Yesterday, Microsoft (NASDAQ:MSFT) turned its virtualization software Virtual PC free of charge, alongside new licensing plans for the upcoming Windows Vista Enterprise operating system designed to encourage the use of Virtual PC. Today, EMC (NYSE:EMC), the market leader in server and desktop virtual machines, fires back.

Data centers worldwide are looking at ways to make better use of today's high-performance computers, and virtualization is starting to look like a real solution to that problem. The idea is to run multiple "virtual machines on a single server," which drives down hardware costs, makes more efficient use of the existing computing horsepower, and lets you do some new tricks, too.

For example, let's say you need several servers doing the same thing. You can just build one virtual machine image -- complete with operating system, settings, and the applications you need -- and run several copies of that.

In seeming answer to Microsoft's move, EMC division VMware has decided to stop charging customers for copies of its VMware server product and will instead focus on selling support for that software package. It is my understanding that the new Vista licenses would work equally well on VMware virtual servers as they do under Virtual PC, which makes this move look like a smart way to turn its competitor's devious plans into an advantage for EMC.

Further supporting that angle, VMware will continue to charge license fees for its popular Workstation product line, so the one product that's best suited to handle the relicensed Vista Enterprise is the only free one.

Virtual PC and the VMware products are great pieces of software, with the potential to make datacenter management both easier and -- in the long run -- cheaper, especially when it comes to disaster-recovery planning. According to EMC's financial filings, VMware revenue for the full year of 2005 was 77% higher than 2004, far outpacing the overall 17% revenue growth of the company. It's easy to see the promise here.

On the other hand, virtualization is still in its infancy as far as corporate deployment goes. The technology has been around for years, creeping down from IBM (NYSE:IBM) mainframes, to SunMicrosystems (NASDAQ:SUNW), Hewlett-Packard (NYSE:HPQ), and IBM midrange servers, and then on to workstations and desktops. I'm writing this article in a VMware session, running Windows XP inside the main Linux operating system on my laptop -- the same way I've been running it for years. But VMware still only makes up 4% of EMC's $9.6 billion gross 2005 sales.

There's still a lot of growth ahead, and plenty of time for the Microsoft and EMC to jockey for market position. May the best product win -- or the best marketing team.

Further Foolish reading:

Microsoft is a Motley Fool Inside Value pick. See all of Philip Durell's picks, and how they're doing, with a free trial.

Fool contributor Anders Bylund owns no stock in any of the companies discussed today, but he's a big fan of many of their products. Foolish disclosure policy covers real and virtual writers equally.