Microsoft Goes for the Jugular

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VMware (NYSE: VMW) is bringing out the competitor in Microsoft (Nasdaq: MSFT).

I know -- a competitive Microsoft? What a crazy notion! But VMware's success with virtual server software is getting Microsoft to bare claws and fangs I haven't seen in years.

Today, Microsoft comes out with all guns blazing in a direct attack on VMware. "Some business customers are saving on average $170,000 when they switch to Microsoft virtualization software from VMware software," says a report on the cost savings of using Microsoft's competing products.

A company spokesperson says that "the light switch has gone on for customers," and there's no need to pay a VMware "virtualization tax" when you can get the same results with Microsoft's cheaper virtualization platform. An Ingersoll-Rand (NYSE: IR) source from a featured Microsoft case study underlines that sentiment: "We are so impressed with Microsoft virtualization technologies that we plan to virtualize everything we can, and phase out VMware."

Ouch, Microsoft. When Redmond goes for the jugular, you'll feel it.

At the same time, VMware fires back with a less aggressive missive. The company simply states that its virtualization products have seen 21,000 new customers in the first half of this year, and the latest version of its flagship vSphere platform was downloaded 350,000 times in its first 12 weeks of availability.

Microsoft doesn't brag about adoption numbers, but does share that the IT management product category pulls in about $1 billion in annual sales. That segment includes the System Center virtualization tools as well as other IT management tools. The competition includes Hewlett-Packard (NYSE: HPQ) and IBM (NYSE: IBM), both of whom dabble a bit with their own virtualization features. On the other hand, other competitors like CA (NYSE: CA) and BMC Software (NYSE: BMC) barely touch the virtual world, aside from their management of data centers. VMware's $1.9 billion of trailing sales in nothing but virtualization products would crush Microsoft's take in this market -- which is probably why the company won't break its numbers down in that level of granularity. It would just be embarrassing. A handful of choice customer quotes will have to do instead.

VMware's focus is on presenting users with the features they need and often can't get anywhere else. Microsoft is the low-cost alternative with the less-impressive product portfolio. However, I think VMware is secure in its market-leading stature, at least at the high-margin top end of this sector. Microsoft is the challenger in this arena, so I’m not surprised to see it banging the drums with splashier PR announcements, but VMWare’s technology is arguably way ahead of Microsoft and everyone else; I call that a defensible moat.