Microsoft unleashes the cannibals again

Gregory Ness · July 14, 2008 · Short URL:

This time at VMware

One of the most powerful weapons used by dominant technology companies is the power of commoditization.  Established players with product offering breadth can crush single product line competitors by offering loss leader bundles with much lower prices for similar products.  The net effect of the loss leader bundle is to make a competitor's single line into a commodity, which slows revenue growth and creates new demands for innovation and spending.

In How Hyper-V could beat VMware I talk about this dynamic and the additional pressures placed on VMware when Microsoft launched Hyper-V, its new virtualization platform.  Of course, VMware can fight back and win, as I mentioned in How VMware could beat Microsoft's Hyper-V.  The outcome may come down to the interplay between marketing and technology strategy, as differentiation is the best weapon against the cannibals of commoditization.

VMware cannot beat Microsoft, but its technology can set up Microsoft for plenty of commoditization pressures from Google, Apple and others.  As I mentioned to Richard Stiennon at his Network World blog on Microsoft last week, virtualization is at best a double-edged sword for the Redmond Empire.

Virtualization decouples the powerful link between hardware and software that has played to Microsoft's OS/applications core strengths for decades.  That can enhance the addressable market by allowing any hardware to run Windows, yet it also gives users more options to say no or pick and choose what they use and when.

The fact that Microsoft already has considerable market share means that user choice could have more downside than upside.  And Apple's reputation for developing sticky applications and interfaces and endpoints, combined with Google's recent entry into enterprise applications in the cloud are clear threats despite Google's walled garden approach.  As virtualization spreads it increases the economics of cloud computing with unprecedented levels of efficiency and flexibility.  Service providers become more strategic, even to core enterprise application delivery, because they can dramatically reduce IT costs.

Applications could become free to those willing to accept advertising, and delivered from the cloud with minimal hard drive requirements.

I've posted a collection of posts about cloud computing at Archimedius.

The emergence of enterprise software as a service means layers of disruption to Microsoft's seemingly omnipotent channel of pre-installed hard drives and shrink wrapped add-ons.  It means a level playing field for innovators and disruptors; perhaps to an extent that Microsoft hasn't seen for decades.  Ironically, Google has the potential to turn the cannibals loose on core Microsoft applications and even threaten Windows and transform the software industry.

In the clouds are herds of cannibals ready to be unleashed on the dominant hard drive and shrink wrapped software players.  Microsoft risks becoming a victim to a strategy that it has used ever so effectively against some once-mighty innovators. 

VMware is a critical enabler of this new revolution in computing.  While it doesn't threaten Microsoft directly, it is a critical component in a more powerful cloud computing marketplace.  I think that is why Hyper-V came out as a loss leader bundle.  Microsoft would like to slow innovation by commoditizing the hypervisor, dethroning VMware and exercising more control over virtualization innovation.

While pundits argue about the success of Microsoft with Hyper-V over VMware, the real battle with Google looms on the horizon.  And it may be simply too late to slow the march of progress that VMware started.  The hypervisor genie is now out of the bottle and cloud computing innovations will be delivered with or without VMware.

Even if VMware loses it could become the accelerant that gives software as a service new potentials: VMware's worst case scenario may be being immortalized with Leonidas and his critical stall of the Persians at the Battle of Thermopylae.  If it wins, Microsoft will have even bigger issues to contend with, including the cannibalization of its own core business.

That kind of ironic twist is what keeps technologists free from summer boredom.

Yet the proliferation of virtualization and cloud computing in the short term isn't a done deal, although it is inevitable in the long term.  There are significant barriers to true VMotion, virtualization security concerns and change management and compliance requirements only recently being addressed by private companies like Tripwire, 3 Leaf Systems, Xsigo Systems, Blue Lane (my alma mater) and others, who I'll be talking about in future posts.

As VMware reaches beyond virtualization-lite in production data centers and these private players grow, Microsoft will be under increasing pressure by a new crop of application service providers based around the world with new cost structures, new ideas and new access to a growing market enables by cheaper hardware and shrinking endpoint/access requirements.  Applications become as available as electricity and network access.

You can read my disclaimer at About Archimedius.


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