It had been billed as the biggest tech-stock IPO since Google, and it didn’t disappoint. By the end of the first day’s trading on 14 August 2007, VMware shares were up 72% at $51, and by 30 August the virtualisation software company that EMC had paid $635 million to acquire in 2003 was valued at a little under $24 billion.
Is VMware really a new industry colossus in the making? Another Google, or even the new Microsoft? At the moment, VMware is the clear leader in the market for x86-based virtualisation software.
Since VMware first started appearing on the radar screens of IDC, Forrester Research and Gartner, the analyst community has universally labelled x86 virtualisation as one of the industry’s fastest growing sectors.
Barely three years since VMware launched its first commercial server products, IDC said global virtual machine software sales reached $580 million. By 2010, IDC expects the same narrowly-defined market to reach $1.8 billion, when the broader market for virtualisation software products and services is set to reach $11.7 billion.
VMware has played a pivotal role in the creation of this market. It developed the first products to offer a practical means of deploying multiple virtual machine environments on commodity x86 processors, at a time when there was little native support for this activity in Intel or AMD processors. It was a software engineering tour de force that has given VMware first-mover advantage in a technology with the potential to redefine the computer industry.
Today, VMware dominates this market almost as emphatically as Microsoft has come to dominate desktop software. In 2006, the company’s revenues hit $704 million, and today it expects to reach $1.2 billion. It is the single biggest player in the Intel virtualisation market – accounting for 85% of all sales last year.
Analysts project that VMware’s revenue will reach $3 billion in 2010, but there are no guarantees. So far, VMware’s direct competition has been negligible, but that is already changing.
The world’s second largest virtualisation software vendor is thought to be SWsoft, a privately held company that recently said it grew revenue 127% in the first half of 2007. SWsoft and VMware are now set on a collision course.
Parallels, SWsoft’s desktop virtualisation program which allows Mac or Linux machines to host Windows, is the leader in its market which VMware entered in July with its own Fusion program.
With Virtuosso, an operating system virtualisation product, SWsoft has built another leading position in the market for virtualisation of hosted service environments. VMware has a stated goal of colonising this market, but its hypervisor-based virtual machine software may not prove as suited to this niche as SWsoft’s operating system cloning approach.
In these two areas, SWsoft represents an obstacle to VMware’s future expansion, but the company is now also facing a new challenge in its core enterprise server market. Before VMware’s IPO, XenSource, the commercial spin-off of the Xen open source hypervisor project, was a distant second to VMware in the market for enterprise virtual server provisioning and management suites. Since then, XenSource has agreed to be acquired by Citrix for $500 million.
The combination of probably VMware’s closest technical competitor with the world’s biggest remote desktop management company represents a powerful challenge to VMware.
The virtualisation of desktop infrastructure is widely expected to be the next great growth area for the technology, a trend that doubtless forced Citrix’s hand. Now, Citrix not only has the skills to match VMware’s threat to its core market, it has the potential to also provide its global customer base with server virtualisation tools.
VMware has become used to being the epicentre of virtualisation technology development, and it has successfully grown an ‘eco-system’ of partners whose products work with and complement the VMware ‘platform.’ XenSource, as the leading open source virtualisation player, has also enjoyed some success in building an eco-system; with Citrix as its patron, it can expect to build on this success.
In the immediate future, VMware and Citrix/XenSource will race each other to strengthen their respective eco-systems, in the knowledge that they are not merely racing each other. Next year, probably in late summer, Microsoft will release Viridian, its own hypervisor-based virtual machine server technology. Viridian is late, and experts already expect it to be functionally inferior to its competitors’.
However, Viridian will be given away free in Windows. At that point, VMware’s software engineering skills may become less important than its ability to play enterprise software hard ball.
The new virtual platform – The virtualisation revolution is only just starting. Expect the most radical benefits to appear at the processor level.
Hypervision – Virtualisation threatens to usurp the role of the operating system.
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