Why VMware Is Committing Suicide (Whistling Past the Graveyard)

I like VMware.  I like the company – but more importantly I like the company’s products.  But I can see the signs of complacency in the company.  Paul Maritz, the CEO of VMware and an ex-Microsoft executive, should know better than anyone the dangers of complacency when the person in your rear view mirror is Microsoft.  There are two dangers when using your rear view mirror to check out your competition.  The first is that objects are closer than they appear – and the second is that it’s difficult to tell the acceleration of what you’re looking at in your rear view mirror until it’s too late to do much about it.

Microsoft is attacking VMware from the bottom up – on in the parlance of virtualization vendors, from the lowest-cost hypervisor up the stack.  Sure, Microsoft will expend a ton of R&D and marketing at the top of the virtualization stack – but the win will come from the bottom-up.  And of course this is where VMware is the most vulnerable.  Because this is where VMware continues to make strategic mistakes by crippling the functionality of its free ESXi offering.

The first version of Hyper-V Server, like most initial versions of Microsoft products, in a word, sucked.  But with the latest R2 SP1 release builds upon an increasingly credible Hyper-V Server R2 release – and the relatively esoteric arguments concerning dynamic memory versus VMware’s memory overcommit is masking a more fundamental truth.  Not only is Hyper-V a more affordable solution in the upstream stack (the paid versions of the hypervisor) but it is a more affordable solution in the free stack.  And the free stack is where the attack is being made most successfully.

Does Hyper-V Server have its issues?  Of course.  The attack surface is much larger than VMware’s ESXi and has as its basis the Windows code which is the target of much of the malicious attacks on operating systems to date.  The flip side to that which is not often enough mentioned is that the incredible hardware compatibility of Hyper-V server is a big plus for Microsoft.  But this isn’t where the battle will be won or lost.

VMware is crippling free ESXi in ways reminiscent of some of the worst marketing decisions that any company has ever made.  The restrictions against using the vStorage API set that don’t allow third-party vendors to backup free ESXi and the inability to use PowerCLI in free ESXi are the prime examples.  What this does is take the “free” ESXi and put it at a distinct competitive disadvantage to the “free-er” Hyper-V server – which does not share these restrictions.

Look – is VMware technically more elegant than Hyper-V?  Absolutely – without a doubt.  But the graveyards of venture capital funded startups is littered with companies that had a better technical solution than Microsoft but discounted the company’s ability to inexorably excoriate those startups through fundamentally appealing to the value proposition of its customers.

I understand the problem of self-cannibalizing the revenue stream associated with licensed ESXi – I really do.  Recently, I had to make the decision to put at risk a significant portion of my company’s revenue stream by eliminating a “protected storage capacity” model in our backup appliances and move to an unrestricted licensing model.  Do we have to sell more units to make the same revenue?  Absolutely.  But we understood that in order to have the best chance of keeping and increasing our market share, we had to be aggressive.  Now, VMware is the market leader for hypervisors – so the situation is different.  But VMware is directly in the cross-hairs of Microsoft.  And despite Microsoft’s bumbling of many things, the lessons of Netscape should be apparent.

VMware – don’t whistle past this graveyard.  Attack the encroachment of Hyper-V Server by unchaining your free ESXi offering.  Otherwise, you’re committing corporate suicide.


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