What is a startup to do?

Another post motivated by happenings in the Virtualization space! I met some RedHat folks during the RSA conference a few weeks ago and quizzed them about the new Kernel Virtual Machine (KVM) that Linus merged into the main Linux Kernel. The answer was surprisingly candid and straightforward and was reinforced by a recent announcement by RedHat's CTO. Expectedly, RedHat is hedging its bets by bundling both Xen and KVM in its Fedora Core line of products.

Apart from the fact that RedHat seems to have good internal communication, this announcement has significant ramifications for all the big Virtualization players. Xen worked really hard to get RedHat to package it by default, hoping that it will help them establish a big footprint in the Linux market. They even had some disastrous PR failures when RedHat claimed that Xen was not ready for primetime (see here). And finally, just when their effort was nearing fruition, Qumranet sprang a surprise by getting its KVM technology endorsed by Linus and RedHat.

Though Xen has first-mover advantage as the default virtualization technology available in RedHat and is probably more mature than KVM, this news could not have come at a worse time. Bigger and more mature (read risk-averse) IT organizations that were looking at Xen on Linux will now prefer waiting for KVM to be available before investing heavily. Smaller enterprises may also pilot KVM to see if it will satisfy their needs or at the very least slow their adoption of Xen.

Now, what should Xen do faced with such a situation? They may still have some good ways of fighting VMware/Microsoft from upstream and KVM downstream -

1. Learn from VMware - VMware was faced by a similar assault in 2005-06 from Microsoft and Xen. Xen was downstream and offering a free product and Microsoft, though not technically upstream, used its vantage position to make deep price cuts. VMware responded by giving away significant parts of its base virtualization platform for free and building out Management Infrastructure software that it is now the primary cash cow.
2. Drive adoption of the platform in applications - One of the often underestimated drivers of VMware's growth its integration with applications. VMware has successfully evangelized many vendors (Vizioncore, Surgient, NetExam, Opsware, Leostream, etc) to use its APIs to build their application. Though this is arguably a small channel for VMware, Xen should not ignore this altogether as this market has a lot of potential. VMware has had better success in this area than the open-source Xen - can they do something about this?
3. Don't lose track of your endgoal - winning a slice of the Virtualization pie. Face it, Xen - you came close to winning the Linux market, but looks like you will have to suffer a huge heartbreak! You'll never own the low-margin Linux server virtualization market - probably the best thing to happen to you. Stop running behind Linux and instead focus on out-innovating VMware in one or two niche areas on Windows and Solaris.
4. Acquire smaller players - Xen should look at acquiring Virtual Iron or other smaller players to help fasttrack your move into Management Infrastructure or Application support.

Do you have any other ideas? Send them to me

VMware to go public!

Word has just broken that EMC has decided to offer 10% of VMware stock to the public through an IPO (link here). This will definitely help EMC to raise more capital as VMware is one of its fastest growing subsidiaries. Tying VMware to EMC stock never made any sense to begin with.

My outlook is that VMware stock will do very well in the next couple years. Buy, Buy, Buy!!!

The shares will be available for trading from Aug 14, 2007 (Symbol:VMW)

VMware - risks and opportunities

Many newsletters, articles and advisors issue investment guidances based on the financial statements of a company and their future outlook. In this post, I'm going to focus only on the latter since the financial statement analysis is available from many investment websites (Note - You'll have to look at the financial statements of VMware's parent company - EMC).

The last couple of years have been extremely good for not just VMware but also many other VM vendors. VMware's greatest threat has been its own success - sensing a huge opportunity, companies both large and small have moved into the VM space. However, VMware still has first-mover advantage in many fields and may still be able to outmaneuver their competition.

Notable among VMware's competitors is XenSource, whose flagship product is based on an another University research project. XenSource has been slowly making inroads into the market and has a lot riding on the next release of Redhat's Enterprise Linux (v5) which will bundle Xen's VM environment (http://www.redhat.com/archives/rhelv5-announce/2006-September/msg00000.html). Acknowledging the importance of the technology, the Linux community has decided to make the Linux KVM project (http://kvm.sourceforge.net/) part of the next mainstream kernel. And finally, Microsoft is giving away its product (http://www.microsoft.com/windows/virtualpc/default.mspx) for free and will most likely support native virtualization in their Vista server product line in the near future. These tactics are bound to put tremendous pressure on VMware in 2007-08.

These developments are but natural - as technology matures and becomes a commodity, its value reduces and vendors have to move upstream. In a bid to move upstream, VMware has been focusing on building software and infrastructure that make the management of hundreds of thousands of VMs easy. They have also been toying with other ideas like the VMware appliance (http://www.vmware.com/vmtn/appliances/) hoping to create new markets. To avoid being a roadkill, VMware has also started giving a fair amount of their software away for free. Are these measures enough to outmaneuver their competition? I remain cautiously optimistic that VMware will be able to overcome what might be the biggest challenge they have yet faced. Whether they come out with their flags flying high or barely alive from the looming attrition wars remains to be seen.

Bottomline - VMware's parent is EMC, an 800 pound gorilla with a market cap of $30 Billion and annual revenue close to $12 Billion. Large-cap stocks like EMC are known more for being steady movers than exciting growth prospects. Given that EMC's stock prices have been stagnant over the last couple of years and also the serious challenges facing VMware, I would not buy their stock. However, If I'd already bought into EMC, I'd hold them for a few more months.

VMware - the real rocket scientists

VMware is not just an extremely successful business, but also a great technology company that has solved some of the toughest problems in Systems Engineering. Consider the following -

1. Checkpointing and Restarts - VMware has long had the capacity to take snapshots of a VM, save it and restore from snapshots. The ease with which snapshots can be taken and retrieved makes this operation look extremely simple, but until VMware introduced this elegant feature, "checkpointing and restarting" was considered one of the holy grails of Systems Engineering. Some of the best researchers in Universities and Industry tried to solve this puzzle for the last 20+ years with different levels of success, but never came close to building an easy-to-use and complete solution for a mainstream operating system.

2. VMotion - With the latest versions of their server software, VMs can be moved to a different server on the LAN with sub-second latencies. Migration of snapshots is a considerably tougher problem than just taking snapshots and restarting from them. Of course, VMotion is made possible only because of many advances in technology like high-speed networking and storage, but in supporting this feature, VMware has clearly proven that they have attained THE holy grail.

I remember using VMware in Grad school in 2001 and recall it being a touch immature. However, their products have come a long way since then and are now used for mission-critical applications. Clearly, VMware's great innovation and product development has helped take their product to this level of maturity. And before I forget, let me add that their competitor's products are nowhere near as mature or feature-rich. Great innovation and product development is possible only when you hire smart people. If you thought Google hired smart people, wait until you meet the real rocket scientists who work at VMware!

So, VMware has great technology and great people, but will I buy their stock? Watch this space :)

VMware - a classic startup story

One of the new-age companies that has really changed the way businesses operate is VMware. Like Google, VMware was started by researchers from Stanford and has been as influential a company as Google, although much less written about or hyped as its illustrious sibling. In this post and the next, I'm going to talk about why VMware is such an important company and why their technology is comparable to rocket science.

VMware - the Business case
The fact that 99 of the Fortune 100 companies are VMware customers says a lot about the value its products offer. By virtualizing servers and provisioning new VMs on demand, businesses are able to more effectively use their resources - both capital and hardware. Interestingly enough, VMs are not a new concept and have been supported in some form or the other in high-end servers for at least a couple of decades. By recognizing that VMs could offer significant advantages on lower-end systems and bringing the technology to OSes like Windows and Linux, VMware has built a very solid business.

How does server virtualization and on-demand provisioning help improve resource utilization? If you were a large company (5,000+ employees) and wanted to setup a new exchange server that could be used for the next 3 years, you've two choices -

1. Choice 1 - Buy yourself hardware that can handle the peak load you expect to handle 3 years from now. The math gets tricky because peak load has to factor in the growth of the company in these 3 years. Underestimate the growth and you'll have to buy yourself more hardware later on. Overestimate the growth and you'll end up buying a very powerful server whose utilization is low.
   
2. Choice 2 - Overestimate the growth and buy yourself the fanciest hardware you can afford, but use VMware to run multiple VMs on it. Use one VM to handle your current exchange load and the other VMs to run other applications. As your company grows, you can either increase the resources allocated to the Exchange VM to handle the extra load or provision new VMs to handle the newer users. This approach maximizes the utilization of your hardware and capital. You also have the added advantage of reverting to a "Gold image" of the server, should one get infected or hijacked by malicious viruses or hackers.
   

Another great use of VMs is for testing applications. It is a given that all the Fortune 100 companies have large IT organizations that develop and/or deploy many applications. Before VMware, application testing often required dedicated test servers that had similar hardware specs as the one on which it would be ultimately deployed. Buying multiple test servers and imaging them with the correct OS and configuration was a time consuming operation. With VMware, the preferred approach is to buy a big "monster" hardware which can be virtualized into multiple test servers. Though hardware cost savings are only minor, the speed at which new VMs can be provisioned and torn-down has greatly streamlined many a software QA operation. With this approach, you can have a smaller IT workforce as supporting VMs is easier than supporting real hardware.

Many Enterprise software products require considerable resources and expertise to install and configure. Due to this reason, it becomes difficult to ship an evaluation copy of the software that potential customers can use for pilots. VMware helps companies circumvent this problem by allowing them to quickly provision new VMs that are pre-configured with the software. We use such an approach for Solidcore's S3 Control product. You'll have to request us for a login - http://solidcore.com/learn/request_demo.html. Once you login into our Demo center, our infrastructure starts a pre-configured VM that you can use to evaluate our software.

The above examples are representative of how VMs help companies streamline their operations. Finding ways to improve productivity has been the cornerstone of free-market economies and VMware has found a very unique way of doing this and have executed their idea to perfection. The only slightly disappointing fact is that VMware let themselves be acquired by EMC for what now seems to be paltry $635 million. However, getting such a high valuation in a short 5 years makes VMware a classic startup story - making an exsiting idea (of VMs) cheaper, faster and more easily accessible.