Competition heating up in virtualization market

After years of trying, Microsoft still poses no serious threat to VMware, notes CEO Paul Maritz, as virtualization vendor expands product portfolio outside of server space for post-PC era. But analyst says Microsoft shouldn't be dismissed.
Written by Eileen Yu, Contributor on

LAS VEGAS--The virtualization market is poised to see increasing competition as current leader in the server segment, VMware, moves up the stack and other market players including Microsoft and Oracle sharpen their competitive edge.

Recognized predominantly as a market leader in server virtualization, VMware has been moving up the stack and expanding its product portfolio which now includes middleware and desktop virtualization offerings. Along the way, it is picking up new competitors that are existing partners on its flagship server virtualization product, vSphere.

But, for CEO Paul Maritz, "coopetition" is the order of the day when companies such as VMware grow in footprint and adapt to changing market forces.

The executive joined the company in July 2008 after EMC acquired the company he founded, Pi, which was also focused on cloud offerings, and EMC later acquired VMware in 2004.

VMware CEO Paul Maritz

In an interview with ZDNet Asia here Wednesday, where the software vendor was hosting its annual VMworld conference, Maritz noted that relations will change as market players expand and steer their products toward current market developments and trends.

"You have to keep in mind that, at the end of the day, customers expect us all to behave like adults. What that means is being able to recognize that in certain areas, you're going to cooperate with certain companies and they expect you to be reliable and straightforward partners. In other areas, you're going to compete with the same companies," he said.

He added that well-established companies such as IBM have already learnt to do that, noting that Big Blue works closely with VMware, for instance, in the x86 server area but competes with the virtualization vendor in the middleware space.

With an alliance that now spans over 10 years, IBM is VMware's oldest OEM (original equipment manufacturer) partner, according to Alex Yost, the IT vendor's vice president and business line executive for System x and BladeCenter.

The IBMer told ZDNet Asia that while the two companies compete in some market segments, providing support for VMware on its x86 servers stems from customer demand.

Speaking from the exhibition floor at VMworld 2011 where the IT vendor had a booth, Yost said IBM offers virtualization across multiple platforms but most of its x86 customers today want VMware. "So we offer that support. And if our clients want to run on another platform, we'll support that, too. It really all boils down to providing customer choice," he said.

Maritz noted: "At the end of the day, they know they're best served by doing what the customers want, and we have to realize the same thing. What it really means is we're all seeing the same fundamental forces playing out in the industry and we all have to react to those."

And he believes these forces are heading toward a post-PC era, in which organizations will need to renew their IT infrastructure to be able to deliver apps and services to their end-users, anytime and anywhere, regardless of the device type.

He noted that VMware has a range of competitors, pointing to Microsoft, Oracle and Citrix, but noted that the unknown smaller players might very well end up the most dangerous rival.

Maritz said: "Certainly, Microsoft sees many of the same forces as we do and they're trying to react to it, and they're purely a software company as well.

"On the other hand, when you get these big seismic [market] changes, it's often the companies you don't know about that ends up being your most serious competitor. I'm sure there's a company out there that we don't know their name today but in two years today, I'll be worrying a lot about them."

Competition from Microsoft
Alex Smith, a London-based analyst with Canalys, affirmed VMware's dominance in the server virtualization market, but noted that Microsoft has been making good strides.

In a phone interview with ZDNet Asia, he explained that while Microsoft might not have a technical advantage over VMware, the former's trump card could simply be its established footprint in the market and channel partners. Microsoft has a broad channel ecosystem which allows the company to get product offerings into the market, Smith said.

In addition, he noted that customers that are buying traditional Microsoft server products, there is more potential and it becomes an easier process to get these customers on to its virtualization products.

Virtualization adoption growing

Tavishi Agrawal, market analyst with Techaisle, said the IT industry was on "an unmistakable path toward virtualization" with sectors such as financial and hosting companies adopting the technology faster than others.

While server virtualization remains the primary driver of virtualization, in the last couple of years, VDI (virtual desktop infrastructure)--which helps virtualize client devices including desktops, tablets and smartphones--has also shown remarkable growth, Agrawal said in an e-mail interview.

He added that Asia-Pacific businesses have shown significant openness and willingness to adopt virtualization, where in many cases, virtualization is an integral part of discussions on designing and implementing new IT infrastructures among these organizations.

Virtualization in the Asia-Pacific region grew over 28 percent from 2010, he said.

"Some argue that Microsoft doesn't have all the bells and whistles that VMware products have, but quite often in technology, good enough is good enough. And this is the kind of danger Microsoft brings to the virtualization space," Smith noted.

Maritz remains unfazed. He noted that VMware had pulled ahead far enough from a technical aspect and marketshare lead that, expect in the small ends of the market, these issues highlighted by Smith no longer applied.

Describing competition from Microsoft as "not new news", he said: "They've been saying they're cheaper than us for the last five years now, and in many cases, that's the only thing they can say. So far, most of things they've thrown at us haven't had huge impact and part of that is because customers actually like our products.

"Virtualization is not something that's just a trivial ingredient that you just throw into the middle of the mixture. It's really becomes the foundation on which many things are built. Customers aren't about to replace that foundation simply because somebody else might have something that's sort of similar. This becomes a very strategic layer for customers and they're not about to change that simply for change's sake," he noted.

The CEO had spent 14 years from 1986 at Microsoft where he was part of the executive committee that managed the software company, overseeing the development and marketing of a range of products including Windows 95 and NT, Visual Studio and SQL Server.

Asked if his time at Microsoft had come in useful now that Redmond is one of VMware's fiercest competitors, Maritz said: "Not really. I think, obviously, the thing we can try and use to our advantage is that we have less to lose in terms of the current client-server PC-oriented world."

He referred to his keynote at the conference this week, where he touched on VMware's efforts in building products that appeal to the next generation of developers and that support an industry that is rapidly heading toward a post-PC era.

"We have less to lose than Microsoft in those spaces and if we execute well, it means we could potentially move faster. But these are early days, and Microsoft is by no means stupid. They see the same shift in tides that we see," he said.

Keeping market dominance
According to Tavishi Agrawal, a U.S.-based market analyst with Techaisle, VMWare's share in the server virtualization market clocks at 75 percent. He noted that the vendor has the benefit of an early start, a broad range of supporting products for managing virtual environments, as well as a strong channel and partnerships with most leading vendors for the resale of its products.

To remain competitive, Canalys' Smith suggested VMware "could be a little friendlier from a channel perspective".

He explained that because virtualization had been a big topic in the industry over the last two years, VMware was able to emerge a significant player and business had gone to the company.

"They were in a good position," he noted. "But, now with all this competition, VMware will have to be more aggressive and willing to fight for opportunities, and a lot of that will come from and supporting a strong channel network."

He said the vendor does have a big channel community because, after all, the channels do want to get involved in virtualization as well to tap the market opportunity. However, the Canalys analyst pointed to feedback from channel partners which highlighted that VMware was akin to supporting larger partners, rather than small players because the vendor was focusing on where the biggest opportunities were.

Smith added that stronger success will come from appealing to a broad channel.

Agrawal believes VMware retains three key advantages: its portfolio of products, ecosystem to implement and support its environment, and brand recognition.

"Any competitor that hopes to compete with VMware head-on will need to at least match VMware's strengths in these areas," he said. "Citrix is gaining traction, especially with its VDI initiatives. Microsoft has the potential to compete with VMware but will need to focus more. Other competitors are still in early phases and unlikely to pose a major threat to VMware in the short term."

Maritz said VMware was on par with Citrix, but acknowledged the latter's established expertise in the PC area. However, he said Citrix is focused on the Windows desktop, while VMware believes there will be a major shift away from the PC, pointing again to the post-PC era in which Microsoft will no longer be the only player on stage.

"We think companies are looking for solutions that allow them to equip their users with the capabilities that users need, and project those onto whatever device the user may be using at that point in time, whether it's PC or not," he surmised.


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