VMWorld 2008: My analysis and review

Paul Maritz, the newly minted CEO has given the folks at VMware the push they needed (after the quick departure of Diane Greene) to take the company to the level people are calling "virtualization 3.0" and to create a truly dynamic data center.

Paul Maritz, the newly minted CEO has given the folks at VMware the push they needed (after the quick departure of Diane Greene) to take the company to the level people are calling "virtualization 3.0" and to create a truly dynamic data center.  His vision of the Virtual Datacenter OS (App vServices, Infrastructure vServices, Cloud vServices, and Management vServices) is a bundling of key components representing "an elastic, shared, self-managing, and self-healing utility".  There is still no clear timeframe on when these components will be delivered or how they will be bundled and priced, but it was great to see that there is a real plan and products that actually work.

I was actually counting the number of times the word "cloud" was mentioned in his keynote and guess what?  35 times.  As you can tell this is a key word in the strategy document that VMware is working from.  Whether it's internal clouds or external clouds, it's here to stay and VMware is going after it in a big way.  The ability to allocate memory, computing and storage resources to users and applications on demand and as the business needs them (Application vServices is the policy driven SLA engine that will provide availablity and scalability to all apps no matter the hardware or location) is something that other companies are doing of course, but I think VMware is positioning itself well to do this in a way that they will be successful.

Let's touch briefly upon the other components in the VDC-OS.  I spelled out what Application vServices was above, so let's hit the next one; Infrastructure vServices.  This is where server, storage and networks are built, allocated, and torn-down to create a highly efficient "on-premise" infrastructure.  The next one; Cloud vServices is where the 'on-premise' infrastructure is federated to a third-party cloud infrastructure.  The last one, and the one that I think will become the biggest differentiator, Management vServices.  This is the holistic management tool to manage the VDC-OS and the applications running on it.  This is still a work in progress, so I'll be curious to see what other technologies they will be wrapping into this component to give it even more capabilities.  I'll dig deeper into each of these components in future posts, so stay tuned.

So what does this mean for the competitive landscape?  Well Citrix did not disappoint because on Monday September 15th, Citrix released its "cloud" initiative called Citrix Cloud Center or C3.  So the "neck-and-neck" race is still on.  But it went pretty much unnoticed as folks that I talked to at the Citrix booth, not one of them was asked about it.  Hmm, all that speaking in the keynote about "Cloud" and Citrix isn't even asked.  What they were asked about was, of course, XenServer 5 and XenDesktop.  Proving to me that people are curious to see where XenServer and XenDesktop are in comparison to VMware.  C3 does offer a new version of XenServer called XenServer Cloud Edition which sports a consumption-based pricing structure for those providers that charge on metered resource use.  C3 also brings the power of NetScaler, WANScaler, and Workflow Studio.  I can also tell you that the Citrix booth was not quiet, they were constantly with attendees.  I caught Marathon's demo and was very impressed with what is included with XenServer 5 from them.

So to pick up where I left off, I think it's going to come down to a holistic perspective to manage these components centrally.  I think VMware has the lead at this point, but Citrix is bringing the management and workload provisioning capabilities of its full portfolio so we'll just have to stay tuned to see how this shakes out.

Where does this leave you today?  Right now, it's waiting and watching to see how this new battlefront shapes up.  The desktop is going to be the real focus in the coming year or so, so be prepared to hear and see more and more around this.  There was great talk by Paul Maritz and Stephen Herrod about delivering desktops, apps and data to users not devices, so they are taking the "user experience" position and running with it.  In the demo we saw in Tuesday's keynote, they are on the right track here. I think they will have some distance to make up as I think Citrix has the lead here.

I had an interesting observation during a conference floor conversation with an industry colleague.  If one were to stop and look around the Solutions Exchange floor you would notice that there were lots of third party vendors of varying sizes and shapes that covered everything that a company could imagine to manage, analyze, and scale out your virtual infrastructures.  It looked like a very "target rich" environment of potential acquisition targets and mergers. The one thing that I think you are going to see in this industry in the next three to five years is the consolidation of vendors that are doing pretty much the same thing and the acquisition of some by either VMware or Citrix.  With such a big push into the cloud play, maybe Elastra, Egnera, Cassatt, or even Surgient could be the next targets for Citrix or VMware to round out the real management and infrastructure needs these companies need.  Although with VMware's recent acquistion of Beehive you may not see them fishing for new technology any time in the next few quarters.

So how does this new vision sit with CIO and other IT management inside VMware customers?  As I stated at the beginning of this post, they now have a roadmap and solutions to get to the next level of virtualization and use virtualization technologies strategically instead of in the tactical manner (server consolidation) that most are using it today. To have the ability to have an infrastructure ready to come up when demand increases or SLA targets are hit will be first and foremost a major cost saver and secondly will show virtualizations value to the business to enable it to maintain competitive advantage.

I think the week overall was a great success and the folks that I spoke to were very excited to see what the coming year or so has in store.  I guess it comes down to just waiting and watching.  Only time will tell.

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Hmm......   What if Google bought VMware?
now that's a thought that will fester...thanks man!!! Not that I have enough to think about, now this little question is going to be like that song you just can't get out of your head...LOL
Well VMWare ESx is a modified linux kernel, imagine what google could do with it? Mangan you trying to stir up trouble? LOL Hope that dude at Computerworld doesn't pick up on this or we are all in trouble. 
Vmware is small fries for Google. If Google makes an acquisition outside it's core
business (i.e. the Web) it will be to purchase a disruptive technology and not something like x86 virtualization that will pit it against M$ or Citrix in a grinding battle. hypervisor is becoming a commodity and why would Google want to get into server business?

Besides... I am sure Google would come up with their own specialized hypervisor to suit whatever designs it's got. I mean come on its GOOGLE. Google has no interest in server virtualization. Some disruptive specialized client hypervisor (begginnings of which we are seeing in Chrome, perhaps??) to wrestle the desktop from Microsoft..? NOW YOU'RE TALKING....

You raise a good question here.  From all points of view, the desktop is the next big battleground.  I think you're on to something with that prognostication.  There is a company that just came out during VMWorld called Virtual Computer.  It is a possible direct competitor on the client-side hypervisor initiative with what VMware is wanting to do there.  Virtual Computer is headed up by Alex Vasilevsky ex-CTO and founder of Virtual Iron and is backed with some nice VC money.  "The software is designed to isolate a laptop’s four major components — hardware, operating system, applications and user data — and create versions on the laptop of those components that operate remotely, without a network connection. The software operates transparently for the user and it enables wholesale security updates and other types of upgrades when connected to the network. Isolating the portions of the system enables it to limit access to work-related applications while enabling users to install their own personal preferences on the device."  I caught their demo and I am on their beta testing group which should be kicking off in October.  I'll be very interested to see how this plays out and if VMware is sniffing around the back door of this company.  It comes back to the consolidation and acquisition that will inevitably take place in this industry.

I must admit that I'm probably talking out of my rear end, but I believe that Google et al will be much more intelligent about the way they adopt cloud computing.

The current wave of hysteria about adopting Virtualisation for everything is probably a great move right now, but ultimately, and I have said this for years, it is a hugely wasteful technology.  Why have a box running 10-50 copies of a duplicated OS? This wastes CPU/Memory/Disk, which means power/heat and additional CO2 emmissions.

We need to eliminate, or optimise the OS layer and I think it will be interesting to see who can do this over the next 5-10 years.  I think Microsoft have already realised this, hence thier apparent new strategy following Windows 7.

Live Mesh??

Kevin - here is what I was thinking.  I'm not at VMworld, so I am not hearing this first hand but it sounds to me like VMware has had a very good run but realizes that Microsoft is pulling the revenue rug out from under them.  So what do you do?  Adjust and try to change the game.  So you grab onto something new - cloud computing in this case.  To succeed you might want to also own the cloud.  Who is really good with data centers?  Hmm...  But VMware can't buy Google.  Maybe they could convince EMC to sell them off to bigG.  Why would Google want VMware?  Maybe Google needs help in understanding how to own customers.  Their model remains vulnerable.  As soon as something cooler comes along their customers bolt.

Dude, I believe as far as apps go the future is web apps. Google only needs to make Chrome a hypervisor that runs on a thin specialized Linux (the Google distro). you could potentially fit hundreds (if not thousands) of these thin Chrome virtual machines on a 32-core, 256 GB RAM server. 

VMware's enterprise business and channel sales model doesn't really seem like a good fit for Google.  Does Google really want to suddenly absorb a bunch of enterprise customers and a whole partner ecosystem?  Sure, you could argue it would help them in their cloud business, but I think Google's focus will be on the apps.  Google is pushing OS indifference--if you talk about the hypervisor as the next OS, you're still keeping the discussion on the OS.

Besides, with Greene and Co. out and Maritz in, the tension between VMware and EMC might be easing.  This might make VMware a more attractive target, but probably makes a sale a little less likely.

Hey Michael, thanks for the recap!  Question though: if the week was a great success and people seemed excited, why did the stock tumble 25%?  Sure, the whole market tumbled, but 25% is extreme.  VMware hosts a major event with 14,000 attendees and investors start bailing on the stock?  Doesn't seem like they thought the offerings were all that new and exciting...  Any ideas?  My guess is that, aside from not showing anything really new and fresh, analysts are skeptical of the "data center OS" approach...  As if VMware wasn't already in Microsoft's crosshairs, now they want to start describing their products as an OS? 
This is truly an unfair evaluation. No 25% is not extreme especially since the stock market as a whole has had over a 400 point loss over the last week. We are in the middle of a 700 billion dollar bailout discussion.  Tech stocks are just not where it is at right now. That's not to say that VMWare isn't in trouble.  It's just to say you can't correlate VMWorld with anything the stock market is currently doing and even attempt to make an analysis based on that.
If VMware stock had just dropped in proportion to other tech stocks, then fine; I would agree.  But 25% was way below the average drop for Nasdaq.  And to drop that much during their huge event?  You think VMworld would've helped soften the blow for them.  Maybe it just wasn't enough to overcome the uncertainty around the company given the increased competition from MS and the exodus of executive and technical talent.


I think trying to give you a solid answer to why the stock is getting pounded is like trying to explain why McCain picked Palin; it's all speculation.  You want my opinion?  You are seeing the remnants of the Diane Greene era.  The company was the darling of Wall Street earlier this year, but if you looked at the fundamentals of the company this growth wasn't sustainable for the long term and the stock was in the stratosphere and severely overbought.  So what happens when you "miss numbers" and revise earnings estimates?  You get punished and that is exactly what has happened.  I think the company is in good (not great, but good) shape financially to take on anything that MSFT and CTXS put out there.  I think Paul Maritz has the right strategy, but as I stated in my post it comes down to execution.  "The Street" will be watching closely at how the new direction for the company plays out.  VMW is staking it's future on this new computing model and it's going to take time for people to actually figure out what that all means, hence why we didn't see a bump in the stock price last week.  In the meantime, emotions are high and are wreaking havoc with everything in the markets including the Tech sector.  Don't get caught up in the emotions people.  This saying has always held true and I use it as a barometer of where things are at; when the average guy is talking about a certain topic (in this case virtualization) it's time to get out.  The average investor today are like sheep and we all know what happens to sheep right? Exactly, they get fleeced and slaughtered.  I think the stock right now is in a severe oversold condition so I'll say it: buy it now.  The daily volume isn't off of the charts, so I don't think there is much into the selloff recently.  This is just the "joe schmos" of the world getting out because their brokers are saying so. Another indicator that I look at is the short interest on the stock.  Right now it's at 3% of the float, so those people that have shorted the stock will have to cover those shorts once the Maritz era machine gets rolling. So that is a bullish indicator.  Today's environment for VMW stock is the same when Mark Hurd took over at HP.  It took a while for everything to shake out and get moving in the right direction.  Today, HP's stock price is hovering in the upper 40s and you'll see the same with VMW in the next 6 to 9 months (not in the 40s, but whatever the market deems fair value).  Give it time folks.  We are in the beginning phases of huge change, but if you play it right you'll come out on the top end.

I think you've given me a topic for another post.  Thanks for the inspiration Brad


Let me say this in the interest of full disclosure.  I hold a long positions in VMW, CTXS, GOOG, MSFT.  I hedge these long positions with options on both sides (puts and calls).  I do not day trade these issues as I believe in the long term value of these companies.

I'm a former financial professional, so I'm a very experienced investor.  I don't offer advice nor do I recommend.  My last statement was just my honest, educated opinion of VMW's current condition in the market.

Ok, now I'm done CMOA (covering my own ass).  Good luck


Hey Michael,

Thanks for the sincere reply.  I mean, like you said, it's speculation, but I think you gave a pretty good assessment.  The darling days are over, and in terms of technology, virtualization is becoming old hat.  The 'wow factor' and potential of the technology is no longer enough to carry the company.  We all understand the benefits and the potential.  But like you said, now we need to see the execution.  People want to know what's next.  And the competitive landscape for VMware is drastically different than it was a year ago.  

I think investors might've been hoping for a "ta-da!" announcement at VMware and punished the stock more than other tech stocks when they didn't hear it.  But I think at this point, it's not about "ta-da"; it's game on, and people want to see how the company is going to stay in it for the long run--especially when up against worthy competition from Citrix and Microsoft.


Like understand why it's search engine returned T-Mobile as the play for the first offering of it google phone.  Google is not Pinky it is the brain and if you have ever watched the show you know that that brain while flawless in his planning falls short of execution.  Google is not out for winning Palo Alto er I mean Hopkinton...they are out for world dominiation.  I agree that not only is it small fries it is unrealistic that vmware could find its bailout from google.  Remember that googles biz is advertising, some paid host services and a few enterprise products.  They already have a modified Hypervisor and the rest of the vmware offerings are cuphoders (nice to have but you cant win a race with one.)