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AS OF 11/22/2008 4:10AM EST

Shakeup at VMware Shows Its Lead Is Shrinking
By Robert Mullins

July 18, 2008 — SPECIAL TO SYSTEMS MANAGEMENT NEWS

Diane Greene’s dismissal as president and CEO of VMware was understandable for two reasons, notes an industry analyst: Greene was an engineer rather than a marketer, and competition in the virtualization market has intensified, slowing VMware’s once-rapid growth.

Greene had started VMware with her husband, Mendel Rosenblum, in 1998, run it as a division of EMC since 2003, and then guided its partial spinoff in an initial public offering in 2007. But she was fired on July 8. Paul Maritz, president of the cloud computing division of VMware’s parent, EMC, replaced her immediately.

Greene’s experience has been mimicked at other tech companies, noted Laura DiDio, a senior analyst at the Yankee Group. The companies are founded by engineers who have a brilliant idea for software or hardware. But when the company reaches a certain size or level of maturity, she said, it needs more than good product engineering to grow.

“You can’t argue with [her] success,” DiDio said of Greene. She and Rosenblum, whose engineering degrees are from MIT and Stanford University, respectively, took virtualization technology that IBM created on its mainframe computers decades earlier “and made it new again” for servers, desktops and other parts of the data center.

But other companies have built virtualization products that match VMware on quality but undercut it on price, DiDio added. VMware needs to become more marketing-focused, she added.

“Great marketing combined with so-so technology will get you further [and] faster than great technology with so-so marketing,” DiDio argued.

A number of developments occurred in virtualization that worked against VMware, she noted. Microsoft released its Hyper-V virtualization hypervisor to manufacturers on June 26. Given that about 70 percent of servers in the world run some version of Windows Server, Microsoft has an “in” with many potential customers.

In another case, Oracle’s acquisition of BEA earlier this year eliminated a crucial opportunity for VMware to pair its hypervisors with BEA’s middleware, DiDio noted. Oracle offered its own hypervisor at its Oracle Open World Conference in November 2007.

What’s more, the 2007 acquisition by desktop application delivery company Citrix of open-source Xen-based server virtualization provider XenSource gave new life to a competitor of VMware. Yet another, Virtual Iron, is also undercutting VMware on the price of software and support for its open-source offering.

Finally, VMware is facing competition from itself, DiDio explained. Like other vendors, VMware offers a free bare-bones hypervisor. Increasingly, VMware’s customers are choosing the free version over its commercial ESX Server 3i product.

In 2006, 90 percent of VMware customers were deploying the ESX server, and only 10 percent the free version. Two years later, only 50 percent are deploying ESX and 40 percent are deploying the free version. DiDio attributes the shift to the growing adoption of virtualization by small to medium businesses, whose priorities are more focused on cost and less on bells-and-whistles management.

Depending on the configuration, a VMware deployment can reach into the tens of thousands of dollars for licenses and support costs.

DiDio pointed to a December 2007 interview in The Wall Street Journal with Greene as evidence of her lack of marketing savvy. Greene said at the time that the company’s increasing competition wouldn’t affect VMware’s pricing—the opposite of what students are taught in Economics 101.

Maritz has the marketing savvy to engage in some price competition with VMware’s new competitors, DiDio noted. During his time at Microsoft, he took part in the launches of Windows 95 and 98, events that prompted people to camp outside of stores to buy the operating systems when they went on sale.

Maritz most recently led EMC’s Cloud division, which was born out of the company’s acquisition earlier this year of Pi Corp. Maritz founded Pi in 2003, three years after retiring from Microsoft, where he had spent 14 years. Pi focused on building cloud-based solutions for new ways of doing personal information management.

“As one of the founders and the leader of VMware, Diane guided the creation and development of a company that is changing the way that people think about computing," VMware chairman Joe Tucci said in a prepared statement.

Related Search Term(s): Cloud computing, virtualization, EMC, Microsoft, Oracle, VMware

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