VMware vs. everyone

If VMware is the Patriots, who are the Giants?

VMware is the undisputed champion of the virtualization market. Can anyone knock them out?

VMware is synonymous with x86 server virtualization. It's the unquestioned market share leader with more than half or as many as 80% of customers using its hypervisor, depending on who's counting.

But cracks in the armor are starting to appear. Competitive products are cropping up all over the place; the behemoth Microsoft is preparing an assault with the upcoming release of Hyper-V. Investors punished VMware for disappointing earnings growth in late January, when VMware stock dropped 34% in a single day.  

Uneasy lies the head that wears a crown. Just ask Bill Shakespeare — or Bill Belichick.

"VMware is the champion right now, but it's sort of like the [New England] Patriots," says Laura DiDio, a Yankee Group analyst. "When you go 18-0, you've got a bulls-eye on your back. Everyone's looking to take you down."

So if VMware is the Patriots, who are the Giants?

The obvious choice is Microsoft. But it could also be Citrix — or Sun, Oracle, Virtual Iron, Novell or Red Hat. VMware's biggest vulnerability is pricing, says DiDio, who just published a report on the virtualization price war.

Less expensive is not always better, but VMware's product retails for about $3,000 per socket, while the other virtualization vendors typically charge $700 to $800, according to DiDio. Microsoft's Hyper-V will cost $28 as a stand-alone product or come free as an add-on to Windows Server 2008. The EMC-controlled VMware hasn't indicated any possibility of lowering prices, but it does offer one free product called the VMware Server, intended to lure new customers.

A Yankee Group survey last year had 55% of server virtualization customers planning to use VMware, 29% opting for Microsoft, 14% undecided and the rest buying from one of several other vendors. Some estimates have VMware holding 80% of the market or more. (These numbers don't include Unix and mainframe virtualization, where IBM is a big player).

Microsoft is thought to have the most promising shot at overcoming VMware's huge market lead. But this is a rapidly growing market, and each player has a chance to carve out its own niche while luring customers away from VMware and its flagship ESX Server. Here's a detailed look at what several analysts say are the vendors that pose the biggest threats to VMware.

Microsoft

Gartner analyst Thomas Bittman predicts Microsoft will hold its own vs. VMware, but not necessarily overtake the top spot in the minds of customers. "It's going to come down to VMware being the major enterprise player and Microsoft being the major midmarket player," says Bittman, who is preparing research on the virtualization market. "The battleground will be primarily between those two. Everyone else is basically a niche player."

Microsoft's proprietary server virtualization technology is one of three major architectures on the market, along with VMware's and the open source Xen hypervisor.

Microsoft's Virtual Server product never really caught on despite having several years on the market, but Redmond officials are taking aim at VMware again with Hyper-V, which is available in beta as part of Windows Server 2008 and is expected to be generally available within five months.

DiDio thinks Microsoft's partnership with Citrix — owner of XenSource — is an important leg of Microsoft's strategy, even though some analysts expect Microsoft to deemphasize this relationship when its own hypervisor hits the market.

The Microsoft-Citrix partnership involves Citrix virtualizing Windows while Microsoft supports Citrix products. Microsoft's System Center Virtual Machine Manager can manage both Citrix XenServer and the Citrix Presentation Server. Citrix's desktop virtualization product will support Hyper-V, and there will be interoperability between virtual servers running on the two companies' hypervisors, according to DiDio.

Microsoft also has partnerships with Novell and Sun, and says the next version of Virtual Machine Manager will manage VMware software.

"Microsoft's strategy is basically to surround VMware with all these partnerships," DiDio says.

Microsoft wants to differentiate itself by letting its hypervisor run on a broad range of servers that run Windows, supporting various models of Linux, and simplifying the installation process, says Zane Adam, senior director of virtualization strategy at Microsoft.

"In talking to customers, we learned one thing: Hypervisors are pretty much going to be anywhere so management becomes the next challenge," Adam says.

But Microsoft's technology is lacking two features wanted by the most demanding customers, according to Jeffrey Gaggin, an enterprise software analyst for Avian Securities. One is live migration, which lets users move an application running on a virtual server from one physical device to another. With Microsoft, this migration takes 5 or 10 seconds while VMware can do it almost instantly, he says.

The second missing feature is "hot add," the ability to add memory to a server while it's running, Gaggin says.

"Beyond the hypervisor is the ability to manage all this stuff," he says. "That's where VMware really adds value. That ultimately will be a roadblock for Microsoft."

Still, "when Microsoft launches [Hyper-V], it could definitely have an impact on the [VMware profit] margin. Do people want to pay more for VMware's offering? I think that's always hard to tell."

Citrix

Some analysts believe Citrix has the second-best shot to make a dent in VMware's market share lead, but the praise is not universal. Citrix's key move was buying XenSource, run by the designers of the Xen hypervisor, last year for $500 million.

Citrix's potential to disrupt VMware seems to depend heavily on whether Microsoft will turn out to be more of a competitor or a partner.

Bittman thinks Citrix acquired XenSource in the hopes that it could license the technology to Microsoft and prevent Microsoft from going forward with Hyper-V. Obviously, that didn't happen. Bittman thinks Microsoft, Sun and Oracle all pose bigger threats to VMware than Citrix does.

"The only clear opportunity is right now before Microsoft enters the market," Bittman says. "After Hyper-V comes out, I wouldn't expect Citrix to be aggressive in server virtualization. Microsoft has deeper pockets. I don't see how Citrix can compete."

Citrix's business plan includes more than server virtualization, though, with Citrix promoting its XenDesktop software as "the best way to deliver Windows desktops."

Nemertes Research contends that the Citrix buy will lend "significant financial and marketing muscle to XenSource" in its bid to compete with VMware, and that fiercer competition will lead to more innovation in virtualization technology.

DiDio, for one, does not see Microsoft deemphasizing its partnership with Citrix. "Microsoft needs Citrix in this thing as much as Citrix needs Microsoft," she says. "Citrix has wonderful desktop virtualization, wonderful storage management. Microsoft is late to the market on a lot of this stuff."

Microsoft "absolutely" will continue working with Citrix, Microsoft's Adam says, noting that the companies announced a deeper partnership on desktop virtualization earlier this year. As a result, Citrix will develop a desktop connection broker that will enable centralized desktop management for Windows shops, he says.

Sun

The Xen hypervisor provides the foundation for Sun's x86 virtualization product, known as xVM. Sun isn't alone here; practically every one of VMware's major competitors uses Xen, including Oracle, Novell, Red Hat, Virtual Iron and Citrix. Each is doing work to make sure the Xen hypervisor is more robust, but more importantly each is trying to differentiate itself with management tools, Bittman says.

Bittman thinks Sun poses VMware the second-biggest threat behind Microsoft. "My view is if Sun doesn't do it, it's going to be a two-horse race," he says.

The virtualization market is largely untapped; only about 10% of servers are virtualized. VMware and Microsoft could win nine out of every ten customers and there would still be a sizable chunk available for Sun, not to mention Citrix and other competitors, analysts say.

"There's lots of room for lots of companies to grow in this arena without impacting VMware's market share," says analyst Charlie Burns of Saugatuck Technology.

Sun typically has not done well in the software market, but Bittman is optimistic because virtualization is pretty close to Sun's expertise — managing hardware.

"Managing virtual machines, it's really just one step above managing the hardware itself," Bittman says. "We consider Sun to be a dark horse. The proof has got to be in the execution."

Sun's xVM is a set of technologies for both desktop and x86 server virtualization. Sun also has a SPARC hypervisor for its own hardware. Sun bolstered its virtualization portfolio a few weeks ago by purchasing Innotek, which makes desktop virtualization software targeted at developers who want to build, test and run applications on multiple operating systems.

"Their real strategy is, of course, built around the Solaris operating system, virtualizing Solaris," DiDio says. "Their approach is they have these zone containers. It gives you isolated execution environments within Solaris."

Oracle

Founder and CEO Larry Ellison isn't shy about poking a needle in VMware's eye. He reportedly predicted that VMware will meet the same demise as Netscape.

Ellison is finalizing a deal to purchase BEA Systems, which has a partnership with VMware to provide Java virtualization products.

That move could foil some VMware plans, though it's not clear yet how Oracle intends to fit BEA into its virtualization strategy, DiDio says. Oracle is a new entrant into the virtualization market with Oracle VM, which has advanced features such as live migration, according to DiDio's Yankee Group report.

Oracle, well known for its database and application server products, is targeting VM primarily at heavy Oracle customers, Bittman says. "They're doing it as a defensive move," he says. "They don't want VMware or Microsoft to be underlying the Oracle stack. That takes away potential control of an account. … Oracle VM does not need to make money. The whole goal is defensive."

Yankee Group analyst George Hamilton agrees Oracle's move is essentially a competitive reaction aimed at maintaining its preexisting customer base, rather than a bold attempt to expand into new markets.

DiDio thinks Oracle is being more ambitious than that, however. Oracle's acquisition history shows it is an aggressive player in multiple markets, and is not about to pass up the opportunity posed by the rapidly growing virtualization space, she says.

"Larry Ellison has been on a shopping spree for the last three years," she says. "Oracle wants to grab off a piece of the virtualization market."

Virtual Iron

This vendor says it has gotten a big boost from hardware modifications developed by Intel and AMD that make it easier to develop virtualization software. Virtual Iron always supported Linux because the open source operating system could be rewritten to its purposes. Now it can support Windows as well because of the processor upgrades, company CTO Alex Vasilevsky explained last August.

Every vendor is benefiting from hardware upgrades, though, Burns notes.

"The question then becomes who can support those changes with the most optimized code or the broadest functionality, or who can convince those chip designers they need to keep doing more," he says. Intel and AMD face a double-edged sword, he notes, as further virtualization-related improvements in hardware would allow customers to run more workloads on fewer servers.

Virtual Iron's management tools have both live migration and live disaster recovery capabilities, DiDio writes. Bittman rates Virtual Iron as VMware's fifth biggest threat, ahead of Novell and Red Hat, whom he ranks sixth and seventh, respectively.

"Virtual Iron has interesting technology, but as a small vendor it's unlikely to survive," Bittman says. "They'll probably be acquired by somebody."

Small and midsize companies tend to be attracted to Virtual Iron, Hamilton says. "Virtual Iron's go-to-market plan is simple," he says. "They try to position themselves as having very similar capabilities to VMware at a fifth of the cost."

Novell

The Xen hypervisor is embedded free of charge in Novell's SUSE Linux Enterprise Server 10, and only one Linux license is needed for all virtual images on a physical server, according to DiDio. Novell tries to differentiate itself with ZENworks Virtual Machine Management, which lets customers manage any virtual environment, whether it be Xen, Microsoft or VMware.

"Novell's positioning is they have very good management tools with the ZENworks suite," Hamilton says.

Like Microsoft, Novell might win over customers because of its expertise in managing an operating system, Burns says.

"The fact that they have a distribution of Linux, they can make changes and say ‘the changes we've made here are to make it work better in a virtual environment. But [you need to] use our version of virtualization at the same time,'" Burns says. "VMware doesn't have that."

Novell made a big move on Feb. 25 when it said it will spend $205 million to acquire PlateSpin, a vendor that helps customers adopt, extend and manage server virtualization in the data center.

PlateSpin markets a PowerConvert product, which performs physical-to-virtual (P2V) conversions of Windows source systems into XenSource's XenEnterprise Virtual Machines.

Red Hat

The Red Hat Enterprise Linux distribution comes with the Xen hypervisor for free, while the RHEL Advanced Platform includes extra features such as storage virtualization, redundancy and high-availability clustering, DiDio says.

Red Hat's strategy is made more interesting by RHEL recently becoming available on Amazon.com's Elastic Compute Cloud (EC2) service, in which users pay small monthly fees, she adds.

"Red Hat is aggressively advertising the fact that its virtualization solution is far more economical than VMware's," DiDio notes. Red Hat vice president Scott Crenshaw has claimed businesses can save "$20,000 to $30,000 on licensing fees" compared with VMware, she adds.

Bittman dismisses Red Hat's chances, saying its management capabilities are subpar.

Red Hat is in a similar position as Novell, Burns says, with each having the advantage of distributing its own Linux operating system. "At this point, it's really a matter of who does it first," Burns says. "Who gets it out first and in a reliable, robust fashion."

VMware

VMware has certainly not been standing still in the face of its competition growing larger and more robust. VMware struck a deal in January to buy application virtualization vendor Thinstall. VMware hosted VMworld in Europe from Feb. 26-28 and made several announcements, including agreements with HP, Dell, IBM, Fujitsu and Siemens to ship servers with a slimmed-down version of VMware's hypervisor embedded in the hardware.  

VMware also announced plans to open its hypervisor to security vendors with a set of APIs designed to make it easier to build products that protect virtual machines.  

VMware officials aren't worried about the competition, according to Stephen Herrod, VMware's CTO, who says "products from would-be competitors aren't really there yet." (Read the entire interview with Herrod here.)  

VMware may be forced to lower its prices, DiDio says, but overall it's making the right moves.

"The market is VMware's to lose. And these competitors are going to have to take it away from them," she says.

Beyond those already mentioned, the virtualization market includes niche players such as Cassatt, Egenera and Parallels. If enterprise customers expand use of virtualization as much as some analysts predict, even someone holding 1% of the market could be quite successful. "We're just at the precipice of an emerging market. Any of these niche players could be huge," DiDio says.

Hardware advances are making it easier for more vendors to develop virtualization software. VMware can hold onto its dominant market share, but it'll need to outwork its competition.

"[VMware's] technology is still ahead of the competition. But the side of the road is littered with companies that had superior technology and got out-marketed. Think Netscape," Hamilton says. "[VMware] is going to have to carve out more of a value proposition than just being the only vendor out there."

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