Clearing the Clouds from VMware's Road Map

VMware eased into its annual conference in San Francisco on Aug. 31 with a few small announcements about cost savings and industry partnerships. The spotlight now turns to Chief Executive Paul Maritz, who will give a Sept. 1 keynote address and press conference that will be VMWorld’s center of attention.

Maritz, who took over as CEO a little more than a year ago, has a big job before him: To sell VMware’s story about what’s next on its product road map at a time when Microsoft is making inroads into the market for virtualization software. The task is especially important given some confusion about what products VMware has in the hopper

Companies use virtualization software to make their servers more efficient and save on hardware costs, and VMware has grown to $1.9 billion in annual sales by grabbing leadership in that market. Now, it’s fighting Microsoft and others to control other aspects of companies’ data center operations, including the tools they use to manage applications, servers, and other hardware.

Last fall, VMware was talking up what it described as future “virtual data center operating system” software to help companies manage servers, disk drives, networking devices, and applications. Now, it’s playing down that sales pitch.

The so-called ‘VDC-OS’ “was more of a concept than software,” chief operating officer Tod Nielsen said in a recent interview. The company was using the term to describe future capabilities of its flagship vSphere software, he says. Bogomil Balansky, VMware’s vice-president of product marketing, says “we’ve bandied around a lot of different terms for what to call this piece of software.” A better way to think about VMware’s roadmap is that future versions of vSphere will let companies schedule computing jobs on virtualized hardware, and will let software applications perform faster and more reliably, he adds.

Getting the branding right will be key as customers look for more help cutting IT costs during what’s still a tight environment for technology budgets. VMware, a hyper-growth story only a few years ago, is expanding more slowly than it was during companies’ pre-recession buying binge on virtualization software; sales were flat in the second quarter. “It’s hard to know what [percentage] this company will grow in recovery,” says Jeffries & Co. research analyst Katherine Egbert, who recently downgraded VMware’s stock to “underperform.”

VMware is positioning virtualization as technology that can help companies save the costs of operating data centers, not just of buying hardware, as The New York Times noted in an Aug. 31 article.

The company also views desktop PC software as an avenue for growth, and may “dabble” in hosting software for customers to learn more about that business, according to Nielsen. “I see plenty of runway for us,” he says.

VMware is taking steps to get its technology into the hands of more users. On Aug. 10, the company said it paid $420 million to buy Java development tool company SpringSource, which one investor in the company says books about $25 million in annual sales. It announced an agreement with Intel on Aug. 31 that will let the chipmaker sell vSphere alongside its circuit boards at resellers. VMware also said some customers are saving hundreds of thousands of dollars by reducing the number of servers they run by using vSphere.

That announcement was designed to hit back at Microsoft, which put out a press release on Aug. 27 saying that some customers were saving an average of $170,000 when they switched from VMware’s virtualization software to Microsoft’s. New features that will make Microsoft’s product even more appealing to large companies are set to arrive in October.

Maritz and Nielsen are veterans of Microsoft; Maritz was the No. 3 executive there in the ‘90s and went through some bruising legal and competitive battles.

VMware may be adjusting its marketing message, but Maritz is still positioning the company right against against his old employer. VMware’s Web site describes its vSphere 4 product as a “cloud operating system,” and one VMware staffer says the company would “like to see the traditional operating system become irrelevant in the datacenter.”

At VMworld, Maritz will need to walk a line between building excitement and setting unrealistically high expectations.

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