VMware Leading the Way

Virtualization is not a new concept. In fact, it’s been around for 40 years now. In the early 1960’s, it was IBM who was the original driving force behind virtualization as it introduced us to “Time Sharing” and the partitioning of large, mainframe hardware going back to the IBM M44/44X and CP-40 days. Over time, cheaper and more efficient minicomputers and PCs began to chip away at mainframe dominance, and so virtualization went the way of the dinosaurs.

But it was VMware, founded in 1998, which brought virtualization back to the forefront and is now considered by many to be the first company to offer a commercial x86 virtualization platform solution. And as such, it was VMware that ultimately emerged as the virtualization market leader in 2004, much to the chagrin of IBM. Fast forward to 2006, despite increased competition, VMware continues to dominate the field of virtualizing machines built on top of the industry-standard x86-based architecture. Industry analysts estimate that VMware is the dominant virtual machine software vendor, with a market share of over 55%.

Any questions about the financial stability or future of VMware were quickly answered by its parent company, EMC, at the end of the third quarter in 2006. VMware reported that its third quarter revenues compared to the same time period just one year prior had gone up by nearly 86% to $189 million. Looking at the company’s financial track record shows a staggering trend. The annual revenue recognized by VMware in 2003 was $100 million, in 2004 - $218 million, and in 2005 - $387 million. But just in the first half of 2006 alone, the company had already reported revenue of $288 million which placed the company on track to earn nearly $750 million for 2006. With more than 20,000 companies already running VMware technologies, which include 99 of the Fortune 100 companies, VMware anticipates that this growth trend will continue.

To keep the momentum going, the company is constantly looking for ways to improve on their existing product lines and expand their product offerings. In June, the company began shipping their latest enterprise solution, VMware Infrastructure 3, to help fuel sales in the second half of 2006. Moving along the application stack, VMware acquired Akimbi Systems to help provide what it calls “virtual lab automation”, a configuration management and self-service provisioning solution for its customers, which the company ultimately transformed into their own solution – VMware Lab Manager 2.4. Not satisfied with simply dominating the Linux and Windows world, the company announced a public beta of a new virtualization product for users of the Apple Intel-Mac platform, currently code-named “Fusion”.

The Redmond giant enters the market

In February of 2003, Microsoft made an announcement that it was going to purchase “virtual machine technology” from a company called Connectix Corp., which made the Virtual PC line of products. Microsoft said that the newly acquired technology would enable the company to support a virtual machine solution to help customers consolidate server resources, reduce hardware expenditures and operating costs. Rather than acquiring the entire company, Microsoft instead purchased the client and server versions of Connectix’s virtual machine technologies that run on Windows and Macintosh operating systems.

While Microsoft did see value in the desktop virtualization market that it had just invested in, the main reason Microsoft purchased the technology was to assume control of Connectix Virtual Server, a beta version of the company’s server-class virtualization offering. Microsoft’s intention was to use this product to eventually help customers migrate off of the legacy Windows NT 4.0 operating system. With the operating system nearing end of life and its support life-cycle timeframe coming to an end, companies were still refusing to migrate to newer Windows operating systems, mainly because their applications (whether home grown or purchased) were NT 4.0 specific and either would not work or had no upgrade path to the latest and greatest Windows versions or hardware platforms. By virtualizing multiple Windows NT environments on to a single server, Microsoft customers could continue to support legacy applications in a cost-effective way. And it also gave customers the valuable time needed to refresh older infrastructure systems first, and then either upgrade, re-write, or replace non-serviceable, legacy applications on a timetable that made business sense.

Microsoft’s virtualization plan had them focused on supporting legacy application re-hosting, server consolidation, and automation of software development and test environments. They released their first virtualization product, Microsoft Virtual PC 2004 in December of 2003. However, their planned entry into the x86 server virtualization market was delayed due to a new Microsoft company-wide security initiative. Microsoft Virtual Server 2005 was finally released in mid 2004 with two versions being made available, a standard edition supporting up to four physical processors and an enterprise edition supporting up to 32 physical processors. Initially, the company did its best to steer clear of promoting its product for data center mission critical servers; however, Microsoft was still able to achieve an impressive 29% market share grab in a VMware dominated arena.

And while Microsoft may have showed up late to the party, the Redmond software giant finally seems to have the right virtualization story to tell. Rather than focusing on its hosted virtualization platforms, Microsoft now understands that the future of virtualization is in the hypervisor or in “bare-metal” virtualization. The introduction of Xen probably had more to do with this epiphany than anything that VMware could have done. So now, the company is trying to position itself as the dominant player in the virtualization market by promising to release its own hypervisor, code-named “Veridian”, in the next version of its Windows Server product – Longhorn. Interestingly enough, Microsoft has even enlisted the help of long-time rival Novell and relative newcomer XenSource to help them achieve that goal.

The Great Virtualization Price War of 2006

Back in 1999 and 2000, there really wasn’t a whole lot of discussion about virtualization in the business community. On industry-standard x86-based server platforms, it was VMware that ruled the roost, and even then, Workstation and desktop virtualization was the dominant platform type. Virtualization wasn’t getting a lot of respect or attention; in fact, it was considered by many to be nothing more than a hobby or enthusiast product and certainly wasn’t deemed as production worthy. In addition to that, it seemed as though the cost was disproportionate to what the product offered.

The first battle came in the form of education. If virtualization was going to proliferate throughout IT, there would need to be a compelling argument or need for it. Once the education phase was complete, the next battle would be cost justification.

The next battle in the great virtualization price war might be described by some as a David and Goliath story of virtualization. That is, if you could ever realistically consider Microsoft as David going up against someone else being thought of as Goliath. In any case, the next battle in this war was about to begin between Microsoft and the virtualization market leader and industry giant, VMware.

When Microsoft Virtual Server first hit the scene, it may have caused a slight stir in the virtualization giant. With the introduction of Microsoft's server virtualization product near the end of 2004, VMware prices started to come back down to Earth - just a bit. VMware Workstation licenses suddenly dropped in price from around $300 at that time to $189, and the company's entry-level server class virtualization product, VMware GSX Server, slashed its prices from $2,500 on a two-way server down to $1,400, and larger servers were slapped with an even bigger discount. For example, a large 16-way server that would have cost approximately $20,000 now sold for a much more palatable $2,800. But this was only the beginning to the great virtualization price wars.

In order to respond to VMware's price cuts, Microsoft dug deep in November of 2005 to perform a little price cutting of its own. Along with the announcement of the release of their latest version of Virtual Server 2005 R2 came a new price that even a mother could be proud of - Virtual Server 2005 R2 prices would drop from $999 to $199 for the Enterprise Edition and $499 to $99 for the Standard Edition. Virtualization was actually becoming an inexpensive solution worth implementing in the SMB market.

But right about the same time as Microsoft's news hit the wire, VMware swung back releasing a new product to market called VMware Player - and best of all, it was free! This new software solution would allow people for the first time to download and try out pre-configured virtual machines that were created with other VMware products. And so the price war continued. But with VMware Player being released for free, a virtual can of worms was opened and a new price point began to hit the streets, much to the delight of the consumer.

In the month of February 2006, VMware continued its journey of free virtualization as it announced the release of VMware Server. The product would become the free replacement for VMware GSX Server, and would be the most comparable VMware offering to Microsoft's Virtual Server product. Microsoft then answered that challenge in April 2006 by making Microsoft Virtual Server 2005 R2 freely available for download. And they followed that announcement with yet another in July of that same year, Microsoft would immediately make Microsoft Virtual PC 2004 SP1 free to the consumer and would make its successor desktop virtualization product, Microsoft Virtual PC 2007, free as well once completed. In June of 2006, VMware announced the release of its most sophisticated enterprise-class virtualization suite yet, VMware Infrastructure 3. And while the solution wasn't free, VMware did lower their prices to make the offering more attractive.

As Microsoft and VMware continued their virtualization price war, other companies were looming in the background, waiting for their own chance to enter the battle and make a name for themselves in this space.