IDC: Virtualization's March To Cloud Threatens VMware

VMware has a firm if fading grip on the server virtualization market, but according to IDC analyst Al Gillen, virtualizaton serves as a convenient on-ramp to private cloud, which in turn leads to the public cloud. Is VMware paving IT's path to Amazon, Microsoft Azure, Rackspace and other public cloud providers?

Not exactly.

Virtualization: Still Relevant, Mostly VMware

According to Gillen, who spoke at the Open Business Conference (OSBC) in San Francisco earlier this week, VMware continues to dominate the virtualization market, with just under 60% market share. VMware's installed base, coupled with CIO resistance to change, mean that VMware's hold on virtualization should persist for years. 

That's the good news.

The bad news is that VMware faces fierce competition from Microsoft's Hyper-V, currently claiming over 25% of the market, as well as a strong and growing threat from KVM, now bolstered by a rising OpenStack. KVM deployments grew 50% last year, according to IDC. Xen, the other open-source virtualization alternative, remains robust but isn't growing as fast, though its move to the Linux Foundation may help to revive its growth.

By themselves, however, none of these virtualization competitors poses much near-term risk to VMware. Of far greater importance is a distinct trend toward multi-hypervisor environments, as well as an enterprise shift from virtualization to cloud.

Each of these trends threatens VMware.

Multi-Hypervisor Trend No Friend To VMware's Cloud

According to Gillen, some 15% of enterprises deploy multiple hypervisors today, but Gillen expects that number to double in the next one to two years, with cost being a primary driver for experimentation with new virtualization technologies. The more enterprises experiment with non-VMware virtualization technology, the more likely they will also diverge from VMware's cloud offerings.

Why? Because virtualization is a clear precursor to cloud adoption.

According to IDC's Platform Migration MCS, January 2012, roughly 80% of servers that enterprises are migrating to the cloud are already virtualized, rather than being virtualized as part of the migration. Often, enterprises will rely on their virtualization vendor to walk them into the cloud, with private clouds the first stopping point on the way to public clouds.

As such, VMware has actively been building out both private and public cloud options, creating a clear "upgrade" path for its enterprise buyers. As Matthew Lodge, VMware'e vice president of Cloud Services, emphasizes, VMware enables enterprises to stitch together “what they have in their data centers and their public cloud instance.” All running on VMware technology.

It's a compelling strategy, one also being adopted by Microsoft (Windows Server + Hyper-V + Azure) and Red Hat (Red Hat Enterprise Linux + Red Hat Enterprise Virtualization + OpenShift or OpenStack), among others. 

Virtualization Not The Only Path To The Cloud

But not all workloads follow this single vendor path. Indeed, Gillen cited IDC's 2012 Cloud System Software Survey, which found that transitions to the cloud allow vendors to "sell cloud system software on its own merits and embed a hypervisor as part of the package." Some 53% of those surveyed indicated that they were using a new hypervisor in their cloud deployment, compared to the 47% using their existing technology. 

In Gillen's words, this "opens the door for non-installed alternatives such as KVM into VMware-dominated shops." 

This is particularly true for new applications that are born in the cloud, especially public clouds, rather than old workloads being migrated there. We're already seeing a class of applications skip the private cloud altogether, starting up on public clouds like Amazon. And while many enterprises still haven't dipped into the cloud, it's interesting to see what little variance there is between private and public cloud adoption:

Add to this Rightscale's finding that 77% of enterprises are using multiple clouds, and it seems doubtful that any vendor will be able to gently lead enterprises from its virtualization technology to its cloud. Fragmentation is the norm.

The Cloud? It's Complicated

VMware isn't going away anytime soon, in part because the enterprise moves slowly, and in part because VMware has a compelling cloud story for enterprises when they do decide to graduate from simple virtualization to private and public clouds.

But that "graduation" path is messy, with plenty of room for enterprises to find their way to different hypervisors and competing clouds. For these reasons, the virtualization and cloud markets may well be among the most competitive technology markets we've seen in a long time.

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