Open Source and the Fall of VMware
The Net is abuzz today with the news of VMware's president and CEO Diane Greene leaving which has also caused a huge plunge in VMware's stock. Our sister site has a good story on the possible reasons, which may be attributable to politics within the company. VMware, of course, built a huge market capitalization on the back of its virtualization technology. As ZDNet has suggested, I think the problems at VMware may have to do with increased competition from open source virtualization offerings--and also from operating systems, especially Windows.
VMware is not a one-product company, but its huge market capitalization was largely built on efforts in one arena: virtualization. Unfortunately, that red hot technology is increasingly being encroached on by open source offerings, and it is always a precarious proposition for tech companies to depend on one product category as heavily as VMware has. Just ask the former employees of Netscape or Lotus about that.
As we've covered, Red Hat is a new entrant to the virtualization space, Sun is offering free virtualization and bundling it with its OS, and Microsoft is adding virtualization to Windows Server, That's not even mentioning XenSource and Xen--focused on open source virtualization.
It's the nature of software utilities for them to become free, and often wrapped into operating systems. Countless purveyors of software utilities have learned that lesson, going back to the beginning of the personal computer industry. Central Point Software and countless other early players in the utility space watched Windows wrap in utilities similar to theirs, decimating their businesses. Even Symantec's Norton line has had to step very nimbly to stay alive because of this phenomenon. The primary competition for Norton Utilities, over the years, has come from Microsoft Windows.
Virtualization, is, at its core, headed for software utility status, and will likely be wrapped into operating systems, and increasingly adopted in open source form for free. With fast multi-core processors, historically unprecedented low costs for memory and storage, and other favorable trends, running multiple operating systems on single systems makes lots of sense and is an under-the-hood necessity in today's operating systems. That spells big trouble for VMware--with many historical precedents causing one to wonder about the company's business.
As ZDNet noted in its story (see the link above), Paul Maritz is being tapped to replace Diane Greene. Maritz is a former long-time Microsoft executive. He would understand the threat of virtualization appearing in Windows Server and Solaris. He would understand the general path that software utilities take over time. I think open source has much to do with this executive replacement and adjustment in stock price.