Will VMware dilute its core asset?

VMware is expanding its product lineup to ensure that its portfolio matches that of virtualization rivals Microsoft, Red Hat and Citrix -- and cloud providers. But is it a wise move?

Its purchase of the Zimbra e-mail and collaboration service from Yahoo shows the company's willingness to enter the applications space, just as its acquisiton of Springsource last year demonstrated its willingness to enter the middleware market.

Does VMware really want to become a full cloud services provider.  or is the company, led by a former Microsoft exec, trying to fill in product holes to address potential customer objections to its virtualization platform? Maybe a little bit of both?

Time will tell. The Zimbra deal was not a huge investment and Zimbra is one of VMware's hottest appliance sales. What will be interesting to see is whether or not the company expands into other application areas -- such as CRM, and content management. SugarCRM and Alfresco are considered hot buyup targets for 2010 -- but they won't be cheap. A buy of either one of these companies would indicate the seriousness of VMware's application goals.

All four virtualization vendors have identified comprehensive cloud computing strategies. Microsoft and Red Hat offer operating systems, virtualization platforms, enterprise applications and middleware. Of the four, Microsoft has the most comprehensive lineup.

Red Hat has Linux, the JBoss middleware stack and directory server but lacks the app stack that Microsoft has, including the messaging and collaboration code. To date, Red Hat has partnered closely with IBM/Lotus to deliver that functionality to its customers -- and it will be interesting to see if that arrangement will be updated at LotusSphere next week. (Zimbra Collaboration Suite is also listed as a Red Hat partner in its application catalog, at least for now).

Citrix manages the core Xen virtualization platform and some of the same infrastucture ingredients of other virtualization vendors but its close partnership with Microsoft -- with interoperability guaranteed -- fills in whatever product gaps occur.

Is VMware also trying to change its image as a proprietary software company into an open source company?

If so, it's not working that well. VMware has released some of its tools and View code under the GPL, and SpringSource is a big win, but the company has released none of its crown jewels to the community. And some claim the recently acquired Zimbra code and Collaboration Suite is not open source -- at least  under its current licensing structure.

VMware is still the leader in virtualization, has a respectable role in the open source middleware market and has now dipped its toes into the apps space.

But overall, VMware lacks many of the ingredients of its rivals.

Surely, having an an email and collaboration service addresses one of those gaps and can only help VMware sell vSphere as a solid public and private cloud platform.

But VMware must articulate to customers and the industry at large the nature of its long term aspirations. As Dan K points out in his blog, VMware may be trying to take on Amazon or Microsoft-Red Hat? Or hedging its bets on both fronts?

The core strength of VMware has been its focus on solving the complexities of server and desktop virtualization.  By moving into the middleware and application space -- whether open source or not -- the company risks diluting its focus, the perception of the company's mission and thus the value of the company itself.

It's a risk for any company that gets into the M&A game, but not one VMware should view lightly.  The operating system market is not dead just yet.