Microsoft, Others Closing In On VMware In Server Virtualization Market

The tight hold VMware has enjoyed in the server virtualization market will continue to erode this year as Microsoft's momentum increases and others, including Citrix and KVM, become serious contenders, industry observers say.

This year, VMware's installed base market share is at 65%, compared with 100% in 2005, according to Gartner. In the meantime, Microsoft has picked up 27%, the consultancy says. The remaining amount will be divvied up between Citrix and Red Hat.

However, while VMware's share may be dropping and concerns about its pricing--and competitors--rising, that doesn't seem to be slowing its momentum. Last month, the company reported impressive licensing sales gains for the first quarter of 2012, with revenues up 25% year over year, operating income up 41% and license revenues up 15%. For the year, the company is predicting that revenues will grow between 20% to 23% from 2011, and annual license revenues are expected to grow between 12% and 16%.

KVM, which comes with Linux distributed and has an ecosystem built around it called the Open Virtualization Alliance, will also see some growth, predicts Joe Clabby, president of Clabby Analytics.

The alliance has 250 members, including HP and IBM, he says. "What I see happening is these guys wanted back into the x86 virtualization market," since VMware only runs on Intel x86 servers, Clabby explains. "All these members of the alliance want to start eating VMware's lunch." While Microsoft's market share is growing rapidly, he says, KVM is a "dark horse," due to its ecosystem and "the deep pockets" of the alliance members.

Other market watchers maintain that VMware no longer owns the enterprise virtualization market. "While IT pros love VMware vSphere 5's functionality, they're not so keen on the license structure, even after the company backpedaled from a recent price hike," writes Jake McTigue, in InformationWeek's "State of Virtualization: Diversity Breeds Complexity" report. "And that's given rivals a golden opportunity to establish footholds in the enterprise data center, beyond just desktop virtualization and niche applications."VMware's licensing increase "was met with such hostility and derision from customers," McTigue notes, that the company was forced to shelve the new pricing for the time being. While acknowledging that VMware is the "go-to name when IT talks enterprise-class server virtualization," he maintains that at some point, Microsoft's Hyper-V will be a good-enough alternative.

Microsoft is giving away Hyper-V with Windows 2008, and like IBM, HP, Red Hat and others, is selling infrastructure and management products. That means the virtualization market is no longer a two-horse race between VMware and Citrix, says Clabby.

When deciding to virtualize an IT environment, companies should look at a vendor's market share, product functions and cost, he says. KVM "is going to gain steam because it's the right price and a lot of people got [angry] with VMware last year when they tried to jack up prices," Clabby says.

McTigue sees price being the main advantage in using an alternate hypervisor to VMware. "Even with the new vSphere 5 licensing constraints raised, Citrix can still beat VMware by more than 10% on price, and Microsoft can come out ahead by 50% in deployments of all sizes,'' he says. "That level of savings is a more than sufficient business driver to justify a big move--the ROI will be measured in months for some deployments."

But McTigue adds that when comparing hypervisor licensing costs, even if deploying Hyper-V generates a significant savings, enterprises should give VMware and Citrix an opportunity to compete. "Odds are, you can have the hypervisor of your choice at something close to the price of the low bidder. Competition is just that stiff right now."

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