Now that the initial shock of Diane Greene's resignation has begun to subside, the "what happened" question begins to loom as people try to understand what is going on at VMware -- a company that has had the biggest tech IPO since Google.
The elephant in the room is whether the relationship
between Diane Greene and Joe Tucci (EMC CEO and VMware chairman) was
strained. I want to put that aside for a second and talk about the real issue that perhaps contributed or even led to yesterday's
events... because whatever your feelings are about the tension
between the two, it is secondary (at least) to the real problem --
competitive strategy in an increasingly competitive market.
The primary issue is VMware's competitive strategy against Microsoft Hyper-V, Citrix XenServer, and other XEN hypervisor players. VMware’s fundamental competitive problem is very analogous to Novell’s struggle against Microsoft in the 1990's. Novell had NetWare and NDS (Novell Directory Services) two of the strongest "system software" products in the market. But Novell didn’t have the enterprise applications that could keep customers from switching to a non-Novell centric environment. Microsoft did. Eventually Microsoft leveraged their application position to take market share away from NetWare by tying applications like Exchange to Windows (and Active Directory). VMware faces almost the very same issue. VMware has ESX -- a superior hypervisor in many respects to Hyper-V. But one has to ask: how long will it be before Microsoft ties Hyper-V to Exchange, SQLServer, or some other part of the Microsoft ecosystem? Hyper-V may not be the best hypervisor in the market, but it might be the best hypervisor for Exchange or for Windows environments. And given Hyper-V’s price (free), it might just be “good enough” to compete (remember -- Active Directory wasn’t near as feature rich as NDS, but because Microsoft tied AD to Exchange, AD is now the defacto directory service ).
The “hyper-V effect” on ESX – at least at this stage – was more of a “pause” than market share shift. Once again, Microsoft pulled off their typical (yet somewhat genius) MO by announcing vaporware, thereby buying time in the market, and then releasing a product with less features than the market leader, at a significantly cheaper price. Now the game ensues again….ESX will see a “bounce” in the sales because consumers will realized that Hyper-V isn’t quite there (yet). But Microsoft accomplished their first goal...get IT administrators “kick the Hyper-V tires” in their labs and gain entry into the market. Be assured that Microsoft will continue to add functionality to Hyper-V and eventually tie their hypervisor to their enterprise applications (like Exchange and SQLServer) and incorporate Hyper-V management into System Center. Eventually one has to wonder if Hyper-V will be “good enough” for customers to migrate because hyper-V works well within the Microsoft ecosystem. I suspect VMware's lack of competitive strategy against such forces was a central cause for concern in the boardroom.
Welcome to the game VMware.
Now, I'm not saying VMware is going away. Far from it. They are the market leader and will continue to be in a rapidly growing market. But, they have to address the competitive strategy issue if they want to continue to lead, because right now, they're playing Microsoft's game...and Microsoft is very good at it.
So what should VMware do? How do they address this issue I've raised? A winning strategy is multi-pronged.
- VMware should stop focusing (so much) on the functionality of the hypervisor and start focusing on strategies that make the OS "irrelevant". If the OS running inside a VM is simply an "operating runtime environment" for the application, then it doesn't matter "what" that runtime environment is...in other words, it's irrelevant (although necessary). This strategy marginalizes all operating systems...including Windows and Microsoft's application position. VMware has a clear lead in hypervisor technology (perhaps 2 years or more). While they can't let their hypervisor slip, there is only so much functionality one can add to that layer. By strengthening their application partnerships with ISVs like SAP AND demonstrating that these applications don't need a “bloated OS” to run, VMware might be able to convince customers that running Windows in a VM is overkill. Do applications really need all of the functionality contained within Windows to run a single application? No. So the rest of the "services" loaded by Windows are simply chewing up memory and CPU utilization. VMware needs to exploit this fact, by pressing their "JUICE" initiative or Just enough OS (JeOS). The idea is to load "just enough" of an operating system to run the application.
- Some have suggested that VMware should focus on management, and that, could be a place where they would "win" against Microsoft. While I can agree that management is a differentiator and a place where VMware can compete there are limitations. VMware providing a better management tool for virtualization is -- in many ways -- simply another management silo within the context of the overall IT ecosystem. Microsoft, with System Center, is better positioned to manage the entire IT ecosystem -- everything from operating systems to applications to storage and servers to virtualization. Do we expect VMware to manage email, storage, physical servers, or networks? Perhaps, but that's a stretch. It’s more likely that Microsoft (or some well-known enterprise management console) will win that battle. In addition, management is not something easily commoditized, so customers have the expectation to pay for what they get. Whereas the hypervisor is being economically marginalized. This was clearly Microsoft’s plan from the beginning, given Hyper-V's price. So, VMware can't "go it alone" in the management space and expect to win in the long run. In the management arena, a better strategy would be for EMC and VMware to combine forces. It's no secret that EMC wants to be a major player in the management space. Teaming up, VMware and EMC could create an enterprise management suite that could manage virtual servers and desktops, virtual storage, and SANs. Partner that with Cisco, and you have the makings of a very nice enterprise management offering.
- VMware should "own" the cloud. Every hosting and service provider in the market should be selling applications -- or SaaS -- using virtual servers running ESX. Make ESX a common part of how companies use the Internet services and resources from the cloud...that's very sticky and hard for people to replace. In addition, if VMware can provide the best management experience for the service providers AND for the customers using the resources from the cloud, then VMware can own the market. It also allows VMware to quitely replace applications like Exchange with other email applications that provide the same email "service" to customers. Does email as a service require Exchange? or Windows? I suspect that new CEO Paul Maritz will focus in this area.
- VMware should accept/acknowledge that Hyper-V will exist and extend ESX into the enterprise. WHAT?!!? In other words, recognize that -- in the long run -- people are going to have Hyper-V, so make Hyper-V just another part of a heterogeneous enterprise where multiple hypervisors exist. ESX is the "enterprise hypervisor" and Hyper-V is less capable one, but good enough for some applications. However, no one manages -- or virtualizes -- a heterogeneous environment better than VMware. Heterogeneity is something Novell did very well, and continues to do today. Sounds anti-intuitive? Look, the road to perdition is littered with the bodies of companies (WordPerfect and Netscape come to mind) who tried to stand in the way of Microsoft products and lost. VMware should not do the same. If VMware strategy is to compete in the hypervisor space, then they're playing the wrong game.
- Diversify in the virtualization space. VMware is doing this to some degree, but one can make the argument that their strategy has been to focus on server virtualization (that's why they have the best product). VMware needs to increase the scope of their offerings and the focus and attention they pay in those areas.
Maybe VMware is doing these things already. If so, then time
to press on the accelerator. If not, time to get going...and fast. For VMware,
there's no better time in the market to exact this strategy. Vista sales are lackluster and the transition to Windows Server 2008 may prove slow.
In addition, Microsoft is busy fighting another battle that threatens their OS
and application dominance: Google apps.
I've seen some comments on blogs that suggest VMware -- with the hiring of Paul Maritz -- will cozy up to Microsoft....that VMware should forge the same relationship that Novell has with Microsoft to ensure platform interoperability. Maybe. Interoperability is a good thing for customers. But I’m skeptical this is a comprehensive winning strategy. Whenever a company does this, it signals that the battle between the two is really over. The “if we can’t beat them, then join them” strategy is one where Microsoft ultimately wins. What VMware really needs is a competitive strategy. Given Paul's recent startup in the cloud computing space it seems likely that VMware may be headed in toward the cloud computing space. Perhaps this is a smart move, as it adds to the "OS is irrelevant" strategy. ...it is certainly the right game to play.
posted by: Drue Reeves