VMWare may be fueling EMC's growth, but for how long?

In his post over on Between the Lines, Larry Dignan writes:

Following EMC's strong fourth quarter results it's safe to say that buying VMware was the best move the company has made. After all, VMware is driving EMC's growth and that's bad news for server vendors......VMware appears to be the crown jewel. VMware had fourth quarter revenue of $232 million, up 101 percent from a year ago.

First, let me state that if I was looking to virtualize a system, then today VMWare would be my choice. Particularly on the workstation front.  It's a great product if there was one thing that I wish it could do, it would be to offer a facility that intercepts machine identification and susbstitutes user-furnished attributes instead. For example, if I want to move a Windows-based virtual machine from my AMD-based Acer Ferrari 4005 to my Intel-based IBM Thinkpad T42 (the sort of activity that VM technology is perfect for), the VM is stopped dead in its tracks because Microsoft's Windows Genuine Advantage Program thinks I'm making an illegal copy of Windows (WGA takes certain hardware specifics like processor type and forges them into a hardware signature to which the unique Windows license is married). 

So, with the VM on the Acer-box, I should be able to click a button that clones the hardware signature and then I should be able to move that cloned signature to my Thinkpad so I can "fool" WGA into letting my VM run without being flagged as a potentially pirated copy (even though, when I move the VM, I'm doing it in a way that keeps Microsoft whole -- in other words, I'm not running multiple bootleg copies of Windows off of one license). 

I've digressed.

Long term, unless VMWare embraces the same fundamental (and open-source) paravirtualization technology that XenSource has embraced, my belief is that XenSource will eventually overtake VMWare in terms of marketshare (this may take a while due to the VMWare installed-base staying with VMWare, and in some cases, re-upping its licenses with VMWare thereby fueling continued revenues). 

XenSource has too much going for it. Not only has Microsoft embraced XenSource's technology in Windows (thereby turning Microsoft Windows into one big massive channel that could ultimately marginalize VMWare), XenSource is also included in Red Hat Enterprise Linux (another massive distribution channel). In addition, XenSource's open source approach to virtualization (as opposed to VMWare's close approach) means that the engineers from Intel and AMD are free to contribute to the XenSource project in ways that they cannot contribute to VMWare. That doesn't mean that VMWare doesn't have "optimization" relationships with companies like Intel and AMD. But it does mean that, in addition to being a virtualization company, XenSource has what could be considered a virtual engineering team and a very good one at that. 

Whether or not VMWare's current success (or XenSource's future success) is bad for server vendors remains to be seen. Server vendors have always been keen to bundle virtualization software with their products. Dell is a huge proponent of XenSource and has publicly demonstrated it in action on its hardware. The bottom line is that any technology that either pushes physical server utilization closer to 100 percent or that causes customers to consolidate servers (both of which virtualization solutions like VMWare and XenSource do), could mean less overall server sales. On the other hand, when server providers like Dell, IBM, and HP (all of whom like to sell servers optimized for virtualiation) take good care of their customers by showing them the path to more economical computing (fewer servers, less heat, less energy and air condition), that (a) makes for the sort of loyalty that pays off down the road, and (b) creates services opportunities that might not otherwise exist.