Microsoft and VMware Execs are Friendly Foes

File this one under ‘frenemies’: The Microsoft exec in charge of its virtualization software business and category leader VMware’s CEO are good friends—even as Microsoft tries to squash VMware’s $2 billion-a-year business.

Over dinner at San Francisco’s Fifth Floor restaurant recently, Microsoft senior vice-president Bob Muglia, in charge of the company’s server software and development tools business, said he’s good friends with VMware CEO Paul Maritz, and that the executives’ wives are pals as well. Both men arrived in Redmond, Wash. in the ‘80s, though their careers have taken different turns. But Muglia added that no one he talks to can figure out why Maritz took the VMware job.

Maritz, a top Microsoft executive in the ‘80s and ‘90s who was considered third in command after Bill Gates and Steve Ballmer, left the company in 2000, wearied by infighting and the Justice Department’s antitrust case against the company. After several years involved in philanthropy in his native Africa, Maritz joined storage company—and majority VMware owner—EMC (EMC) this year when it bought Pi, a startup he founded.

He took over as VMware’s CEO in July, after VMware’s EMC-heavy board ousted co-founder Diane Greene. VMware, whose stock was the toast of Wall Street after its 2007 IPO, makes “virtualization” software that lets companies combine the work of many servers onto one, saving hardware and labor costs. But growth at VMware has slowed, and Microsoft, which views its products as a threat to its Windows franchise, has intensified competition with the company, expected to record $1.88 billion in sales this year.

Given the headaches involved in running VMware, Muglia says he can’t figure out why Maritz would want the job. But he says it’s “clear” there was no pre-arranged deal between Maritz and EMC CEO Joe Tucci when EMC bought Pi.

One thing seems more transparent: As close as the executives are, they’re steering their ships into each other. Maritz is developing an ersatz operating system called the “Virtual Data Center OS” that could manage machines and applications in corporate data centers, and courting developers to program for it.

VMware needs to hit back at Microsoft, which this year released virtualization software it includes with versions of Windows for servers, which could cut the bottom out of VMware’s market. Microsoft is also using its System Center software, which helps IT workers manage computers, as a wedge between VMware and its customers. If companies start using System Center to control servers that run VMware, Microsoft has a better shot displacing VMware with its own virtual machine the next time a contract opens up, Muglia says.

What’s more, Microsoft views any attempt to woo Windows developers as a shot across its bow—Maritz himself used to aim Microsoft’s cannons at companies that did that back in the old days.

After an eight-year absence from the tech industry’s main stage, Maritz is back in the spotlight. He’s running into some old friends along the way.

Before it's here, it's on the Bloomberg Terminal.