VMware Inc. began life as the first mover in a new market for x86 server virtualization. But its days as an unchallenged leader have come to an end because maturing competitive products are now available at better prices and because of broader technology shifts.
At the company's annual conference later this month, IT managers will be looking to VMware to articulate its strategies for maintaining its lead in a more diverse market as server virtualization permeates corporate IT on a broad scale.
VMware maintains a strong technical lead with its hypervisor features, which carry a cachet with large enterprises. But the features may come at too high a cost for some, while Microsoft, VMware's top competitor, already has a foot in the door with its Windows operating system and aggressive pricing.
Meanwhile, the enterprise battlefront is shifting beyond the hypervisor to virtual data center management tools. Experts say the company will need to maintain a swift pace of innovation in areas ranging from data center infrastructure management and capacity planning to application development.
VMware hears its competitors' footsteps
VMware retains its dominant market position, but as competitors are now experiencing the heady growth VMware displayed three years ago. In market research firm IDC's fourth-quarter 2009 Worldwide Quarterly Server Virtualization Tracker, VMware ESX was still firmly in the top spot, followed by VMware Server. Total VMware licenses also increased 19% in that quarter compared with the previous year. However, Microsoft Hyper-V, while third in line for overall market share, grew 215% year over year. Citrix XenServer, fifth in market share behind Virtual Server 2005, also grew that quarter by 290%.
According to Gary Chen, research manager for Framingham, Mass.-based IDC's enterprise virtualization software group, VMware led for the full year of 2009 with 48.3% of the market by units sold, including ESX and VMware server. Microsoft was second, with 22.7%, encompassing Hyper-V and Virtual Server, and Citrix was third, with 6.1%.
While that percentage puts Citrix a distant third, its growth between 2008 and 2009 was the fastest -- up from 1.8%. Chen credited a "freemium" pricing model and strength in virtual desktops for XenServer's growing market share.
For IT shops, choosing a hypervisor has become a sophisticated challenge to find the appropriate product for a particular workload or application. They also have to keep in mind service requirements and cost effectiveness, rather than just an attempt to standardize on one vendor or another.
According to a research report from Enterprise Strategy Group, in Milford, Mass., 56% of respondents to the firm's annual virtualization survey that have installed server virtualization now use hypervisors from at least two different vendors.
In some cases, Microsoft's tools are easier to deploy in test and development environments within larger enterprises that use VMware in production. "We're just stepping in to Hyper-V on the development front, where our application developers can access a self-service portal," said Christian Metz, a systems administrator at a Fortune 300 company.
While VMware has a product comparable to Microsoft's Hyper-V, it costs more and is more complex. Here, Hyper-V's tie-ins with Active Directory are an advantage, Metz said. Under the VMware system rights have to be doled out manually, a more tedious task.
VMware hasn't thrown in the towel. Through licensing and pricing changes enacted recently, VMware has improved its competitiveness in the small and medium-size business (SMB) market where Microsoft threatens most. But other partners say more packaging tailored to the low end of the market is needed for VMware to maintain its lead there.
Winning over the SMB masses
VMware offers software-acceleration kits and license bundles for SMBs, but experts say they'd like to see something similar to the vBlocks offering designed and priced for small business environments that VMware put together with Cisco and EMC last year.
"SMBs want to buy turnkey systems that are ready to run virtualization," said Nelson Ruest, senior enterprise architect at Resolutions Enterprises in Victoria, British Columbia. "They should get together with their hardware partners and make something available where you can just buy one product that includes multiple physical servers, memory, networking and storage" in addition to vSphere and vCenter.
Others say VMware should concentrate on adding value to its licenses beyond its recent addition of the VMotion feature to lower-tier editions of vSphere. "Ultimately, [it] still needs to move more value, features and functionality to lower-tier licensing bundles," said Mark Bowker, senior analyst at ESG. "VMware can get ahead of itself and caught up in advancing the technology past where a majority of people are today. [It] can't take [its eyes] off the No. 1 server virtualization priority, which is consolidation."
Server virtualization management and the virtual data center
As VMware fends off Microsoft from below, the next big fight brewing in the enterprise will come from virtual data center and server virtualization management tools, where the real money is to be made.
One expert said Microsoft has the resources to close the leadership gap with VMware within a few years if it can deliver quality management tools to market. "That's VMware's battle to lose if they stop innovating," said Hal Rottenberg, a systems engineer, Microsoft PowerShell MVP and VMware vExpert who works for a Fortune 20 retailer.
In virtual data center management, VMware has many more partners than Microsoft, though more and more independent software vendors (ISVs) are developing for Hyper-V as its market share grows. VMware also has more competitors here than just Microsoft -- Novell and VMLogix , as well as partner VKernel, are among the numerous companies already carving out niches in this area, chipping away at VMware's market share.
As a result, tension between VMware and its partner ecosystem has surfaced this year. Microsoft's ecosystem may be helped by friction between VMware and ISV partners in virtualization management, as VMware continues to develop its own management tools and the Ionix management software suite it acquired from EMC.
Data center integration
The enterprise is also looking for VMware to respond to the shifting market landscape by deepening integration with the physical data center infrastructure, which can suffer from performance bottlenecks and management quagmires without awareness of virtual machines. VMware has released the vStorage APIs for Data Protection (VADP) and Array Integration (VAAI).
The company has also previewed a new set of application programming interfaces (APIs) for networking partners that will enable more advanced network management like load-balancing and application acceleration within the hypervisor. In addition, VMware has previewed new vShield security features, including virtual firewall with routing capabilities and a new tool for applying security policies to mobile applications. The APIs and new features will be discussed in further detail at VMworld.
While much of the focus is on the future, many enterprise customers are still struggling to virtualize mission-critical applications and get closer to 100% virtualization. Monitoring and capacity planning improvements to vCenter are also common wish-list items for enterprise users working to push virtualization further.
In a large environment with thousands of VMs "and still a long way to go," capacity planning is the biggest challenge, according to Jason Boche, a senior systems engineer at a global media service. "Not a lot of vendors right now can provide the scale and tools large users need."
Boche said he has "seen a couple of screens" of VMware's CapacityIQ but said he wished it could be customized more easily.
According to Stuart Miniman, an analyst at Wikibon.org, these developments will be crucial for VMware to further permeate existing customer shops and shore up its hold on the high end of the market. "VMware is in the biggest customers, but not necessarily in those customers' biggest applications," he said. "It's the classic innovator's dilemma -- [VMware] has to spread [itself] both ways."