VMware Counters Microsoft, Will Make ESXi Hypervisor Free

New CEO Paul Maritz, who took over the CEO reins from Diane Greene in an abrupt changeover July 8, timed the ESXi announcement with VMware's 2Q earnings report.
It its first move to counter Microsoft's Hyper-V, VMware will make its ESXi hypervisor available for free, effective July 28. The ESX hypervisor was once the core of the VMware product line. Until Monday, it will still be priced at $495 copy. The ESXi version represents a version of ESX that's easier to install and use.

The move to free ESXi downloads counters Microsoft's effort to propagate its Hyper-V hypervisor, now available as a $28 feature in Windows Server 2008. While the rest of the VMware price list will not change, the ESXi move will "seed the market" with VMware's core product and give customers a chance to experiment before buying VMware's higher-end products, such as Virtual Infrastructure 3 and Site Recovery Manager, VMware officials said.

That price list runs from $995 for Virtual Infrastructure 3 Foundation Edition to $5,750 for Virtual Infrastructure 3 Enterprise Edition. Site Recovery Manager is part of a management and automation bundle priced at $3,995.

New CEO Paul Maritz, who took over the CEO reins from Diane Greene in an abrupt changeover July 8, announced the ESXi move at VMware's second-quarter 2008 earnings report to Wall Street analysts this afternoon.

Asked what moves he planned to make with the company, Maritz in a Webcast said, "I'm still learning about this company. It would be presumptuous to say I know what changes are needed.

"One thing I can say," he continued, "is we are becoming a large software company and must be able to execute on multiple fronts at the same time. That requires a certain empowerment of the leadership underneath me and crisp decision making."

He said his efforts in the first days of assuming office were to "get to know the technical employees of the company. I hope to weather the transition [of CEOs] with as little negative impact as possible. "

At a later point in the Webcast, he added, "This is an exceptionally talented workforce. I know from my days at Microsoft, the employees' level of I.Q., energy, and passion are as good as anything I saw at Microsoft."

Maritz is a former senior VP and member of the executive committee at Microsoft, where he worked for 14 years and helped manage the marketing of Windows 95 and Windows NT. He joined EMC in February when it acquired Pi Corp., a company dedicated to building personal software for use in cloud computing.

Bogomil Balkansky, senior marketing manager, said dropping the $495 license price for ESXi to zero will "accelerate adoption of VMware virtualization products and help companies get to 100% virtualization in their data centers." While VMware is the current market leader, with $1.3 billion in revenue last year, much of the potential market for virtualization products remains untapped, especially among small and medium-sized businesses that are just getting started.

Balkansky said the downloadable ESXi has been given special features for ease of installation and use. "We've made strides in that area with ESXi," he said. In addition, ESX and ESXi will remain examples of mature and stable hypervisors "with a slim footprint." In addition to the free download, VMware has negotiated deals with Dell, IBM, and Hewlett-Packard that ESX will ship on servers they manufacture and configure as part of the hardware.

In the meantime, he took aim at Microsoft's assertion that virtualization belongs in the operating system. VMware remains the independent source of virtualization "with no strings attached," he said.

VMware reported its second-quarter earnings today, with revenue totaling $456 million, a 54% jump over the same quarter of 2007. Operating income as determined by generally accepted accounting procedures, was $61 million, compared with $47 million for the same period last year.

VMware reported a sharp jump in services revenue, which includes subscriptions, technical support, and professional consulting services, to $172 million, an increase of 85% over the same quarter the previous year. But VMware officials noted some weakening of its enterprise level licensing agreements in North America. U.S. revenue grew 43% compared with international revenue, which grew at a rate of 68%.

At the end of fiscal 2007, former CEO Greene projected 2008 revenue would grow at a rate of 50%. In the second-quarter report, Maritz projected 2008 revenue will grow at a rate of 42% to 45%.

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