The winner of the Data Center OS wars

If you came here looking for THE one definitive answer, I’m sorry to disappoint you. There is none ! There are lesser contenders for the title than, say, two years back, but the battle is still on.

Microsoft released its new virtualisation offering, Hyper-V, on thursday and has decided to take on the golliath of the virtual world, VMware, head on. Friday saw VMware’s stock at NYSE crash by almost 14%. Granted Friday wasn’t good for most tech stocks at NYSE, but the writing on the wall is clear. VMware has some tough competition on it’s hands. And the markets seem to agree.

For almost a decade now, VMware has been the undisputed leader in providing virtualisation solutions. So much so that the company’s revenues have been growing more than 80% YoY since the last 5 years. The company commands a 90% share of the over $1 billion virtualisation market. VMware’s IPO last year was arguably the biggest tech IPO ever after google. VMW debuted at an almost 100% premium and soared to a high of about $125 over the next few months. The stock is now valued at a relatively modest $51 and the hype appears to have cooled down and the stock was doing quite well till Friday after MS’s announcement of a product which is in direct competition with VMware’s flagship solution.

What does this mean for VMware ? For one, they cannot rest on the laurels of the past. Microsoft is a fierce competitor and has been known to make or break markets. With Windows 2008 and Hyper-V Microsoft will put virtualisation within the reach of the neighbourhood System Administrator and make virtualisation a commodity, even more than it already is.

Microsoft is not the only company after a pie of the virtualisation market. Innotek (now a part of Sun microsystems) and Xen (now a part of Citrix Systems) are both worthy competitors and they even have free and open source offerings to boot.

On top of the commercial competition there are open source projects such as Proxmox which is all about making virtualisation so simple that it hurts. That and RedHat’s vision of making virtualisation ubiquitous and available for free, is a serious threat to a market which had just started showing signs of an upmove.

Now, I’m not predicting the doom of this nascent industry. What I’m saying is that Virtualisation is not going to be the holy grail it once was and is well on it’s way to becoming a commodity, in a similar way that Linux and the various free BSDs have made a dent in the commercial Unix market.

All this competition can only be good for the consumers, I’m sure.VMware still has the most featureful product in the market and it doesn’t look like any other company can come close to matching their portfolio for the next couple of months atleast. But a couple of months is a long time in the tech world and that is where the competition (and vmware) has to focus.

VMware has a strong management team which is, no doubt, working hard at this very moment thinking of new and innovative products which would help it maintain the lead it currently enjoys. VMware’s latest offering Virtual Infrastructure 3.5 has been received well in the market and the company will, no doubt, meet it’s growth forecasts for the year. But unless it innovates more and brings more value to the table, the SMB’s will be happy to move on to the next free and open source offering.

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