VMware buries the competition

From Anders Bylund of The Motley Fool:

When I opened up my virtual mailbox Monday morning, I was buried under an avalanche of press releases from virtualization specialist VMware (NYSE: VMW). Then the annual VMworld conference kicked off, adding heaps of fresh PR atop the first pile. After I dug my way out, one thing was abundantly clear to me: VMware won't sit still and let the likes of Microsoft (Nasdaq: MSFT), Sun Microsystems (Nasdaq: JAVA), and Oracle (Nasdaq: ORCL) run circles around this incumbent market leader. This company hasn't exhausted its own research and inventions -- not by a long shot.

"Okay, tell us something we don't know."
The big deal that ties this news together is VMware's new Virtual Datacenter Operating System (VDC-OS). Think cloud computing on steroids, where an intrepid director of corporate IT can pool all hardware resources at his or her disposal into a giant blob of flexible computing power. Processor time, memory, network access, storage space, and other data-processing assets can then be assigned on demand to whatever application or project needs them the most -- automatically.

This is more than just a management suite for virtual machines, like Microsoft's Virtual Server or Sun's xVM product family. It's more like Amazon.com's (Nasdaq: AMZN) Elastic Computing Cloud or Google's (Nasdaq: GOOG) famously decentralized information infrastructure, scaled down to the size of a single data center and packaged for private use by any company with IT-management problems. On the flipside of that analogy, it's like stretching a traditional IBM (NYSE: IBM) "big iron" mainframe, with all of its fault tolerance and massive parallel processing acumen, to cover the entire data center.

Used correctly, a solution like this should lead to significantly more efficient use of the available hardware, alongside higher reliability -- when one processor or memory bank dies, its workload just gets shifted somewhere else. That means better efficiency, longer uptime, and big cost savings.

Building a secure market share
VMware is years ahead of the competition when it comes to advanced features like this virtual OS functionality. Sure, I think that both Microsoft and Oracle have it in them to produce a product like this -- eventually. But by then, I expect that VMware will have carved out a very comfortable slice of the potential market, because the early adopters will be the companies that most need better IT management.

These tough test cases will iron out any remaining wrinkles in the solution in short order, via the normal back-and-forth of production-level tech support. Get them settled on a workable solution to problems like complex data management and scattershot hardware purchasing, and they won't feel any need to fix what ain't broke anymore. And then they become perfect marketing tools: "Look how we helped Hyper-Mega-Mart (Ticker: HMM) and Worst-Case Scenarios, Inc. (Ticker: NOWAY)! Your data center will be a walk in the park!"

What this means for you
I really don't see how even Mr. Softy can hope to find a chink in armor plating like that, though I do appreciate Microsoft's efforts, since competition drives innovation in any business. But in the end, virtualization will be an afterthought in Microsoft's and Oracle's sprawling product portfolios, at most. The same goes for Sun, albeit on a smaller scale. Anybody else in this space looks like shark bait to me -- fishing for buyout offers from one of the big boys, rather than aiming for the top of the heap themselves.

Meanwhile, VMware will keep leading the way to bigger and better virtualization achievements. This is one of the days I mutter curses at our Foolish disclosure policy under my breath, because it's the only thing keeping me from buying VMware today.

A virtual disruption

From Anders Bylund of The Motley Fool:

IT research firm Gartner recently published its top 10 list of "disruptive technologies" for the next five years. They disrupt because they are advances that are most likely to change our lives in the near future, which strongly appeals to the Rule Breaker investor in me. Changing the world usually leads to big profits -- and happy investors.

Virtual insanity

Of the 10 disrupters on the list, perhaps the biggest business opportunity lies in virtual computing. This technique is driving or aiding a couple of other disruptive technologies. Multicore processors are more effective when you can cut them up into several virtual machines, and cloud computing becomes both cheaper and more reliable when the software cloud runs on a virtual hardware cloud.

VMware (NYSE: VMW) created the market with virtual server systems that let IT managers divide and recombine their hardware assets in new ways. Managing pools of processors, memory, and storage is a far more flexible and efficient approach than setting up a physical server for every business need, and the technology is changing all the rules for managing data centers.

A revolution like that naturally attracts competition like kids to an ice cream truck. Microsoft (Nasdaq: MSFT) and Citrix Systems (Nasdaq: CTXS) both have competing products on the market. Server manufacturers like IBM (NYSE: IBM), Hewlett-Packard (NYSE: HPQ), and Sun Microsystems are building virtual server management features into their big iron, too. Some of that works with VMware; other parts compete directly with the company's hardware.

VMware itself was snapped up by data storage giant EMC (NYSE: EMC) for a measly $635 million in 2003. Four years later, EMC spun its baby back onto the public market, netting $957 million in the IPO -- for just 15% of the virtualization pioneer.

The Foolish takeaway
If Gartner is right -- and I can't see how it could be wrong this time -- then virtual servers will be the de facto standard in five years. Data centers will run on fewer pieces of server hardware, pushing down the cost of machines as well as the need to cool down and power up all of that silicon.

Enterprise servers make up around $14 billion of the worldwide market per quarter, and grabbing a share of the revenue from each machine sold is a major growth opportunity. On top of that, you have service contracts for all of that software.

The virtual server market is still in its infancy and growing like dandelions in full sun. And while MS Virtual Server or Citrix XenServer certainly have their followers and could grow into serious contenders one day, this race is market-leader VMware's to win or lose.

A "virtual" change in my career

Well, it's official. I've joined VMware. Beginning Monday, March 10, I will be the newest addition to the Ohio Valley Strategic Sales team. I'm very excited about this incredible opportunity, and I can't wait to get started.

VMware (NYSE: VMW) is the global leader in virtualization solutions from the desktop to the data center. Customers of all sizes rely on VMware to reduce capital and operating expenses, ensure business continuity, strengthen security and go green. With 2007 revenues of $1.33 billion, more than 100,000 customers and more than 10,000 partners, VMware is one of the fastest-growing public software companies. VMware is headquartered in Palo Alto, California.

VMware’s broad and proven suite of virtualization solutions addresses a range of complex challenges facing IT organizations, including:

• Server Consolidation & Infrastructure Optimization: VMware technology – including the industry’s only complete virtual infrastructure - helps organizations consolidate servers and increase utilization rates, greatly reduce power and cooling costs, and manage and automate IT processes for maximum availability, performance and scalability.


• Business Continuity: With exclusive features such as automated load balancing and live migration of virtual machines, VMware technology enables organizations to increase uptime and reduce the cost and complexity of meeting high availability and disaster recovery objectives.


• Software Lifecycle Automation: Developers and other IT professionals use VMware solutions to streamline the software development and testing process, reduce server provisioning time, and improve software quality.


• Enterprise Desktop Management: Enabling enterprises to better manage and control their desktop systems, VMware helps customers speed deployments, administer systems from a central location, and provide end-users with a satisfying physical-PC experience.