VMware's new CEO says he knows Microsoft and can defeat it

Paul Maritz, a former top MS exec, says he is ready to take the big dog on

VMware Inc.'s new CEO and president, Paul Maritz, took aim at his chief rival today -- Microsoft Corp. -- and told financial analysts that he knows how to beat that company, and that includes giving products away.

"The key when it comes to Microsoft is to neither rest on your laurels, nor get mesmerized," Maritz said.

Another key strategy in beating Microsoft, apparently, is to play offense. And that's what Maritz did on Tuesday, announcing during a conference call with financial analysts his intention to start giving away VMware's ESXi server. That software is roughly equivalent to Microsoft's just released Hyper-V virtualization server, which lists for $28 per server.

VMware will "take the price on that product to zero" in its next update, said Maritz. ESXi had listed for $495 but is offered for much lower prices by third-party server vendors that include the product in their own wares. VMware officials said after the call that the new release would be out in about a week.

The contrast between Maritz and recently ousted VMware co-founder and CEO Diane Greene was interesting, and it quite possibly gives a sense of the company's strategy going forward.

Greene rarely said anything publicly that could be interpreted as confrontational with Microsoft, even though she knew that the software giant was taking direct aim at her company. VMware, particularly in its earlier years, wanted a strong relationship with Microsoft as it built its x86 virtualization platform, and so Greene would often position her company as a partner of sorts.

That era of niceness may be ending with Maritz.

Maritz today made a point of telling analysts on the call something they no doubt already knew -- that he is a former Microsoft employee. "I know that Microsoft is a formidable but not invincible competitor," he said.

And Maritz knows firsthand just how powerful Microsoft can be. Microsoft, thanks to its free browser and operating system market strength, crushed Netscape; Maritz was one of the leading Microsoft executives to testify for the company in that antitrust battle with the U.S. government 10 years ago. The question is whether that deep knowledge will give Maritz the competitive edge he will likely need to keep Microsoft from repeating history.

"I know that Microsoft can afford to play a long waiting game, but I also know from firsthand experience that where a competitor has a lead and that a competitor invests and innovates to stay ahead ... they can be very hard to catch, even for Microsoft," said Maritz.

The decision to eliminate any charges for ESXi "takes a perceived pricing issue off the table," said Gordon Haff, an analyst at Illuminata Inc. in Nashua. NH. "People like free," he said, adding that he believes the change will help VMware expand in the midmarket.

Wall Street isn't too happy with VMware right now. The company today posted $456 million in revenue for the second quarter, an increase of 54% from the same period last year; analysts expected a little more.

But what VMware clearly has is the virtualization market lead, and it sees its decision to start giving away the ESXi server as the best means to expand that market.

ESXi, released in December, allows users to virtualize a server to support multiple operating systems. That set of capabilities is becoming something of a commodity, especially now that Microsoft is offering its own version. By giving ESXi away, VMware hopes to expand its reach. Users typically keep their servers in operation for three to five years, and by offering ESXi for free, VMware wants customers to download it try it out. The company makes its money through the sale of its infrastructure management tools.

John Humphreys, an analyst at market research firm IDC, says it's unclear what the effects of Maritz's moves will be, but there are some areas of potential concern.

Prior to coming to VMware, Paul Maritz was president of cloud infrastructure and services division at EMC Corp., the parent of VMware. There has been ongoing concern that separation between EMC and VMware could decrease with this hire, which could make other vendors that sell VMware products nervous, said Humphreys.

Regarding the removal of Greene, Humphreys said she fostered a collegial culture that encouraged innovation at the company. "They are competing on innovation," he said, and the issue for Maritz is to keep the culture in place. "They need to keep Microsoft playing catch-up," Humphreys said.

Copyright © 2008 IDG Communications, Inc.

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