization management stacks rather than the x86-focused stack from VMware.

How the virtualization market will evolve
Virtualization is not a short-term, point-product solution. It's part of a much larger picture where business process flows travel over service-oriented architecture (SOA) that exploit underlying, virtualized systems, storage and network resources.

To build this information systems "nirvana," IT managers start by consolidating their IT resources and then virtualizing those resources. Then they automate the provisioning of those resources and change the way their application programs interact, moving from a tightly coupled program-to-program communications universe to loosely coupled service-oriented architecture (SOA). Major vendors like IBM, HP and Microsoft are committed to helping customers build this kind of information systems environment, and all offer extensive infrastructure and management portfolios to do so.

Now consider the product portfolio of EMC, VMware's parent company. By examining a series of recent acquisitions (EMC calls them "string of pearls" acquisitions), it should be clear that EMC is evolving a business process flow/SOA/virtualization strategy of its own. Over the past few years, EMC has acquired Acxiom and ProActivity, both business process management companies. And over the past several years, VMware has moved from a provider of an x86 hypervisor to a provider of virtualization infrastructure and management products. So EMC may have designs to compete with much larger, more extensive portfolio companies such as HP, IBM and Microsoft.

Channel problems: Complicating life for VMware
VMware's leading distributors are IBM, HP and Dell. Dell tends not to build infrastructure products (except for physical systems management products), but works to integrate various vendors' products with one another for deployment on Dell platforms. So EMC's move into process flow/SOA/virtualization is a good match for Dell. HP and IBM, however, are clearly in the process flow/SOA/virtualization infrastructure and management business. Today, both companies enjoy a healthy relationship with VMware. But as EMC creates more competitive pressure in these companies' respective markets, the potential emerges for relationships to sour. After all, these companies would rather see infrastructure and management revenue go directly into their pockets than to VMware.

Increased competition
Make no mistake about it: VMware has a major lead over its competitors in terms of x86 virtualization technology. Now, HP, IBM and Microsoft have to play catch-up (although IBM is decades ahead of VMware in virtualization on other platforms). But VMware is way behind HP, IBM and Microsoft in the area of physical systems management. And HP, IBM and Microsoft have aggressively built systems management environments that can manage physical and virtual resources from the same console. By offering a more integrated management suite, each of these companies can turn up the competitive pressure on VMware.

VMware has become the standard for virtualization at tens of thousands of enterprises worldwide. But VMware adoption rates in Southeast Asia, the Middle East, Eastern Europe and South America have been low when compared with adoption in North America and Western Europe. So the door is wide open for Microsoft in particular to grow market share. Microsoft is a major incumbent in these regions and already has its own infrastructure in place. Using Microsoft's low-cost virtualization and integrated physical systems management environment may prove irresistible to buyers in these regions, clearly threatening VMware's future growth.

Technology redundancies
I have argued previously that VMware creates a separate, redundant x86 infrastructure environment that mimics technologies and functions that often already exist. VMware's ESX 3i, for example, introduced a new Distributed Resource Scheduler, additional high-availability features, a new distributed file system, and consolidated backup for VMware environments. But many enterprises already had similar software for nonvirtualized server environments. So the big question is, "How long will IT buyers be willing to shell out IT budget for what could be considered redundant software?" Consider VMware's "redundant" technologies in the following areas:

  • Distributed resource scheduling. Numerous vendors -- including IBM, Sun, HP, Platform Computing, DataSynapse and United Devices -- already offer distributed resource scheduling as part of their respective virtualization, cloud computing and grid products. Here the question is, "How long will it take VMware to reach the level of sophistication in resource scheduling that these major players have achieved after years, if not decades, of investment?"
  • HA software. Every leading systems vendor has implemented comprehensive offerings in high availability for hardware, at the operating systems level, and in systems software. VMware's implementation is comparatively rudimentary.
  • Backup. Most data centers have already invested in other automated backup technologies -- companies include EMC, which acquired Legato technology; Symantec/Veritas, the market leader; and NetApp. Why should IT buyers have to purchase VMware alternatives?
  • Distributed file systems. When VMware announced its Infrastructure 3 environment, the company announced a new distributed filing system. Doesn't the market leader in storage virtualization, Symantec/Veritas, already offer a heterogeneous distributed file system technology that's widely installed? Who wants or needs another one? IBM, Sun and EMC also offer other alternatives. So will VMware's file system really be superior to those of other players, including its parent company? Will VMware then eliminate or complement EMC's file systems?

Conclusion: Where's VMware going -- or going wrong?
It's hard to blame EMC for its designs on the business process flow/systems software markets. In 2004, VMware reported $219 million in revenue. In 2007, VMware's revenue topped $1.3 billion. From a revenue perspective, the VMware acquisition has proven to be a brilliant decision, and this rapid revenue growth makes it extremely tempting for EMC and VMware to expand into infrastructure and management markets. But as EMC moves into the systems software market it will have to compete with HP, IBM and Microsoft and has the potential to foul the channel relationships between these companies.

EMC and VMware are now on a path to compete with the industry's largest, most entrenched vendors. HP, IBM and Microsoft all have broader portfolios in management and infrastructure; and all are heavily invested in capturing business process flow/SOA/virtualization market share. Finally, it should be noted that each of these vendors is building integrated management tools that may make VMware's tools redundant.

All of these issues may spell trouble for VMware as it attempts to grow its revenue stream at its hitherto astounding rates. Again, this skepticism about the future of VMware is not intended as mean-spirited commentary. Based on observation, EMC's and VMware's future is fraught with channel-, competition- and technology-related obstacles.

About the author: Joe Clabby is the president of Clabby Analytics in Yarmouth, Maine. Check out our Virtualization Pro blog.

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