Ahead of VMWare's (NYSE: VMW) annual conference, Microsoft (Nasdaq: MSFT) warns customers of vendor lock-in problems arising from signing long-term contracts with the virtualization company.

"VMware is asking many of you to sign three-year license agreements for your virtualization projects," Microsoft vice president Brad Anderson wriote in an open letter to VMware customers. "But with the arrival of cloud computing, signing up for a three-year virtualization commitment may lock you into a vendor that cannot provide you with the breadth of technology, flexibility or scale, that you'll need to build a complete cloud computing environment."

Microsoft is raising the right noise as Vendor Lock-in is the most important deterrent to cloud-computing just next to security.

Server Virtualization basically means masking of the server resources from server users. The server administrator uses software to divide a single server into multiple virtual environments which are also called guest, containers or instances.

VMWare and Microsoft both compete in this space using the virtual machine approach. Under this model, each guest runs on a virtual imitation of the hardware thus allowing the guest OS to work without modifications. It also allows the administrator to create guests who use different OS but unaware of the host's operating system. To facilitate this, the system uses hypervisor or Virtual Machine Monitor to validate guest-issued instructions.

The basic premise of the cloud is that customers can mix and match using different vendors for services, platform and infrastructure. Microsoft contends that VMware only offers server virtualization rather than data storage as well.

In cloud-computing under infrastructure services (IaaS), it is ideal that the choice of server provider should not list the choice of network and storage provider. Generally, it is beneficial that logic and data should be close to each other and hence, storage and server should be from the same vendor.

Microsoft's pitch is that it provides both the storage and server services and hence gives a more holistic portfolio of products.

However, Microsoft's aggressive advertising reveals its efforts to move customers to its cloud-computing facilities, which offer complete ranges of services. With regard to the timing of the advertisement, one week prior to VMware's annual conference, is not without reason. Microsoft's Amy Barzdukas told CNET: "we try to present voices and opinions at a time when they might be heard and this week seems like a good opportunity."

Microsoft is a Motley Fool Inside Value recommendation. Vmware is a Motley Fool Rule Breakers selection. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.