VMware recently reported revenue growth of 20% in its third quarter ended Sept. 30. It projects revenue growth for the year of around 21% to 22%. That means it will close out the year with total revenues close to $4.5 or $4.6 billion, compared to $3.8 billion last year. Pretty good for an enterprise software company facing "tough macroeconomic conditions," as co-president Carl Eschenbach phrased it. Or is it?

Net income is up only 3%, to $540 million from $524 million, for the first nine months of 2012 compared to 2011, which means gaining that 20% revenue growth is costing VMware something.

It's possible the spread of server consolidation around the world is still the main fuel behind VMware's revenues. That trend is so widespread that VMware's international revenues now exceed those produced in the U.S., $580 million in the third quarter versus $554 million.

VMware's goal both here and abroad, however, is to participate in two of the fastest growing software markets in the world, data center virtualization and cloud computing. VMware doesn't separate revenues by product lines, so it's not possible to say how much each one contributes to the revenue stream.

Investing in both markets is a good idea, provided the investment in one of them doesn't yield too low of a return for too long a period. Virtualization and cloud are distinct markets, no matter how much vendors, and sometimes customers, tend to refer to the two interchangeably.

[Want to learn more about how OpenStack challenges VMware? See Great Open Source Cloud Debate Rages.]

Both are prime sources of future revenues; both are being driven in part by the same recessionary forces Eschenbach referred to. If you need greater efficiency in the data center, server consolidation through virtualization is a way to get it. Likewise, if you want to undertake new initiatives without incurring an IT capital expense, cloud computing is a way to do it. In that sense, the recession has been a VMware ally as well as a check on its progress.

But if VMware was doing fine in both markets, wouldn't its revenue growth continue closer to last year's 32% increase?

Spending on cloud computing, for example, is growing at a fast clip. Forrester Research earlier this year said it amounted to $40.7 billion in 2011 and would reach $241 billion by 2020. That would reflect an annual increase of 25% over that period. The 451 Group's Market Monitor says spending on cloud computing is growing at an annual rate of 24%; health care industry analysts say spending on medical imagery based in the cloud is growing at 27%. Then there's the hot area of spending on software as a service for mobile device users, growing at 25.8% annually.

So is VMware's 20% in the third quarter or 21%-22% for the year good enough? If it's headed for a similar dip in fiscal 2013 as it's experiencing this year, then the answer is probably no. There'd be no such dip if VMware was racking up gains in both markets at the level that it has set for itself. VMware isn't dabbling. It set out to dominate virtualization in the data center and has done so. It likewise set out to dominate cloud computing, using the virtualized data center as a stepping stone to private cloud.

The weak link in VMware's strategy is probably the cloud, not the virtualization set of products. For example, Cloud Technology Partners is a firm set up to direct cloud implementations for large companies, such as State Street Bank. CloudTP VP John Treadway noted in a recent blog, the cornerstone of VMware's vCloud Suite is vCloud Director, its workload commissioning and management product. It "is not really all that widely used in the enterprise. (I have yet to find a production vCloud Director cloud but I know they exist). Sure, there are plenty of vCloud Director installations out there, but I'm pretty sure that adoption has been nowhere near where VMware had hoped."

That may be because VMware is still investing for the future, preparing the ground for future customer expansion into cloud computing, and expecting that customers will eventually catch up with it. On the other hand, customers may also be wary of embracing that next step, moving from ESX Server-based virtualized data centers to on-premises, private cloud operations based on VMware, which in turn is linked to an external, VMware-like public clouds.

The cloud landscape is beginning to yield other options, with three coming out of the open source realm: Eucalyptus Systems, which is Amazon API-compatible private cloud software; CloudStack, a packaged set of software from Citrix, now an Apache Foundation project; OpenStack, a broadly backed open source project taking on some aspects of a unifying platform for many vendors.