VMware, seeking scale, took its eye off the ball

Paul Maritz - CEO, VMware - Structure 2011
Paul Maritz CEO of VMware at Structure 2011.

Over the past four years, VMware (s vmw) under CEO Paul Maritz, has been nothing if not ambitious.

It entered the battle for software developers with its SpringSource acquisition in 2009. It jumped into email and applications by buying Zimbra the following year. Those moves, by a CEO who had spent years at Microsoft, led many to conclude that he was recreating Microsoft’s development tools-and-applications model in an effort to go head to head with the mothership. Later, VMware also entered the platform as a service fray with CloudFoundry while Microsoft built up its Azure PaaS. GigaOM Monday broke the news that VMware may spin out CloudFoundry as part of a cloud-focused business.

What VMware hasn’t done, according to critics, is protect its bread-and-butter server virtualization business — and that may prove costly.

Protecting (or not) the core

VMware left its core business exposed, they say, first by announcing heavy-handed vSphere price hikes last year that, in the words of one VMware watcher, “kicked the door open for Microsoft Hyper-V.” VMware has yet to recover from that, in his view.

“Silicon Valley is baffled at how easy VMware has made it for Microsoft to come in and take all the easy stuff,” this source said. “They’re trying to optimize for revenue instead of market share and — good, God — Maritz if anyone should know that they need to occupy the high-share, high-volume, low-price position, which is what Microsoft did to destroy the legacy Unix OS business. VMware is behaving more like a legacy player than anything.”

Analyst Bernd Harzog of The Virtualization Practice sums it up: “Someone once said that Microsoft gets things right on the third try. Well guess what? Here comes Hyper-V release 3.”

The problem for VMware is that while Hyper-V started out slow, it’s catching up, said Greg Shields, senior partner at Concentrated Technology, a firm specializing in IT industry analysis. “IT pros didn’t get that warm fuzzy of confidence with its early versions,” he said.  “Many features weren’t designed to ‘just work’. Contrast that with VMware vSphere, where a lot of the tools worked intuitively. Microsoft understands that now, and key aspects like clustering are far more smartly designed [in Windows Server 12 and Hyper-V 3].”

And because HyperV comes bundled with Windows Server, it gets traction in thousands of Microsoft shops. It’s understandable that VMware would want to focus on higher-level (and paid) virtualization management tools and applications as hypervisors got commoditized. But, it  also needed to shore up its base to ward off incursions not only by Hyper-V but two capable open-source hypervisors as well: KVM (backed by Red Hat (s rhat) and others) as well as Xen (backed by Citrix (s ctrx) and others.)

Tier1 Research analyst Carl Brooks said VMware took it’s eye off that core business and in doing so provided an opening for others to move in on a growth market as the world moves to cloud computing. “I’d say that [VMware’s] software [buying] spree was a bizarre side quest for them. They need to continue to move into true multiple resource and multiple environment management and do it quick or there’s a real risk they could be the Novell of cloud 5 to 10 years from now.”

Managing beyond VMware

VMware’s acquisition two weeks ago of DynamicOps illustrates the company’s growing interest in managing cloud infrastructure outside the vCloud realm. DynamicOps promises to enable vCloud Director users to consume resources in the Xen and Hyper-V world as well as Amazon EC2, as Derrick Harris reported at the time. This could be an acknowledgement by VMware that it needs to deal with outside virtualization and management tools.

While observers disagree about how much damage has been done — Interarbor Solutions’ Analyst Dana Gardner said he sees no evidence of VMware ESX and ESXi losing ground to Hyper-V even as new workloads get virtualized. But, for better or worse, the perception remains that VMware has moved on from that key foundational technology. And by taking  its core hypervisor business for granted, the company left a gap for competitors to exploit and they are bent on doing so.