Out of the shadows

It is obvious to anyone who has met Diane Greene that she is not naturally disposed towards boastfulness. Nevertheless, when you are the co-founder, president and CEO of VMware, it is difficult to avoid making statements that don’t have a ring of triumph about them.

Certainly, in delivering her keynote to the VMworld 2007 conference in San Francisco, Greene certainly had less reason to be modest about her company’s recent achievements than most other computer industry CEOs.

In the last 12 months, the company that storage giant EMC paid $635 million to acquire in December 2003, has emerged from the shadow of its corporate foster-parent with the kind of impact that the word ‘bang’ barely describes.

IPO fever

IDC credits VMware with controlling around 85% of the market for Intel-based virtual machine management software, and in August the company’s initial public offering sparked a dot-com-like rush; its share price trebled in days. As Information Age went to press, VMware’s market valuation stood at a little over $27 billion – $2 billion more than Adobe, $8 billion more than Sun Microsystems, and almost four times more than Citrix.

“There is no longer a one-to-one

relationship between the operating

system and the hardware.”

This stellar valuation of VMware is as much about the potential of the market it has helped to create as it is about the financial prospects of the company itself, a fact that Greene acknowledged in her keynote address. “A year ago,” she said, “we were talking about virtualisation becoming mainstream. Now we are talking about a virtualisation industry – [a trend] underscored by our IPO.”

Greene should probably be forgiven if there was a tint of braggadocio colouring these remarks. And whether she let herself become a little self-congratulatory, her audience appeared not to notice, or if they did, they didn’t care. According to the company’s own estimates, more than 11,000 delegates had passed through the doors of San Francisco’s Moscone Centre by the end of the show – approximately seven times as many people as had attended the first VMworld show just four years previously – and the great majority of them looked happy and enthusiastic about being there.

And, why shouldn’t they be? As Greene was happy to point out: “Virtualisation is driving a complete infrastructure refresh. The data centre is getting modernised, and [we] are saving lots of money for our customers.”

And that’s just for starters. Many of those attending VMworld are already converts. They have realised some of the significant operational savings that come with consolidated and virtualised server estates, and they may already have gone further and begun to experiment with virtualisation technology as an alternative disaster recovery platform. But, as an IT manager from a large US educational organisation put it: “Once you do [virtualisation] the first time there’s no turning back. You keep on looking for more things to virtualise, and more ways of doing it.”

Customers like this IT manager did not leave VMworld disappointed. Greene’s message to them was that there is plenty more in the virtualisation pipeline, with the next major instalment of virtual machine technology already heading towards the corporate desktop.

“On the desktop [virtualisation] is really coming into its own,” she promised. “The notion of what the desktop is has changed.” It’s no longer a place defined by a dedicated physical machine, instead it is a personal “workspace that can be accessed from anywhere using a virtual machine.”

Greene had already hinted at the extent of VMware’s ambitions at last year’s VMworld 2006, when she spoke of the need to liberate “our industry” from the slowing “cadence” of the operating system and upset the status quo.

Powerful friends, jealous foes

This year, by comparison, her highlighting of virtualisation’s waxing influence in the data centre and on the desktop could be considered low-key. However, this may be because, for the first time, VMware had heavyweight allies on hand who were prepared to take on more of the burden of boosting the promise of virtualisation.

Apart from EMC, which continues to hold around 85% of the company, VMware’s two largest shareholders are Cisco and Intel. Both companies were invited to take bargain-priced 2.5% stakes in VMware just days before its IPO – shareholdings that are supposed to demonstrate the depth of confidence that these established players have in the new kid on the block, and in the virtue of virtualisation technology in general.

Intel’s VP of digital enterprise systems, Pat Gelsinger, held nothing back in his acclamation of “the critical importance of virtualisation,” and the “profound change that virtualisation is already creating in the data centre.”

“There is no longer a one-to-one relationship between the operating system and hardware,” Gelsinger proclaimed. Instead, “there is now an opportunity to create the data centre operating system of the future.”

Gelsinger’s audience didn’t have the chance to hear more about his “data centre of operating system of the future” – there wasn’t time. Behind him, a line of senior executives from IBM, Hewlett-Packard, Fujitsu-Siemens, NEC, and even Michael Dell himself, were queuing to endorse VMware’s key announcement of the show: ESX Server 3i, an embedded version of the company’s dominant hypervisor product.

The delivery of its embedded virtual machine manager, and the immediate support of five major server vendors, may yet turn out to be a pivotal moment for VMware. Most industry analysts agree that virtualisation software is likely to be a de facto standard element of all server images within the next three to five years, not least because they expect the hypervisor technology that underpins it to come “free” – or at least bundled with – every server box.

ESX Server 3i’s arrival, and XenSource’s announcement a few days earlier that the Xen hypervisor was also ready to ship in firmware, brings virtualisation’s ubiquity that bit closer. More to the point, as far as VMware and its new shareholders are concerned, the public display of support for ESX Server 3i from IBM et al suggests that it will be VMware’s flavour of virtualisation that benefits the most from this. Or will it?

VMware’s competitors, such as SWSoft CEO Sergeui Beloussov, frequently complain that, as Beloussov puts it, “VMware is really a new kind of operating system company.” These critics have a point, and as far as VMware itself is concerned, it is sore one.

In fact, Greene took the time to address this issue in her keynote, asserting that “the operating system and the hypervisor are not the same thing. The operating system does a lot more than the hypervisor, whilst the hypervisor just manages resources.”

The status of the hypervisor, and its future strategic value to VMware, appears to be an issue within VMware, as well as among its competitors. Greene likes to stress that VMware’s business model is founded on generating revenues from products and services that exploit the hypervisor’s ability to disintermediate hardware. Already, she says, the hypervisor has become a relatively small part of the company’s business, contributing less than 20% of the company’s sales.

The hypervisor may not “do as much as the operating system”, and it may not be destined to become a jealously licensed product that will earn VMware billions as Windows has for Microsoft. All the same, the hypervisor is clearly a potential new point of standardisation for the industry, a common application platform that developers may choose to target in much the same way as they have the operating system – particularly if, like an operating system, it comes ready loaded in the most popular hardware platforms.

VMware’s competitors know this and some, such as XenSource chief technology officer Simon Crosby, argue that there is a danger that customers who invest exclusively in just one hypervisor, are in danger of creating a new kind of software tyranny. However, VMware’s partners, including its new set of heavyweight hardware vendor friends must know this too, and may not be so keen to end two decades of Wintel dominance, by supporting a new Vintel empire.

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