IT research firm Gartner recently published its top 10 list of "disruptive technologies" for the next five years. They disrupt because they are advances that are most likely to change our lives in the near future, which strongly appeals to the Rule Breaker investor in me. Changing the world usually leads to big profits -- and happy investors.
Virtual insanity
Of the 10 disrupters on the list, perhaps the biggest business opportunity lies in virtual computing. This technique is driving or aiding a couple of other disruptive technologies. Multicore processors are more effective when you can cut them up into several virtual machines, and cloud computing becomes both cheaper and more reliable when the software cloud runs on a virtual hardware cloud.
VMware (NYSE:VMW) created the market with virtual server systems that let IT managers divide and recombine their hardware assets in new ways. Managing pools of processors, memory, and storage is a far more flexible and efficient approach than setting up a physical server for every business need, and the technology is changing all the rules for managing data centers.
A revolution like that naturally attracts competition like kids to an ice cream truck. Microsoft (NASDAQ:MSFT) and Citrix Systems (NASDAQ:CTXS) both have competing products on the market. Server manufacturers like IBM (NYSE:IBM), Hewlett-Packard (NYSE:HPQ), and Sun Microsystems are building virtual server management features into their big iron, too. Some of that works with VMware; other parts compete directly with the company's hardware.
VMware itself was snapped up by data storage giant EMC (NYSE:EMC) for a measly $635 million in 2003. Four years later, EMC spun its baby back onto the public market, netting $957 million in the IPO -- for just 15% of the virtualization pioneer.
The Foolish takeaway
If Gartner is right -- and I can't see how it could be wrong this time -- then virtual servers will be the de facto standard in five years. Data centers will run on fewer pieces of server hardware, pushing down the cost of machines as well as the need to cool down and power up all of that silicon.
Enterprise servers make up around $14 billion of the worldwide market per quarter, and grabbing a share of the revenue from each machine sold is a major growth opportunity. On top of that, you have service contracts for all of that software.
The virtual server market is still in its infancy and growing like dandelions in full sun. And while MS Virtual Server or Citrix XenServer certainly have their followers and could grow into serious contenders one day, this race is market-leader VMware's to win or lose.
Come on, VMware. Change my life, and maybe even my portfolio.
