Hyper-V's low cost helps Microsoft weaken VMware's grip on server virtualization

Microsoft has aggressively discounted Hyper-V to grab market share

Bolstered by the June launch of its Hyper-V virtualization software, Microsoft Corp. grabbed nearly a quarter of the fast-growing x86 server virtualization market in the second quarter, market research firm IDC said on Thursday.

The success cut VMware Inc.'s global share to less than twice its own. Counting by license shipments, the company had 44% of the Q2 market with its VMware ESX and VMware Server products, IDC said.

But, IDC analyst Brett Waldman said in an e-mail, "VMware's virtualized license share is likely to decrease in the long run [as Hyper-V continues to] grow and take share from both [Microsoft's] Virtual Server 2005 and VMware."

Microsoft said the results "reflect the strong customer and partner adoption" of its virtualization software. VMware did not immediately respond to a request for comment.

Microsoft has aggressively discounted Hyper-V to $28 per server. A standard license for VMware's ESX Server costs $3,000. Microsoft also this month released a free low-end stand-alone version called Hyper-V Server 2008. Higher-end versions of Hyper-V are also free to users of Windows Server 2008.

Waldman said shipments of Virtual Server 2005 still made up the majority of Microsoft's shipments in Q2, however.

As a result of its heavy discounting, Microsoft only held 1.1% of the market by revenue, Waldman told Network World. VMware continues to hold 78% of the market by revenue, with sales up 27% year-over-year, according to IDC.

Waldman said he believes that VMware "has put in place several new initiatives, such as vCloud, to address new opportunities for themselves that Microsoft has not yet taken head-on."

Parallels Inc.'s Virtuozzo ranks second in revenue behind VMware and third in terms of license shipments, Waldman said.

"XenSource has seen some momentum under the stewardship of Citrix in the last year," Waldman said. "However, in terms on virtualized licenses, they are still rather small."

Overall, the server virtualization market slowed again for the fourth quarter in a row, though sales overall are still growing, according to IDC.

Sales grew 53% year over year in Q2, versus 72% year over year in Q1. Virtualization sales on the x86 platform, or Intel-based servers, were up 60% year over year.

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