Is VMware Under Fire From Microsoft?

For the time being, VMware (NYSE: VMW  ) remains the heavyweight in the virtualization market, but its lead is under fire from software giant Microsoft (Nasdaq: MSFT  ) . NetworkWorld recently conducted a joint survey of current VMware customers, and while you'd think that would imply a heavy bias toward VMware's offerings, it turns out that a large chunk of respondents are seriously considering Mr. Softy's wares.

Of the respondents, 20% were already implementing Microsoft's competing Hyper-V product in certain environments, while another 21% were looking into the possibility within Windows Server 2012 to potentially deploy it in the near future. That's a big chunk of VMware customers seriously considering defecting to Mr. Softy's side.

VMware's pricing might be driving away its client base, with 35% saying the company's licensing and pricing was an important factor in using a hybrid VMware/Microsoft model. Many felt that Microsoft's offering is now "good enough," which, when coupled with a pricing advantage, can be a powerful combination to lure customers. Over half of those polled said they felt that Hyper-V had equivalent performance with VMware's vSphere.

Microsoft's server and tools segment is incredibly important, generating $7.4 billion in operating income last fiscal year. VMware has enjoyed a first-mover advantage, but Microsoft is kicking up the competition and attacking its core virtualization business. As a majority owner of VMware, EMC (NYSE: EMC  ) is also on the hook if Microsoft proves successful in poaching customers. The storage specialist expects to attribute $250 million of its non-GAAP net income this year to its interest in VMware.

Virtualization is an important trend in cloud infrastructure, and VMware needs to kick up its defense if it hopes to fend off Microsoft's advances.

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Evan Niu, CFA, owns shares of VMware. The Motley Fool owns shares of EMC, Microsoft, and VMware. Motley Fool newsletter services recommend VMware. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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