Microsoft vs. VMware: The Virtualization Battleground Takes Shape

Now that Hyper-V is officially shipping you can expect to see a series of new developments in the data center virtualization market.  Microsoft (MSFT) appears to be leveraging Hyper-V and virtualization to extend the reach of Server 2008 versus launching it as a head to head offering versus ESX.

Microsoft clearly wants to play to its incumbent strengths in the data center as a way to put increasing pressure on VMware (VMW).  By releasing a low cost product that bundles, Microsoft has positioned themselves as an incumbent disruptor:

Hyper-V is a late arrival to the party and is taking a different approach to garner recognition. First off, Hyper-V, for all intents and purposes, is a free virtualization solution; it is included with several editions of Windows Server 2008 and is deployed using WS08’s roles wizard. That bundling, ease of installation and initial “no cost” ideology will make Hyper-V a hard technology to ignore. What’s more, those looking to bring virtualization into their enterprises will be forced to take a long hard look at an upgrade path that includes Windows Server 2008. (Frank Ohlhorst, eWeek June 26, 2008)

 It isn’t that different than how Cisco (CSCO) has been treating Riverbed (RVBD) lately, using the gorilla factor (aggressive, competitive product pricing bundled in with a breadth of offerings and relationships) to apply pressure to a smaller foe with more specialized products within fewer categories.  It’s a commonly used marketing strategy that forces competitors -out of necessity- to innovate more and make less in order to land the same customers.

Now that Microsoft has played its first hand I think it’s clear that both VMware and Citrix (CTXS) are going to be looking to differentiate more aggressively.  That should mean less talk about the general benefits of virtualization (Microsoft will be doing that on perhaps a larger scale with Hyper-V) and more about the business case for unique features and perhaps even focusing on more specialized sub-categories.

You can expect both to start talking about roadmaps that will keep them ahead of Microsoft and the strategic importance of their ecosystems, capabilities and specialized data center requirements.  I think the existing virtualization-lite dynamic that has played itself out since VMsafe’s awe-inspiring launch at VMworld Cannes, now needs to mature into full-blown virtualization within the data center. 

That doesn’t mean complete virtualization of the data center, but rather quickly extending from the hypervisor VLAN beach head into deployments that make the business case for virtualization even stronger.  With Citrix it may mean more focus on desktops versus virtual servers.

For VMware that makes virtualization security, VMotion and any potential capability roadblocks now strategic to success.  Months ago features were tactical.  With Hyper-V some will now be strategic. 

As Microsoft uses its position to pressure VMware in the same way that large product portfolio players squeeze one category specialists, VMware will now need to accelerate execution on strategic features and move inland from the hypervisor VLAN beach head to win and defend critical data center infrastructure.

VMware may become even more aggressive on the roadmap front, and articulate an even more powerful vision for its marketplace.  The coming VMworld could be the best ever from the standpoint of attendance, buzz and innovation.

The difference between success and failure is often a matter of momentum, focus, aggression and execution.  VMware has done very well so far; the question now is how effectively they can get their partners, prospects and customers to take the next step while Microsoft prepares its next moves.

Disclosure: none