VMware, beware

As VMware hosts its first VMworld conference as a public company this week in San Francisco, its star is ascending.

Since going public at $29 a share Aug. 14, the company’s stock price has not closed below $51. Industry researchers note that 80% of the businesses using virtualization to improve utilization of their x86 servers choose VMware software. Some competitors hope to catch up to VMware, but their couple hundred customers each could fit into a phone booth compared with VMware’s 20,000. Meanwhile VMware continues to innovate, bringing virtualization to the desktop, embedding VMware directly into servers and taking other steps to maintain its lead.

But every company in its IPO prospectus has to acknowledge risk factors, and some of VMware’s could manifest themselves quickly. Virtualization player Citrix announced a $500 million acquisition of XenSource Aug. 15, while XenSource narrowly beat VMware to market Sept. 5 with plans to embed its hypervisor directly into servers, too.

Not to mention the Microsoft threat. Microsoft plans to ship its hypervisor, called Windows Server Virtualization, in the latter half of next year as an add-on to the Windows Server 2008 operating system, which is due out early next year. Although Microsoft has been slow to respond to VMware’s challenge with a competitive virtualization hypervisor of its own, when it finally does it will certainly be noticed by Microsoft’s sizable server customer base. Microsoft also argues that VMware’s popularity in server virtualization does not necessarily translate into popularity in desktops, application, storage and networking virtualization.

Still, as VMware hosts an estimated 10,000 attendees at VMworld 2007 in San Francisco, it enjoys frontrunner status. The venue is also the stage for other vendors in the VMware ecosystem to announce their own related products.

“[VMware is] clearly the market leader. There’s no question,” says Mark Bowker, an analyst at Enterprise Strategy Group. “They are gaining amazing traction in the environment.”

Virtualization software is designed to make a physical server act like multiple logical servers, improving server utilization by allowing IT managers to efficiently combine numerous computing resources on a single server.

The latest product enhancements from VMware, which are being announced at VMworld, include an upgrade to its ESX virtualization package for enterprises. The ESX 3i hypervisor is embedded directly into the hardware rather than as software that has to be installed later. The small 32Mb hypervisor is only about 2% of the size of the typical operating system, such as Windows, says Bogomil Balkansky, senior director of product marketing for VMware.

The smaller footprint makes ESX 3i easier to operate and more secure than a software solution and complements virtualization-optimized processors coming from Intel and AMD, he says.

Click to see: Diane Greene (center, at podium), president of VMware, at the New York Stock Exchange Aug. 14, on the opening day of VMware's trading as a public company.

VMware also is introducing a Virtual Desktop Infrastructure product that includes what Balkansky calls a “connection broker.” It can distribute individual virtual desktops from a server to each end user on a network or deliver one desktop configuration to multiple end users. The latter works for a call center, for example, in which multiple staffers work from the same user interface.