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VMware reports Essentials growth, but SMB market share remains unclear

VMware revealed on last night’s earnings conference call that revenues from its low-end Essentials license SKU grew 100% from the first quarter of this year to the second.

This is an interesting data point given VMware’s recent moves to lower pricing and add features such as VMotion to Essentials Plus and Standard editions of its licenses. However, while Microsoft is offering HA and Live Migration free (along with the free Hyper-V hypervisor that’s part of Windows), VMware raised the price of those licenses with the addition of VMotion.

Meanwhile, VMware also permanently lowered the list price of Essentials to $495, saying less than $500 is a kind of ‘magic’ number below which IT managers may have a less extensive purchasing process. From my view, this is a clear acknowledgement of the “experimentation” factor some industry-watchers say will help Hyper-V gain penetration in the market.

Now, VMware says Essentials is booming, and some Wall Street analysts are excited about what seems to be growing traction in the SMB market based on the essentials figure. According to a note circulated this morning by Wedbush analyst Kaushik Roy,

We were positively surprised that the low-end SKUs targeted towards SMBs grew 100% [quarter over quarter]. This is probably because [VMware] has done a good job in building a strong VAR and partner network over the last couple of years. Going forward we expect VMware to gain further traction in the SMB space as they have recently moved the VMotion feature in the low-end SKU (Essentials-Plus).

While clearly a 100% change is a positive for VMware, which is acquiring a reputation as a premium, enterprise-oriented product in contrast to Hyper-V’s virtualization for the masses, I can’t help but wonder what the absolute numbers are. VMware didn’t break out whether a 100% increase means it sold two licenses in the first quarter and four in the second, or two hundred to four hundred, or two thousand to four thousand, and so on.

When asked directly by an analyst on the call whether the moves with Essentials and Essentials-Plus in vSphere 4.1 were in direct response to Microsoft, COO Tod Nielsen responded (per a transcript of the call):

as far as market share gains, we look at the reports and where it goes. If, what we’re seeing, you know, you assume Microsoft is seeing similar stuff. It’s a great opportunity for us to continue to grow and expand our reach, and with this move that we have made with 4.1 we expect good things in the future.

Curiouser and curiouser.

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