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Microsoft Feels Virtualization Pinch

With VMware and Google threatening Microsoft's traditional stronghold, Redmond must battle on two new fronts while still keeping Windows on top of its game.

• By Lee Pender
• 09/21/2009

How long does the operating system have to live? A very long time, probably. But how much longer will Windows be Microsoft's flagship product and the cornerstone of most IT departments? That's another question altogether.

Windows is under attack again, but this time, the competition looks fierce. The New York Times recently published an interesting piece about how Google Inc. and VMware Inc. are putting the squeeze on Microsoft. That got us thinking about Microsoft's future -- and present.

The Squeeze
The basic idea, of course, is that Web-based suites like Google Apps make the browser, rather than the OS, the focal point of computing. And virtualization, with its ability to run many instances on one machine, can cut down on the need for copies of Windows and other Microsoft applications.

From Google's perspective, the pathway to making the OS irrelevant is pretty obvious: Make the browser and the cloud the basis of accessing applications, and the operating system doesn't really matter anymore.

And then there's VMware. At VMworld last month, the company unveiled vCenter, a suite of management products that, while quite logically focused on virtualization management, sure looks like a potential entry into the market currently occupied by Microsoft products such as System Center Operations Manager.

"Our overall vision is to help IT run technology as a business," Melinda Wilkin, senior director of marketing at VMware, explains. She says the goal of vCenter is to provide "a whole new model for fundamentally managing service levels in the data center."

Sure, that's marketing speak, but listen to the language that VMware is using here. It's very broad. Yes, the company is talking about virtualization and virtual environments, but VMware folks aren't using the word "virtual" as much as they used to. They're just talking application management now.

Declining Revenues
In other words, VMware doesn't want to be a niche company anymore. It's a virtualization vendor, sure, but the idea seems to be to make virtualization the foundation of enterprise computing, not just a handy, cost-cutting accessory for it. And, as desktop virtualization grows in functionality and popularity, the OS becomes less and less important.

Analysts say that virtualization does put Windows sales -- specifically Windows Server revenues -- at risk. Research firm IDC reported in September that overall server revenues for Q2 2009 were down 30 percent year-over-year-and Windows Server revenues were down nearly 28 percent in that period. A lot of that, of course, is due to a weak economy, but IDC analysts recognized that virtualization played a role in the revenue drop. Microsoft isn't alone in feeling the pinch; Linux is taking it on the chin, too. Of course, Microsoft is aware of all this and is busy combating VMware with Hyper-V and other associated virtualization products.

A New Paradigm
The difference between the threats of today and the threats of the past are that today's competitors can skirt Windows altogether with new technologies. Microsoft crushed just about everybody when the game was OS versus OS, but, to borrow a phrase from the '90s, the paradigm is shifting. Windows has been Microsoft's ace in the hole, the lockdown on the desktop that means the road to domination of enterprise IT almost always goes through -- and often stops in -- Redmond. It still is, but for how much longer?

Redmond is catching up with VMware, but that company is still the runaway leader in virtualization. Keep in mind that VMware is joined at the hip with storage titan EMC Corp. and has the resources to withstand a challenge from Microsoft.

Of course, Windows isn't likely to go anywhere any time soon, and the hype surrounding Windows 7 suggests the OS will be a staple in IT shops for some time to come. But the technological landscape is changing, and suddenly Microsoft finds itself battling in unfamiliar territory.

Microsoft has to keep Windows relevant and useful. Simultaneously, it must develop competitive technologies outside of its comfort zone: technologies that will take the focus off the OS and fit into new computing models. It'll be a challenge, but never count out Microsoft when it comes to a fight.