FT : Microsoft Faces Smaller Google In VMware

Tuesday, February 26, 2008

Microsoft will this week fire the opening shot in a battle set to be every bit as important to its long-term future as its internet showdown with Google.  While the search war will help determine who rules the consumer web, this one will decide who reigns supreme in corporate datacentres and on office desktops – the core of Microsoft’s existing business.  At stake, says Steve Ballmer, chief executive, is nothing less than “the way computers get managed and deployed”.  That shift, he tells the Financial Times, “is a bigger opportunity for us than anyone – though, any time you have a major shift in this industry, it can be a threat if you don’t move fast enough”.  Others put it more bluntly.  According to some, the big changes under way in corporate computing could lead to a new technology architecture where Microsoft’s traditional source of dominance – its position in desktop and server operating systems – carries far less weight.  “It’s incredibly dangerous to Microsoft longer term,” says Michael Cherry, an analyst at Directions on Microsoft, an independent research firm.

The initial battleground is a technology known as virtualisation.  This involves separating computing tasks from the machines on which they run.  Rather than having a single application running on a single operating system on each server, virtualisation makes it possible to run several applications and operating systems simultaneously – each is known as a “virtual machine”.  Those virtual machines can then be moved between actual, real world servers.  That creates a new efficiency since most corporate servers are estimated to run at only 15-20% of capacity.  It also greatly improves the manageability of computing tasks since they can easily be backed up or moved to other machines when hardware fails.  For a company that has made its money selling single instances of Windows each time a new computer is installed, this represents a potentially significant change in business practice.  So far, Microsoft has responded by dropping the price for multiple instances of Windows running on single machines.  As this new way of running computers continues to spread, it will have negative as well as positive impact on Microsoft’s business model, says Mr Ballmer although he adds: “You can’t fight City Hall – virtualisation is going to happen.”  Yet the challenge to Microsoft extends beyond the adjustments needed to the way it charges for its products.  At the heart of virtualisation is a piece of software known as a hypervisor, which sits between the virtual machines and the server, making it possible for the multiple computing tasks to all draw on the resources of the same piece of hardware.  That new base level of software could assume a more central role, taking on more of the functions currently undertaken by operating systems.  In much the same way, Microsoft’s own operating system began as a small “microkernel” before ex-panding to become a dominant computing platform, says Mr Cherry.  It is this potential that represents the biggest long-term challenge to Microsoft, he adds.  “Any piece of software can morph into any other piece of software,” concedes Mr Ballmer, though he largely brushes off the threat.  As in the fight with Google, this latest battle also involves an adversary whose early dominance of a new market has been turning heads in Silicon Valley.  VMware was already gaining a reputation in corporate datacentres before its red-hot initial public offering last summer brought it to wider attention.  The possibility that it could one day assume a central role in the new computing architecture has made it the world’s fourth most valuable independent software company.  Also echoing its fight with Google, Microsoft starts well behind as it takes on VMware – although in this case it stands a far better chance of catching up.

Microsoft’s response comes with the launch this week of Windows Server 2008.  The software company has two big advantages in its favour as it squares up against VMware.  One is the ability to bundle the software with the new Windows server so it gets wide distribution.  “It goes in Windows, so it makes it hard for the IT guys to pay for a third party,” says Mr Cherry.  Microsoft will add $40 to the price of the new server software to include the virtualisation feature.  All in, the cost of Microsoft’s software will be a third or less than that of VMware, says Mr Ballmer.  A second advantage for Microsoft is its existing position in corporate datacentres.  Thanks to the market share that Windows has already built up on servers, its software tools are used by many IT staffs to manage their real-world machines.  Now, those tools will also be able to manage the “virtual machines” that run in virtualised servers.  Though VMware dominates the virtual world, it cannot match those real-world capabilities.  Yet with fewer than 10% of corporate servers estimated to have been virtualised and with VMware moving fast to build on its early lead, the race is still at a very early stage.

Reference : http://www.ft.com/cms/s/0/7cd830fa-e345-11dc-803f-0000779fd2ac.html

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