In tapping a former Microsoft executive to lead VMware's battle against the Redmond giant, VMware's EMC-controlled board of directors decided co-founder Diane Greene lacked the business savvy to win a struggle for market share, analysts say.

Greene, who was replaced as CEO by former Windows guru Paul Maritz on July 8, built the company from scratch since its founding in 1998, but VMware faces a very different set of challenges today than it did five or 10 years ago. VMware's Greene-led challenge early in life was to convince enterprises that virtualizing x86 servers could be done without compromising security and reliability or introducing bigger problems than exist in data centers that use physical servers only.

But after coasting through its first years without competition, VMware is being forced to justify its pricy products in the face of rival vendors such as Citrix and, of course, Microsoft.  

It's the "classic innovator's dilemma," says Avian Securities analyst Jeffrey Gaggin. "She's an engineer, she's not a seasoned and savvy CEO type." Greene's husband and co-founder, Mendel Rosenblum, will apparently stay on as chief scientist. Rosenblum and Greene declined an interview request.

Even with Maritz, it might be difficult to fight off Microsoft. Nine out of 10 guest operating systems that run on VMware are Windows servers, notes Burton Group analyst Richard Jones.

If an enterprise is running Windows already, why not use Microsoft's new virtualization software, Hyper-V?

"It's hard to say if [Greene] would have done any better of a job than Paul Maritz," Gaggin says. "I think it's going to be tough for them to fight off the Microsoft threat. … VMware is a single-product company trying to compete with a giant in their backyard, because the operating system environment is Microsoft's bread and butter.”

Greene's ouster could signal changes, such as VMware making an acquisition to bolster its virtualization technology. Or VMware's own ownership situation could change, Gaggin says.

There had been rumors this year that EMC, which owns 86% of VMware, would sell the company. Gaggin raises another possibility. EMC, which spun off part of the company in an IPO last year, could take those shares off the market and regain 100% control. That's just speculation, though, he notes.