Microsoft vs. VMware: Rumble in the virtual world

As Hyper-V marks Microsoft's entry into virtualization, market leader VMware must consider new strategies for survival against the software behemoth

Two weeks ago, VMware found itself squarely in Microsoft's crosshairs -- and chaos followed. VMware lowered its revenue expectations for the year earlier this week. Its stock took a nosedive, which likely led to President and Chief Executive Diane Greene's sudden resignation yesterday.

All of this comes on the heels of an industry-rattling announcement: Microsoft threw down the gauntlet late last month with the public release of Hyper-V, a free hypervisor technology bundled with Windows Server 2008 that undercuts VMware's standard-bearing ESX Server.

Hyper-V, which enables different operating systems to run on a single server, received solid marks from the InfoWorld Test Center. "Getting that hypervisor out there is a major first step," says reviewer Randall C. Kennedy. "Over the next 12 to 18 months, Microsoft will continue to tweak Hyper-V" to compete more strongly with ESX server, he notes.

[ How does Microsoft's hypervisor fare in a hands-on lab test? Read the InfoWorld Test Center's review of Hyper-V. ]

VMware, of course, downplayed the Hyper-V launch. "It's a first-generation product that does basic partitioning, like what we were shipping seven or eight years ago," says John Gilmartin, senior manager for product marketing at VMware.

If any of this sounds familiar, it is.

Most software vendors tremble at the sight of Microsoft slouching toward them -- a harbinger of market share doom. Microsoft wades into an emerging market with a bare-bones product, then leans on the competition using its heft in product development, marketing prowess, and massive installed base to commoditize the product category and topple the market leader.

The tech industry is awash with brands of many innovative companies whose high-flying technology was slowly devoured by the Redmond giant: Lotus. Borland. WordPerfect. Corel. Novell. Apple. Netscape. Can VMware, last year's Wall Street darling whose name has become synonymous with virtualization, survive Microsoft's awesome embrace-and-extend campaign?

Early signs point to a difficult road ahead. Two weeks after Microsoft's Hyper-V announcement, VMware said that revenue growth for the year "will be modestly below" its previously stated goal of 50 percent -- and shares free-fell 26 percent to $39.30 on the news. Microsoft veteran Paul Maritz will replace the ousted Greene.

Despite VMware's gloomy week, Chris Wolf, an analyst at the Burton Group, cites a couple of ways the company can stay a step ahead of Microsoft in the virtualization race: One is a big lead on virtualization technology that should buy the company some time. The other is shifting frontlines, as the market moves from commodity hypervisors to feature-rich virtual-infrastructure management tools.

"It's shaping up to be a very interesting battle," Wolf says.

In pursuit of VMotion
VMware's ace up its sleeve is a piece of "live migration" technology, called VMotion, which basically allows users to move a virtual machine on the fly from one physical server to another without interrupting running applications. Live migration is the apex feature for high-availability systems. By contrast, with Hyper-V, such a move requires suspending the virtual machine for a few seconds or minutes and disrupting applications, says Kennedy.

Neither Kennedy nor Wolf thinks live migration is a critical feature for small and midsized businesses, and so Hyper-V can gobble up market share on the low end. VMware's Gilmartin, though, counters that 60 percent of VMware's more than 100,000 customers use VMotion in production applications. "A lot of midmarket companies are looking for cost-effective business-continuity and high-availability solutions," he says.

Microsoft's Hyper-V lacks other features, too, particularly in areas of stability and support. For instance, there's a serious risk that a faulty device driver will crash a Hyper-V server, says Kennedy. Hyper-V also supports Microsoft operating systems and Suse Linux as guests, but not much else. VMware's ESX Server, on the other hand, supports dozens of Linux distributions and Unix variants.

Patrick O'Rourke, a Microsoft group product manager, responded to these Hyper-V criticisms. He told InfoWorld that Microsoft will have live migration in the next version of Hyper-V. And discussions are already under way about how to support Red Hat Enterprise Linux on Windows Server 2008 Hyper-V.

A head start in technology likely won't save VMware from the Microsoft offensive, says Kennedy. "VMware has pushed their technology pretty far," he says, "but I don't see on the horizon the silver-bullet technology that VMware can achieve to put them light years ahead of Microsoft again."

VMware's best chance
While Microsoft busily develops catch-up features for Hyper-V, the server virtualization market is moving toward management of a virtualized environment. Virtual servers can quickly become a nightmare to control, which is why IT shops need such tools. "The end game is in management of the virtual infrastructure," says Burton Group's Wolf. "Hypervisors will eventually become a free commodity."

To this end, Microsoft will offer its System Center Virtual Machine Manager 2008, which only recently entered public beta. Kennedy says the management tool shows promise but has limitations, such as its inability to manage live migrations. Wolf, though, was impressed with a Microsoft demo that showed an operations manager quickly provisioning a new virtual machine to handle a problem.

Microsoft's System Center is also getting into other areas, says Wolf, and encroaching on established management tools such as Hewlett-Packard's OpenView for networks and systems management. VMware only manages virtual infrastructure, leaving management tools from Hewlett-Packard, IBM, and others to handle the rest.

In fact, VMware has spent years building strong reseller relationships with technology stalwarts. And it has been extremely successful taking joint solutions to the largest companies in the world. All of the Fortune 100 companies are VMware customers.

Perhaps this is VMware's greatest opportunity to thwart Microsoft's campaign for undermining and overtaking market leaders. At least, Wolf thinks so. He believes VMware should continue to integrate its products deeply with its partners' offerings and leverage their sales channels -- a kind of "unite and overcome" strategy. "VMware's best chance is not to go it alone," Wolf says.

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