We all know that technologies come and go. Sometimes, technology companies do the same thing. I've long thought that VMware's days were numbered, and not because there's anything wrong with its technology.
VMware has dominated the virtualisation market ever since that market came into being. It has done so the old-fashioned way: by offering good software and support. What could go wrong? Well, price is a big weakness when every player in the market, VMware included, is either offering a free virtualization program or baking one into their operating systems. It's hard to compete with free.
Though VMware provides its low-end offerings for free, it can't stay in the game by relying on those alone; it makes its money exclusively from selling high-end virtualisation and virtualisation management software. Unlike its competitors, VMware doesn't have much of a revenue stream from operating systems and other products. And when it attempted to overcome that weakness, it was blindsided. More on that in a bit.
VMware's biggest problem is one that has laid other companies low: Microsoft. Slowly but surely, Microsoft's Hyper-V has been making gains against VMware's ESX . Gartner projects that in 2012, Hyper-V will account for 27 percent of the market, up from 11 percent two years ago. Within that projected 27 percent, Gartner says Microsoft will take 85 percent of all small businesses that use virtual servers.
On top of that, Windows 8 Server boasts a greatly improved version of Hyper-V. Enterprise customers who believe they can't go wrong buying Microsoft are going to start asking why they need VMware as they move to Windows 8 Server.
But Microsoft isn't the whole story, not even when you throw its buddy Citrix, with XenServer, into the mix. Multiple big IT vendors, including IBM, Hewlett-Packard, BMC Software, Intel and Red Hat, have banded together in the Open Virtualization Alliance to promote an open-source virtualisation platform - Kernel-based Virtual Machine (KVM) - as an alternative to VMware.
KVM has been maturing. Red Hat's third version of its KVM-based Red Hat Enterprise Virtualisation program is greatly improved. Some experts, like IDC analyst Gary Chen, think it has what it takes to compete. And, of course, Red Hat is the Microsoft of the Linux market.
VMware has acted as if it, too, can see what's coming. It wisely tried to get into the operating system game by buying Novell and its SUSE Linux distribution, but at the last minute, dark horse Attachmate swooped in and snapped up Novell . How could sleepy little Attachmate pull this deal off? With a lot of help from Microsoft, that's how. To my mind, that incident suggests that Microsoft still knows how to play hardball. Or maybe the operative metaphor is chess; Microsoft was looking several moves ahead. It didn't want VMware to be able to combine its strong virtualisation portfolio with a strong business Linux server.
And so, today, VMware is sitting exposed, despite retaining a huge market-share edge in the virtualization market. It's in a weak position because it can't offer customers a complete virtualisation/operating system vertical stack.
Of course, VMware will say its rivals' commoditized virtualisation hypervisors aren't nearly as good as its polished programs. That may be so, but it doesn't really matter when what the competition is offering for free is good enough. That's a deal that's awfully tough to beat.