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Monthly Archives: June 2010

Setting Microsoft straight on the VMware-Novell OEM agreement

As you may already know, VMware recently announced an OEM agreement with Novell to redistribute SUSE Linux Enterprise Server (SLES) to eligible VMware vSphere customers. Just a few hours later (wow – that was quick), Microsoft published its take on the Microsoft Virtualization Team blog. Unfortunately, fast is not always a synonym of well-thought out. The arguments presented in the Microsoft blog not only miss the point about the announcement, but are so far off base that it makes one wonder whether Microsoft has learned anything about virtualization or is just trying to generate some headlines for headline’s sake.

In either case, given the level of marketing spin in the Microsoft blog post, I feel obliged to address the most blatant misinformation and set the record straight:

Myth #1: “Looks like VMWare finally determined that virtualization is a server OS feature. I’m sure we’ve said that once or twice over the years ;-)”

Our announcement is about providing SLES as a guest operating system (OS) and not as a hypervisor. Offering a more cost effective way to deploy SLES in VMware environments has nothing to do with the architecture of the hypervisor. Come on Microsoft – this is Virtualization 101 level stuff. VMware is committed to a hypervisor architecture that does not rely on a general purpose OS, unlike Hyper-V’s reliance on Windows, as it is a fundamentally better design that leads to higher reliability, robustness and security. This is why in our latest generation hypervisor architecture – VMware ESXi – we removed the console OS. Independent industry analysts agree that a slimmer hypervisor is the right approach – see “A Downside to Hyper-V”. We certainly don’t plan to reverse our direction, quite the opposite actually. As we publicly stated multiple times in the future ESXi will be the exclusive focus of VMware development efforts. Thanks to the ESXi hypervisor architecture, our customers won’t run the same risks they would have to face with Hyper-V.

Myth #2: “The vFolks in Palo Alto are further isolating themselves within the industry. Microsoft’s interop efforts have provided more choice and flexibility for customers, including our work with Novell.”

  1. VMware vSphere supports 65 guest operating systems versus Hyper-V R2 supporting only 17
  2. VMware vSphere supports more Microsoft operating systems than Microsoft Hyper-V R2 itself
  3. VMware vSphere supports 6 times more Linux operating systems than Hyper-V R2

Who is isolating itself? Who provides more choice?  Let’s not forget that just a few months ago Bob Muglia, President of Microsoft’s Servers and Tools business unit, stated that the number #3 top competitor for his division in 2010 is Linux! And just this past week at TechEd 2010, Steve Ballmer listed “Open Source” as a top competitor for Microsoft. How is it possible that on one hand Microsoft touts “new interoperability” with Linux and on the other one wants to kill it? Something has got to give and I think I know which one it will be….

Myth #3: “As one of many examples of our work with open source communities, we’re [Microsoft] adding functionality to the Linux Integration Services for Hyper-V. In fact, we have an RC version of the Linux Integration Services, which support Linux virtual machines with up to 4 virtual CPUs. In fact, we’ll talk more of this on June 25 at Red Hat Summit.”

VMware has a track record of providing equal support to Windows and Linux operating systems. We have supported 4 virtual CPUs for Windows and Linux guest OSs since 2006 and added 8-way vSMP in 2009. The OEM agreement with Novell doesn’t change our commitment to guest operating system neutrality. Positioning the Hyper-V’s upcoming support of 4 virtual CPUs for a small subset of Linux operating systems as a big win only confirms that 1) Microsoft is failing to keep up with VMware, and that 2) Microsoft has treated Linux guests as second class citizens. Is it credible that this second-class status for Linux will somehow change given that Linux and Open Source are being classified as top competitors?

Myth #4: “This is a bad deal for customers as they’re getting locked into an inflexible offer. Check out the terms and conditions. [..] So be sure not to drop support or you’ll invalidate your license”

So, before customers had to purchase SnS for VMware vSphere and a SLES subscription for patches and updates. With this new VMware-Novell agreement, they only have to purchase VMware SnS. Help me understand how this is a bad deal for customers? Talking about “invalidating” licenses in the context of a Linux operating system doesn’t make much sense given how the Linux licensing model works. The SLES deal offered by VMware is about subscription to patches and updates and not about licenses. Applying the same logic to Microsoft Software Assurance, we should warn customers that Microsoft SA is a bad deal because it locks them in an inflexible offer that forces them to pay in order to get the next Windows upgrade.

Myth #5: “Last, the vFolks have no public cloud offering, like Windows Azure, like Amazon EC2. While we’re demoing and building capabilities so customers have a common and flexible application and management model across on-premises and cloud computing, they’re stitching together virtual appliances to fill the void.”

Microsoft clearly “forgets” about VMware’s 1,000+ vCloud partners and public infrastructure as-a-service solutions based on VMware technology like vCloud Express . Our objective is to enable a broad partner ecosystem of service providers that leverage VMware’s technology to offer cloud services. This will give customers freedom of choice. We also want to make sure that companies retain control of their applications and are not locked in to any one particular service. Virtual appliances are a key component of this strategy, because that’s ultimately where the application lives. Microsoft isn’t interested in virtual appliances, because it isn’t interested in enabling application portability among cloud provider. Ultimately Microsoft’s strategy with Azure it to have customers run applications on Microsoft operating systems using Microsoft databases in Microsoft datacenters…. looks like the mother of all lock-ins.

Is Microsoft suffering from Hyper-Desperation R2?

Such an incredibly off-base reaction is clear evidence that the VMware-Novell OEM agreement struck a nerve at Microsoft. Could it be a sign of Hyper-Desperation R2? After all, the events of the past 2 months must have been pretty hard on the nerves of the Microsoft Virtualization Team:

  • On April 27th and May 19th , VMware announces new technology partnerships with two major cloud computing vendors, Salesforce.com (Salesforce.com and VMware Form Strategic Alliance to Launch VMforce™, the World’s First Enterprise Java Cloud) and Google (VMware to Collaborate with Google on Cloud Computing). This strategy offers far more choice to customers than Microsoft’s Azure-only approach
  • Then, on May 26th , Gartner publishes the 2010 x86 Server Virtualization Magic Quadrant, placing VMware in the “Leaders” quadrant, thereby demonstrating our clear leadership
  • Finally, just last week at Microsoft TechEd 2010 (one of Microsoft’s biggest shows of the year), VMware vSphere wins the “Best of TechEd 2010” award in the virtualization category and the “Best of TechEd Attendee’s Pick” awards. It must have been unsettling for the Microsoft virtualization team to see attendees at their own conference vote for VMware vSphere

But all of this aside, at the end of the day, what really matters is that VMware continues to show strong execution in our mission of simplifying IT and providing customers a pragmatic path to the cloud. Our agreement with Novell is another great example of how we’re delivering on our mission.

VMware vSphere Wins Best of Microsoft TechEd Attendee’s Pick Award

VMware has been exhibiting here at Microsoft TechEd 2010 and lots of VMware customers, plus those just starting the virtualization journey, have come by to talk to us – lots of questions about how to virtualize applications like Microsoft Exchange, SQL, and Sharepoint on VMware vSphere, how to implement an effective disaster recovery plan for their virtual Windows environment, and how to leverage VMware View for their Windows 7 migrations. But also, a lot of folks come by simply to say hello and share how well their Windows environments run on vSphere. Thanks to those who came by our booth this week.

I must confess though, that even after talking to all these customers, I did not fully understand how many satisfied VMware customers are here at Microsoft TechEd 2010… here’s what I mean.

Wednesday night, the VMware team attended the Best of TechEd awards ceremony because VMware vSphere was a finalist in the Virtualization category. We won that award last year (Best of TechEd 2009) and were anxiously waiting to see if we would win again this year. We were very excited when the judges announced VMware as the Virtualization category winner for Best of TechEd 2010.

Soon after, the final award of the night came up – the Best of TechEd Attendee’s Pick Award. This award is 100% based on votes from the 10,000+ TechEd attendees (my guess, as I haven’t seen an official number) – no judges involved. Attendees got to choose from among all the IT products exhibited at Microsoft TechEd, not just the virtualization ones, basically everything in the world of Windows IT. Given this context, we were thrilled when VMware was announced as the winner of the Best of TechEd 2010 Attendee’s Pick Award! Wow, to be chosen by the attendees from among all the IT products at TechEd, was just the latest testament of the value that vSphere delivers to customers.

There were no acceptance speeches at the awards ceremony (which was probably a wise decision by the folks at Windows IT Pro), but some thank-you’s are definitely in order. To the 25,000+ VMware channel partners, thanks for educating and helping customers implement vSphere to solve their most pressing datacenter needs. To the 35,000+ VMware Certified Professionals (VCPs), thanks for managing all of the vSphere installations so they run smoothly, and for being the resident experts in your respective companies, sharing with everyone the value of VMware. To the 1,500+ VMware technology partners, thanks for working with our engineering teams to build tight, robust integrations between our respective products. And finally, thanks to the thousands of VMware R&D engineers who built VMware vSphere – great job team.

Did Microsoft Just Say that VMware is More Profitable for Partners?

Sometimes, what one does not say, communicates a lot more than what one actually does say. That seemed to be the case last week when Microsoft released new collateral telling channel partners that they can achieve higher growth by selling Microsoft virtualization products alongside their existing VMware practices.

Unfortunately for Microsoft, the blogosphere heard a different message:

Wow – talk about an unintentional message. Instead of Microsoft’s intended message, people picked up on Microsoft’s change in tactics from “sell Hyper-V because it can go head-to-head with VMware” to “why don’t you try selling Hyper-V in addition to VMware – we promise it will make you more money” (my paraphrase). To quote the Virtualization Review article, “While this is not tantamount to raising a white flag, it is a stark, public acknowledgement of VMware's deeply embedded pre-eminence.” Thanks Microsoft for reaffirming what VMware partners and customers have known all along.

Microsoft Tool: Partners Get Better Margins with VMware

But, unintentional messages aside, is there truth behind the claim that Microsoft virtualization products can make partners more money? To answer this question, I spent some time playing with Microsoft’s Excel model (the heart of the new Microsoft collateral) that compares the revenue and margins from selling VMware versus Microsoft.

First of all, Microsoft’s model states that partners generally make better margins by selling VMware (default assumptions in the Microsoft model).

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Microsoft Tool Assumes Up to a 2x Win Rate Advantage over VMware – Quite Unrealistic

But if that’s the case, what is Microsoft’s argument for how partners can make more money selling Microsoft virtualization over VMware? As Steve Kaplan points out on his blog, the two biggest assumptions in the Microsoft’s model are 1) a higher win rate (i.e. closing more deals) when leading with a Microsoft virtualization offering, and 2) “upsell capture” where customers purchase more software/ hardware/services with the money they supposedly save with a Microsoft offering. (There are a bunch of other default assumptions that disadvantage VMware, which I list at the end of this blog, but higher win rate and upsell capture have the biggest impact on the model’s output.)

So what does the tool assume regarding win rates? The default ‘mature market’ assumption is that leading with Microsoft virtualization offerings will win 33% more Large Enterprise deals and 100% more Mid-market deals (2x) compared to if the partner leads with VMware offerings, resulting in partners making more margin with Microsoft virtualization. Those are pretty bold, and frankly, unsubstantiated assumptions given VMware’s dominant position in Large Enterprises (96% of the Fortune 1000 are VMware customers), VMware’s strong traction with our mid-market offerings (Acceleration Kits, Essentials Editions), and the fact that customers get a more reliable, more complete, and lower cost-per-application solution with VMware.

Just how sensitive is the Microsoft tool to the win-rate assumption? Let’s find out by making two simple adjustments to win-rate. Let’s give Microsoft the benefit of the doubt with a higher win rate in mid-market (33% more deals), put us on parity in the Large Enterprise (same win rate), and leave in place the model’s assumption that customers will buy more hardware/software/services because of the money they save with Microsoft (an assumption that Steven Kaplan challenges in his blog, but that’s another discussion). Now the VMware practice makes $1,021,000 of margin at the end of Year 3 while the Microsoft practice makes $948,000 of margin – so the VMware practice now makes more money, even with a 33% higher win-rate assumption for Microsoft in mid-market!

Microsoft Tool’s Default Assumptions Are Just Not Credible

This simple exercise is revealing because it shows what partners would have to believe in order for Microsoft virtualization to make them more money, essentially, that customers would have to overwhelmingly choose Microsoft virtualization products over VMware by an incredibly higher, unsubstantiated rate, in spite of the fact that VMware delivers far more compelling benefits to customers:

  • a more reliable and robust product,
  • a more complete platform for virtualizing applications,
  • a more comprehensive set of virtualization management solutions,
  • more customer choice with broader OS, application, and hardware support,
  • a more proven solution as evidenced by customer adoption and return on investment, and
  • a lower cost-per-application – a key component of total cost of ownership for a virtual environment.

Now, I realize that there are many VARs and consultants out there that have built very successful, profitable businesses selling Microsoft products, so my point is not about any channel partner’s existing Microsoft practices. But I do take issue with Microsoft’s claim that selling Microsoft virtualization is more profitable than selling VMware based on their “model” – Microsoft’s assumptions to make their case are just not credible.

VMware Channel Partner Ecosystem: 25,000+ Partners and Growing

To close, here are some facts about the ecosystem of VMware partners:

  • VMware has over 25,000 channel partners worldwide and that number is growing.
  • For every $20k of VMware licenses sold, partners sell another $225k of hardware/software/ services. (VMware research, 2008)
  • 75%+ of VMware’s revenue comes from our channel partners.

As you can see, VMware and its channel partners have a strong win-win relationship.

If you are a VAR or consultant and currently not a VMware channel partner, we invite you to check out the VMware Partner Network website to get information about how to become one. Let us help you grow your business by selling VMware while delivering the most trusted, most complete, lowest cost-per-application solution to your customer.

A Few Other Default Assumptions in the Microsoft Tool to be Aware of

  • Default assumption charges VMware projects a 10% premium on hourly labor.
  • Default assumption is that VMware projects take 10% more engineering hours to complete.
  • Default assumption results in partners completing almost twice the number of Microsoft projects as VMware projects in the same period of time without adding any additional headcount. Not realistic at all.
  • Default assumption appears to use an inconsistent mix of list price and channel price for Microsoft and VMware products. (I could not figure out a consistent methodology to the numbers. If you figure it out, make a comment below.)
  • Default assumption adds the cost of vSphere Enterprise Plus licenses in one scenario without explaining why VMware’s highest-end SKU was required, and there’s no acknowledgement that Enterprise Plus delivers far more functionality than the Microsoft offering.
  • Default assumption adds the cost of VMware Site Recovery Manager (SRM) licenses, our disaster recovery product, to another scenario without adding anything to the Microsoft stack, in spite of the fact that Microsoft has nothing comparable to SRM.