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What's up with VMware?

VMware is laying off employees, exiting business units, and its CTO and CEO have left. Should customers worry?

By , Network World
February 04, 2013 04:33 PM ET

Network World - In some people's eyes, VMware has had a tough past couple of weeks.

In the last week of January, the company revealed through a financial filing its plans to lay off 900 employees and exit some business units. The same day, the company's revenues missed forecasts pontificated by financial analysts, causing the company's stock to plummeted 22%. To top it all off, the tech company's chief technology officer announced he's leaving VMware to pursue a venture capitalist career, less than six months after the company had a shakeup in the CEO role.

So, what's going on with VMware? Once the pre-eminent hypervisor company in a market it practically invented, analysts say a series of moves during the past 18 months have reset the dynamics of the market. VMware -- which storage giant EMC owns a majority stake of -- still holds a leading position, but Microsoft's Hyper-V hypervisor is quickly gaining momentum.

"There really isn't any reason to fear that something drastic is going to happen to VMware," says Stuart Miniman, who tracks the virtualization market for the Wikibon Project. "At the same time, it's not a bad time for customers to re-evaluate their choices, given the increasing maturity of other products on the market. vSphere is still a solid choice, but there are other options to consider, and some may be a more attractive price-point."

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If Zeus Kerravala, an independent industry analyst with ZK Research and a Network World blogger, had to point to one singular event that turned the hypervisor market into being a hyper-competitive one, it was what he and other pundits call the vTax flop. Two years ago, VMware changed the pricing model for its popular vSphere 5 management platform, charging customers based on the amount of virtual memory (vRAM) it the system manages, instead of a per-CPU pricing.

In reality, the pricing changes resulted in some customers saving money and others paying slightly more, but a small yet vocal tangent of customers almost immediately cried foul, leading to the term "vTax" to be dubbed. A year later at VMworld 2012 the company's new CEO Pat Gelsinger reversed the pricing change and reverted to the original pricing model. But the damage had been done, Kerravala says, and the situation "opened the door" for users to look at other hypervisors. Microsoft took advantage.

In the past 18 months Microsoft has not only been improving the functionality of its VMware-competing hypervisor, but it is also making a big marketing push to get the software into enterprise data centers where VMware has dominated. The third generation of Microsoft Hyper-V is included with a Windows Server 12 license, and the company has worked to beef it up. Microsoft doubled the RAM capacity per VM to 1TB, added live migration and upped the ability to manage nodes per cluster from 32 to 64. "Hyper-V is now at feature parity for a large percentage of enterprise workloads," says Forrester virtualization analyst David Bartoletti. "It's definitely 'good enough'" for many workloads.

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