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Virtualization demand heats up this summer

The maturing virtualization market means mounting challenges for market leader VMware. Now Microsoft, Sun and Citrix are all trying to get in on VMware's game.

Midmarket CIOs can expect to see a lot of action this summer in the virtualization market, as major vendors introduce new products and competition heats up.

"It's getting to be kind of a wealth, if not a confusion, of offerings for midmarket companies," said Charles King, principal analyst at Pund-IT Inc.

Microsoft's soon-to-be-released Hyper-V and new products from Citrix Systems Inc. and Sun Microsystems Inc. could make for a very interesting season, experts say. Meanwhile, VMware Inc. is trying to hold off the wave.

On top of that, IBM's IBM I and PowerVM combination is growing in popularity among midmarket IT shops.

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All these "me toos" are justified, say experts. After all, virtualization software spending is up so far this year, as the overall software market dips with a bad economy, an April survey from analyst firm ChangeWave shows.

All the new competition means more options, of course, but it could also mean price savings for midmarket organizations ready to pounce on the virtualization movement. Once an option for only large companies, a virtualized data center is affordable enough for even midmarket companies.

"What VMware has done in the past is shown a willingness to be flexible in pricing," King said. "It would not surprise me if the company came out with products that were competitive not only from a technological standpoint, but from a pricing standpoint as well."

But so far, VMware, which has a history of adjusting prices as competition heats up, isn't budging. A VMware executive last week said the company doesn't intend to drop prices. And it doesn't seem to be scared, either.

Microsoft's new hypervisor, dubbed Hyper-V, is priced at $28 and is expected to be released later this year.

For all its hype, Hyper-V isn't really that cheap. It requires a server, of course, and that could run an average midmarket IT shop around $999 with 10 client-access licenses. There are other requirements, like 64-bit chips. Introductory to standard editions of VMware's ESX 3.5 hypervisor cost between $495 and $2,995.

But there's more to competition than price. According to King, Microsoft is selling an ease of use that will appeal to midmarket CIOs short on staff. Hyper-V runs right in the Windows Server 2008 environment. Upshot: not much of a learning curve for IT staff.

However, Microsoft and Citrix, which is pushing its XenServer with hypervisor, will need to spend the summer clarifying their products' benefits to CIOs if they want to take any business from the so-entrenched VMware, King said.

"This is going to be a challenge for all of the vendors that we're talking about here," he said. "I think it will be important again for them to get out to those customers and … define in very real terms what the benefits of those products are to those companies."

Also vying for midmarket space is IBM, whose PowerVM and IBM I platform have a "significant footprint in the midmarket," King said. Sun Microsystems' Sun xVM was announced this month and will be available later in the summer. The server will host Linux, Windows and Solaris operating systems.

Timing is everything

According to experts, the timing couldn't be better for companies thinking about virtualizing their data centers or for vendors looking to get into the market.

ChangeWave's recent survey of business software buyers found an increase in the number of companies that plan to buy virtualization software in the next three months, despite the fact that their overall spending was down.

The survey found 70% of IT departments using virtualization are using VMware, up from 58% in a similar survey in January. Citrix also showed promise, increasing to 26% from 21%. About 22% of the shops used Microsoft, and IBM products were used in 10% of shops.

It's getting to
be kind of a wealth, if not a confusion, of offerings for midmarket companies.

Charles King
principal analystPund-IT Inc.
"It's very hard right now to be in a growth mode, if you look at the whole macro spending environment," said Paul Carton, director of research at ChangeWave. "Within that, it's very hard to swim upstream. That's what you see here with virtualization. They are still showing positive momentum even within this very constrained spending environment."

"It's not often that you see a game changer pass through an industry, and I think that our thesis is … overall, that's what virtualization represents," Carton said. Though Citrix is gaining market share, Carton said ChangeWave's surveys show VMware still "towering over" competitors for at least the next six months.

All the movement in the market comes with a word of caution from King. Sure, virtualization is getting less expensive and it may even be easier. But that doesn't mean midmarket companies, especially smaller ones, should rush to the technology.

Today, companies primarily virtualize servers to consolidate data centers and save cost. But the up-front hardware and staff costs mean it could take a while for the benefits to kick in. And smaller companies just won't see a cash windfall from deploying a virtualization strategy, King said.

"For a company with a dozen or a couple of dozen servers, the benefits are definitely less significant than they would be for a company with a much larger number," he said. "It's not for everybody."

Let us know what you think about the story; email: Zach Church, News Writer

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