VMware gets slugged

I told you so. I told you back in late June VMware was about to get its block knocked-off by the one-two of open-source virtualization and virtualization being baked into operating systems. On July 8th, VMware's rump hit the canvas.

That was the day Diane Greene, CEO and co-founder was fired and replaced by former Microsoft. executive Paul Maritz. Officially, VMware's board gave the usual executive song-and-dance about needing to “bring in new leadership with the experience and operational breadth to capitalize on the opportunities in front of VMware as it scales up from its current place to a billion-dollar software company."

Scale up!? Please!

No one with any sense believes VMware is going anywhere down the toilet. Greene could talk all she wanted about how VMware had been “expecting competition for years. We got ready for it.” Yeah. Right. If VMware had really been ready for its double-barreled competition it would have open-sourced its core program and turned its business model to virtualization security and management services in 2006. Instead, VMware stuck with its old sales-based model and – what a surprise – VMware also announced today that it was cutting its expected revenues for 2008, to be "modestly below" the 50% increase it had predicted.

The market can see what's coming. By the close of the business day, VMware's stock had nose-dived to $40.19. That's an almost 25% drop from where it started in the morning.

I suspect VMware's stock will hold steady for a while now. At least, until we get to see just how 'modest' its revenue prediction declines turn out to be.

In the long run though, changing the corner-man isn't going to change the outcome of this fight. A proprietary product can't possibly win in a market where it has the aging, but still powerful, champ, Microsoft, pounding on it on one side with its Hyper-V in Server 2008, and the open-source punchers Red Hat and KVM smacking it in the snoot on the other. VMware is going down for the count. Today, we got to see it hit the canvas and get a standing 8-count. The next time, VMware will be down for the count.

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