VMware lays down corporate IT marker

If anyone should understand the threat from a competitive onslaught by Microsoft, it is Paul Maritz.

The chief executive of VMware, the hottest software start-up in the new era of “cloud computing”, Mr Maritz was himself a top Microsoft executive in the 1990s, and ultimately responsible for such landmark products as the Windows 95 operating system.

Now that he finds himself squarely in the sights of the world’s biggest software company, he is under no illusions.

“If you look into Microsoft’s soul, they define themselves by competitiveness – it’s both their strength and their weakness,” he says.

It is not hard to see why Microsoft should be taking aim. VMware has established what Mr Maritz calls a “beachhead” in corporate information technology systems from which it has the chance to outflank his former employer.

“Today, the innovation [in software] is occurring above and below the operating system,” he says. In periods of upheaval such as this in the technology world, he adds, “history teaches you it’s the company you don’t know about that emerges the winner”.

Wall Street has certainly warmed to Mr Maritz’s theme since he took over in 2008. In the past year, VMware’s shares have more than doubled: among software companies, its $34bn market value is now topped only by Microsoft, Oracle and SAP. It now accounts for two-thirds of the stock market value of EMC, the storage company that owns most of its stock, compared with less than 40 per cent a year ago.

The beachhead to which Mr Maritz refers is VMware’s core business, known as virtualisation. This involves inserting a layer of software between a computer’s hardware and its operating system, making it possible for multiple computing tasks to work on the same machine at the same time, and so reduce the number of computers companies need to buy.

Almost by accident, however, VMware’s hardware-saving technology has put it in pole position in the hottest area of the corporate IT world – cloud computing, which involves centralising computing tasks in larger datacentres, where the massed power of ranks of servers can be amalgamated for greater efficiency.

Once companies started to virtualise their servers, says Mr Maritz, “they could start thinking of them as a single, giant computer”.

A response from Microsoft was guaranteed. Two years after launching a rival virtualisation product, known as a hypervisor, as a free add-on to its Windows Server software, Microsoft already claims to hold a 25 per cent share of the virtualisation market.

Faced with what Mr Maritz refers to as “trench warfare” – not a strategy he says he wants to pursue – VMware has been racing to expand the functions of its software layer, adding elements that make it easier for companies to manage and control how their applications run in big datacentres. The VMware chief compares Microsoft’s attack on virtualisation with an attempt when he was at the company to take on Oracle in the database software market by giving away copies of its own software, called SQL Server. “We thought all we had to do was give it away and the world would beat a path to our door,” he says. “But when we did that, nothing happened.”

Like other software companies that have tried to outflank Microsoft, VMware is also counting on allies to make up for its own lack of scale. Instead of building its own datacentres and selling services directly to companies – creating something known as a “public cloud”, which Microsoft is attempting – it has been lining up telecoms groups including Verizon and AT&T as partners.

Since Mr Maritz arrived, VMware has also opened a new front in the fight, expanding from the virtualisation layer that sits below a computer operating system to the layer that sits immediately above it and provides the support for applications running on the system.

The acquisition of SpringSource, an open source software company, has given VMware a base for developers to work on, while the purchase of Zimbra, an e-mail company, has taken VMware into the realm of applications themselves, further extending its battlefront with Microsoft.

This ambitious strategy, to get a toehold at many levels of software, is a direct echo of Mr Maritz’s experience at Microsoft, says Al Hilwa, an analyst at IDC, although he added that it did not look over-ambitious given VMware’s strong starting point.

With high stakes, meanwhile, Mr Maritz, believes he has little choice: “When you have the big guys trained on you, you have
no option but to be ambitious.”