VMware’s Greene Backs Up Xconomy Readers—Says Customers Aren’t Balking at Premium Price for Company’s Virtualization Products
My, people have strong feelings about VMware (NYSE: VMW). In mid-November, when we last wrote about the virtualization company 90-percent-owned by Hopkinton-based EMC (NYSE: EMC), its stock had dropped from a post-IPO high of $124 down into the $90 range. (Which is where it is again today, after diving as low as $71 on November 26.) That prompted us to ask whether the bloom was off the rose—specifically, whether investors were realizing that VMware increasingly shares the virtualization market with competitors that charge far less. More than a dozen readers fired back, most saying that we were all wet, and that the functionality of VMware’s products so outstrips that of competing virtualization systems that the company “has the market locked up,” to quote one comment.
Well, that’s apparently true, at least for the moment, according to a Reuters report published in the Boston Globe yesterday. At a Lehman Bros. investor conference, VMware CEO Diane Greene implied that there has been pressure on the company to lower prices on its software to bring it more into line with the competition, but not enough to cause a change.
“Certainly (competitors) come up when we are negotiating a deal,” Greene is reported to have said. “It is the natural thing for a purchasing agent to do. But at the end of the day they know they are deploying VMware.”
Greene continued, “We have been able to maintain our price points because there is all this amazing functionality that is of very high value. We are not seeing a price point issue.”
Virtualization systems help companies consolidate their key applications onto fewer servers by allowing these servers to run multiple operating systems. VMware pioneered the technology, but has new competitors both large (such as Oracle and Microsoft) and small (such as Virtual Iron, Qumranet, SWSoft, and XenSource, now part of Citrix). Competitors have been able to short-circuit part of the work VMware put into virtualization problem by adopting the Xen hypervisor, an open-source scheduling manager developed by an academic research group at the University of Cambridge in England.
But Greene and many of our commenters point out that there’s much more to VMware’s technology. The company’s extensive Virtual Infrastructure 3 product, for example, virtualizes not just servers but also storage devices and networks, and comes with enough fancy control panels and backup and disaster-recovery tools to make a system administrator feel like he’s running a utility plant. One commenter, a self-confessed proponent of open-source software, compared VMware’s system to the Xen hypervisor and concluded that “much to my dismay, there was no comparison…VMware was by far the superior product in performance and capabilities…The open source competitors are not going to destroy VMware, just as Linux has not destroyed Windows in the desktop or server market.”
While that point of view definitely dominated in the comments on our previous story, a couple of readers reinforced our core point, which was simply that VMware isn’t alone in the market. “My company spent a year evaluating VMWare and Virtual Iron after visiting Linux World, and chose Virtual Iron,” said a reader who identified himself as Paul Joncas of Meganet. “VMware has some bells and whistles that others don’t have at this time, but [Virtual Iron] is equivalent when it comes to the key features and capabilities that are the core reason for deploying a virtualized server array.”
So, gentle readers, what do you think? Do VMware’s pricier products pay for themselves by helping you cram your applications onto fewer machines? Or do products from the likes of Virtual Iron and XenSource get you 80 percent of the benefit for 50 percent of the cost?