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The Way Business Is Moving

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Issue Date: July 2008

Analystwatch: VMware votes against Greene agenda

July 2008

VMware's board of directors announced on 8 July that it has made a change in the leadership of the company with the appointment of Paul Maritz as president and CEO of VMware with immediate effect following the departure of Diane Greene, the previous president and CEO.

Every organisation reaches a point when it must change its culture and direction from that which the founders established. It would appear that VMware believes that the time is now, as Diane Greene was a co-founder of the company and has guided it to the dominant position it holds today. Greene led VMware from its start-up through an IPO to become an organisation that generates in excess of $1bn in revenues. However, the future is not certain for VMware, and VMware has appeared increasingly isolated by comparison to its rivals, especially since Citrix's acquisition of Xensource and its close links with Microsoft.
This announcement caught many analysts and industry watchers alike by surprise. Whereas most observers would consider that VMware needed to have a strategy for the arrival of Microsoft as a major competitor, most agree that the competitive landscape has not changed significantly since the launch of Microsoft's Hyper-V Hypervisor earlier this month. Very few would consider that Hyper-V posed an immediate threat to VMware and the view was that Dianne Greene probably had until the end of the year to demonstrate how her strategy was working.
Although it could be argued that by neglecting the SME sector VMware has enabled an opportunity for Microsoft to gain a foothold in the server virtualisation market, Hyper-V is not expected to seriously damage VMware's dominant position in the enterprise market for a couple of years. This is because Hyper-V's target audience is clearly the SME sector, due to its lack of advanced capabilities when compared to VMware and Citrix Xenserver products.
VMware has long stated that the SME sector is important. However, it was only recently that it introduced specifically targeted packages with price bundles and solutions that are more attractive to this sector. Until now, EMC has been a silent partner in VMware's affairs, at least to the external observer that is, but the move to replace Greene with an EMC divisional president signals that this position may not continue for much longer.
Paul Maritz is an ex-Microsoft executive, and if his appointment is meant to signal anything, then it is that VMware is going to change. Exactly what this change will be at this point can only be speculated, but it may be more to do with how the channel operates, and the image that VMware has operating through its channel, than anything to do with changing VMware's main strategy of increasing its Hypervisor footprint faster than its competitors.
VMware is expected to announce its quarterly earnings later this month, and many believe that its forecast for 2008 will be lower than initially anticipated, slightly less than the predicted 50% growth over 2007. Another area for concern of the investors has been VMware's unstable stock values. After its IPO in August 2007, VMware stock tripled its $29 opening price in just one month. However, since hitting that 52-week high of $125,25 in October, shares have lost about 70% of their value. According to financial analysts this was because VMware was overvalued. Whereas for most organisations a growth of 50% year-on-year would not see the departure of the CEO, it is a testament to VMware's aggressive growth plan that it feels it necessary to make significant changes so that it can continue to grow faster than the market. Paul Maritz's first few announcements will set the scene on exactly how much influence EMC is going to exert and what changes VMware is going to make to position itself against its new larger competitor (Microsoft) in the virtualisation market.


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