Microsoft’s Hyper-V: Death Blow or Hyperbole?

Virtual machine software is a hot commodity right now. Having created the market, VMware (NYSE: VMW  ) now commands one of the larger market capitalizations in the entire software industry. At $21 billion, it trails Microsoft (Nasdaq: MSFT  ) , Oracle (Nasdaq: ORCL  ) , and SAP AG (NYSE: SAP  ) , while running neck-and-neck with Adobe Systems.

So of course, the traditional powerhouses want a piece of that pie, too. That's why Microsoft is stepping up its own virtual server release schedule, getting its Hyper-V management platform out about a month ahead of schedule. The product is already getting rave reviews, with some rags basically calling it a VMware killer.

Hyper-V was designed with experienced Windows administrators in mind, so the interface feels natural to IT workers with other experience in Microsoft products. There are also licensing advantages to signing up for Hyper-V support, which can end up saving thousands of dollars per physical server in installation and support costs -- assuming that your company runs mostly high-end Microsoft operating systems on every virtual server. Combined, these two benefits add up to a compelling virtual platform for Windows-heavy IT shops, where the somewhat Unix-flavored offerings from VMware would require new training or more staff.

Having worked in two large enterprise data centers myself, however, I'd like to point out that most large businesses have a diverse set of computing platforms, and the support staff to go along with them. Moving some of that melange onto VMware images should not be too hard for most of the big boys. In the small-business space, the picture changes, and Hyper-V's usability and cost advantages could drive some sales.

Given that VMware roughly holds around 85% market share in the virtual server sector, and it has both the technical chops and name recognition to keep the gravy train rolling, I'd be shocked to see Microsoft displacing it overnight. But it is good to see big players like the Redmond Raiders jumping in and growing the market a bit. After all, I think Hyper-V belongs in IT departments that never had a virtualization strategy before, rather than making converts out of established VMware fans. So the rumors of VMware's death seem to be greatly exaggerated.

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Fool contributor Anders Bylund holds no position in any of the companies discussed here, but he is a card-holding ultra-geek by training and personal preference. You can check out Anders' holdings if you like, and Foolish disclosure likes to have a choice of providers.


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  • Report this Comment On July 03, 2008, at 2:47 PM, since62 wrote:

    Actually great summary - i believe VM are keeping very quiet so that Microsoft grow the market. They have no fear of Microsoft but see all boats rising. Executive are particularly gung ho about the major customer market which will not change from a proven winner.

    VM are also adding large headcount in sales so i'd expect big moves in middle enterprise sector in Q3.

    My moles tell me to expect 50% growth again YOY - not bad!! Share price fall is way overdone.

  • Report this Comment On July 04, 2008, at 12:49 AM, dlee8989 wrote:

    Most of the analysts that commented on Microsoft's entry into the virtual market don't seem to understand Microsoft's place in the overall [technical] market. Your point regarding what server OS [large] enterprises use is key...Microsoft Server is NOT, by far, largely used in [large] IT data centers; rather, Linux/Unix is the OS of choice. Microsoft will probably do well in the Small/Medium Business (SMB) space, where Microsoft Server is predominantly used but, keep in mind, those SMBs that evolve into large companies will migrate to Linux because it's far more flexible, reliable, faster, and cheaper. This means migrating from Hyper-V to VMware. Microsoft's entry into the virtual machine market simply validates the technology/market; as such, this helps strengthen VMware's position, not weaken it. Long-term revenue streams are derived from large companies, not SMBs. Unless VMware makes strategic mistakes, their demise is so over blown.

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