VMware Drops Greene, Names Microsoft Veteran As CEO

Diane Greene, who supplied the business leadership for VMware since its inception, is out as CEO, the company announced Tuesday.

Former Microsoft Windows executive Paul Maritz, who came to EMC with its acquisition of Pi Corp., is in. Apparently Greene's husband, Mendel Rosenblum, a Stanford University professor, is still VMware's chief science officer.

But the sudden turnover would seem to signal that the future of the virtualization software market is up for grabs.

"This was clearly abrupt," said Frank Gillett, analyst with Forrester Research, who met with top VMware officials three weeks ago and got no hint of the impending change. VMware stock ended trading at $40.22, down 24% and far off its 52 week high of $125.25. It had gone as low as $36.51 before recovering in the afternoon trading to $40.22.

With competition mushrooming on every side, VMware needed to illustrate how it planned to meet the deep pocketed companies that were venturing onto its virtualization turf. Even with Microsoft's entry at the end of June, VMware spokesmen said they saw no need to change their approach to the market.

But EMC's board of directors thought otherwise and has decided it was time for a change at the helm. With anticipated revenues off the ultra-high 50% growth rate that VMware had set for itself, it could see VMware's stock might take a hit in the next reporting period.

The change has coincided with the end of Greene's contract period, and both sides may not have anticipated such an outcome going into negotiations. EMC either had no way or no time to prepare the public for a less abrupt Greene departure, and thus avoiding a precipitous drop in the stock. Or perhaps it didn't appreciate the potential for such a departure.

Paul Maritz, her replacement, is a 14-year veteran of Microsoft who came with a recent EMC acquisition, Pi Corp., a company created to build personal software to be used from inside the cloud. Maritz previously managed the development and marketing of Windows 95, Windows NT and Windows tools and applications.

EMC Chairman Joe Tucci briefly praised Greene's contributions before welcoming Maritz as "a leader in the software industry. He has decades of experience building one of the greatest franchises in software history."

Of Greene, he said: "As one of the founders and the leaders of VMware, Diane guided the creation and development of a company that is changing the way that people think about computing. The Board thanks her for her considerable contributions to VMware and wishes her every success in the future," thin praise for building a $1.3 billion software company, dominant in its field last year.

But VMware is facing a swiftly changing competitive landscape. Hyper-V was added as a feature to the Windows Server 2008 operating system in June with a token price tag of $28. Direct comparison is difficult because of the greater depth of the VMware product set -- its VMotion live migration remains a market leader even after Microsoft's entry. But VMware said it didn't plan to change its basic price list of $495 per dual-core processor, $995 small business offering, $2,995 high availability offering, or $5,750 enterprise class virtualization package.

"With no competition, you can get away with that," said Gartner virtualization analyst Thomas Bittman. "Now VMware has seven solid competitors. Regardless of whether Diane left, VMware needed to address pricing." Only 1-2% of medium and small businesses have virtualized their servers, Gartner estimates, but VMware products have primarily found a home in large enterprises where IT staffs have known how to adopt them. VMware under Maritz will have to decide whether VMware stays high end, competes head to head with Microsoft for small and medium business or goes after major niches, such as service providers in the cloud who will have large virtual machine needs. One reason Maritz was selected is that he's well versed in all three, Bittman said.

"VMware has had a tough time in the small and medium sized business market. It won't get any easier," he said.

In addition to virtualization as a feature of Windows Server, the open source KVM hypervisor is now part of the Linux kernel and Red Hat plans to add it soon to its Enterprise Linux. Both Red Hat and Novell also support Xen's operation outside the kernel with their enterprise editions.

While VMware's total virtual environment product line exceeds Microsoft's, the Redmond giant has the distribution mechanism in Windows Server sales that automatically bring large scale customers its way. And the hypervisor itself is backed by systems management capabilities being added to Microsoft Systems Center, the standard way of managing groups of Windows servers in the data center. With Microsoft, virtualization is a feature of the product line, not the whole product.

"Microsoft offers a far deeper server and infrastructure management solutions than VMware," argued Joe Clabby, president of Clabby Analytics, in a report, "Six Reasons Why Microsoft's Hyper-V Will Surpass VMware," issued July 2.

VMware previously competed with an underfinanced and understaffed XenSource, maker of the open source code Xen hypervisor. When Xen showed it was approaching maturity in version 3.0, VMware made its entry level product, VMware Server, available for free and kept rolling along. Then Xen was acquired by Citrix Systems for $500 million in August 2007, and the technical brains at XenSource went to work with Presentation Server expertise at Citrix to attack desktop virtualization.

The budding alliance between XenSource and Microsoft also got closer as XenSource expertise went to work with Longhorn Windows Server developers to get Linux support into Hyper-V and added to the operating system. The way Citrix' XenServer stores virtual machines matches the file format that Microsoft uses, giving the two broader reach among third party vendors seeking to supply virtual machine management tools.

Citrix itself zeroed in on the desktop space as if VMware's dominance on the server side was irrelevant. Meanwhile, Sun Microsystems and Oracle chipped away at VMware's future customer base by offering products to their own customers based on Xen.

If VMware wants to keep its customer base, "it's got to keep expanding the portfolio, keep moving the function bar up, up, up," said Bittman.