VMware IPO - Why now?

EMC Corporation has announced that it intends to sell 10% of VMware in an initial public offering. The announcement itself can be seen here.

EMC Corporation has announced that it intends to sell 10% of VMware in an initial public offering. The announcement itself can be seen here. My question is why execute this move now? Here are reasons that may have contributed to the decision.

Market Pressures 

VMware is facing pressure from Microsoft. Microsoft is in the middle of a plan to incorporates its virtual machine software into its operating systems. This move is likely to place a great deal of pressure on other competitors if history is a guide. I remember what happened to suppliers of TCP/IP software, such as TGV, and memory management software, such as QuarterDeck Software, when Microsoft released Windows 95. Windows 95 contained both types of software. The other suppliers gradually faded away.  Their software often offered more features than the "free" software being offered by Microsoft. The word "free" is the operative word here. IT decision-makers were more than willing to adopt less funcitonal software if it was good enough to get by and it was included at no additional cost.

VMware is also facing pressure from Xen and if Simon Crosby, CTO of XenSource, is correct (see his blog entry here), Xen's commercial products outperform VMware ESX server at a considerably lower price. As Linux distributors, such as Red Hat and Novell, simply include Xen in their Linux distributions at no additional cost, IT decision makers who use Linux are likely to move in a Xen direction.

Another Linux virtual machine software offering, the Kernel-based Virtual Machine (KVM), is emerging as a potential threat to VMware.

VMware is facing many challenges from other suppliers offering management frameworks capable of managing an entire computing environment, not just the virtual machines that are running.  The list of management vendors reaching into this space include all of the management software suppliers and most of the virtual processing software suppliers. 

EMC Synergies

VMware was acquired by EMC and many were confused about the reasoning behind that move. At that time, EMC was known as a storage server powerhouse. Although EMC had a strong story in the area of storage virtualization, storage management, data replication and integration of their storage servers with all of the major hardware platforms and operating systems, the company was not really known for a broad view of virtualization. VMware was a vendor of virtual machine software and was trying to make a case for this technology on industry standard hardware platforms. Putting the two together didn't make much sense to many analysts. The fact that EMC acquired VMware and then set it up as a separate company rather than integrating it into their regular product lines showed that the two different business models were not easy to integrate without losing VMware's independance and rapid growth cycle.

Why an IPO Now?

VMware is facing a situation in which other technology is simply being included with key target operating environments, Windows and Linux. The executives over at VMware saw this coming and took a bold step of making their VM player available freely on the network in the hope of making it pervasive. The plan was to shift the stream of revenue that used to come from sales of its virtual machine to its management software and its virtual machine add ons, such as its multiprocessor extention. The problem VMware faces now is that they no longer can charge a premium price for management software. There are simply too many competitors.

It is my conjecture that the executives at EMC and at VMware looked at the stiff competition and the fact that it will no longer be possible to charge a premium price for any of their software and decided that if there was ever a time to issue an IPO, it was now. The value of the company is unlikely to be higher than now.


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