This wasn't an article I intended to write right now. But after Alex Barrett blogged about a conversation I had with her last week on this very topic, my inbox has been flooded with emails asking "Did Alex really quote you properly?" and "Are you crazy?"
The answers to those two questions are "yes" and "quite possibly."
(For the record, Alex asked me point-blank whether that conversation was "on the record," and I said "yes," so she and I are cool.)
VMware deserves a lot of credit. Even though hardware virtualization has been around for decades in one form or another, we wouldn't have it in the x86 space without VMware. The hardware and OS vendors would have been happy to keep selling hardware that was only 20% utilized. VMware turned this industry on its head. They deserve credit not only for the move towards virtual hardware, but also for the whole VDI concept. (Even though VMware did not initially embrace VDI, the early adopters / creators of the concept couldn't have done it without VMware.)
So kudos to VMware for doing some awesome stuff.
But VMware will face some tough times ahead:
- Hardware virtualization is becoming a commodity, and when this happens, you end up with a lot of competitors, feature parity across vendors, and a price race to the bottom.
- The "easy" virtualization sales have been made already. What's left is the more complex stuff, with longer sales cycles and more complex deals.
- Now that VMware has "proven" the concept of hardware virtualization, and now that analysts have predicted this market will be <insert some random 11-digit dollar amount> by <insert some year>, many companies are entering the space.
VMware has awoken the slumbering giant that is Microsoft. Sure, there have been isolated cases of smaller companies successfully competing against Microsoft, or smaller companies partnering with them (e.g. Citrix), but in general, if you're a software vendor and Microsoft puts you in their crosshairs, you days are numbered. Microsoft will add many of VMware's core features into the base OS over the next several years without really increasing the price. And in addition to Microsoft, many other companies are entering the hypervisor space, including Citrix, Novell, Sun, Oracle, and even Phoenix Technologies (the BIOS makers).
Of course VMware has the first-mover advantage in the virtualization market, and conventional business wisdom suggests this can help a company win long-term. But history is full of wildly successful businesses who only entered a market after another "first mover" blazed the trail. Look at Amazon, Walmart, eBay, Starbucks, Microsoft--none of these was the first company in their sapce, and each of them dominates today.
I don't want to minimize the impact that VMware has had on the industry. But I think in five or ten years, VMware will be more significant for what they did in the 2000s, not what they're doing at that time.
I'll write another article tomorrow about what VMware could do to maintain their dominant position. Feel free to share your thoughts in the comments today. Here are some points to kick-start the conversation:
VMware is doomed
- They only make one type of product, and it's a market that everyone is entering.
- They're competing against Microsoft.
- People will want to buy a more complete integrated solution from one vendor, and that includes things that VMware doesn't own
- VMware is too dependent on other vendors that they're also competing against. For Citrix servers, why not use Citrix's virtualization? For VDI, why not use Microsoft's RDP or Calista? For packaging offline Windows VMs, why not use Microsoft's Kidaro to package Microsoft Windows? For software distribution, why not use the packager of your distribution vendor (Citrix or MS) instead of Vmware's Thinstall?
VMware will continue, no problem
- First mover advantage. ("No one ever got fired for buying IBM." We have that now in the virtualization space with VMware. VMware = Virtualization. Period.)
- Even though their stock has lost more than 60% of its value, VMware's market cap is still $18B (3x Citrix)
- VMware is owned by EMC. (Remember only 10% of VMware's shares are public.) EMC's market cap is $31B
- The virtualization market will be HUGE in five years. VMware only needs to grab a small slice.
- Only the actual hypervisor will become a commodity. VMware and others will compete on the value-adds, which VMware leads
What does VMware need to do to survive?
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