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EMC, Microsoft lend credence to virtualization

EMC's bid for VMware Inc. and Microsoft's earlier purchase of Connectix Corp. have given a major boost to software that creates virtual computers.

IT professionals who use virtualization software made by VMware Inc. applauded the company's proposed acquisition by storage vendor EMC Corp., but they also offer some concerns about the future of the product's pricing.

On Monday, EMC, a Hopkington, Mass.-based maker of data storage products, announced its plans to acquire VMware, Palo Alto, Calif., for $635 million in cash. VMware is one of the leading makers of virtualization software.

"It's a tremendous endorsement, not that the concept needs much endorsing," said Jonathan Eunice, president and principal analyst at Illuminata Inc., a Nashua, N.H., consulting firm.

Many customers think virtualization is the wave of the future and that it will change the way systems are built. "Today, the question is: Should this be a virtual machine or not?" said one IT executive from a Northeast publishing company who asked to not be named. "In two years, the question will be: Why does this need to be a physical machine? Why can't it be a virtual machine?"

Before EMC's announcement, it was widely expected that VMware would file an IPO in 2004. The IT executive said that he had some misgivings about the fact that VMware was purchased by a storage company because virtualization is outside of EMC's normal field of expertise. "Also, EMC is not known for uncomplicated pricing, and I'm a little concerned about what that will do to VMware's pricing model," he said.

Indeed, Eunice said that EMC products have historically been a high-priced, high-margin value proposition, although the company says that it is changing its pricing strategy. "[EMC] has gotten the fact that optimization is the gestalt of the age, but you have to wonder," Eunice said. "VMware is a product that has been about reducing cost of ownership, and that's not something EMC is known for."

But another company is hoping the acquisition will bring some pricing synergies. "We are a huge EMC shop, so we hope we can get a better deal when we bundle the two together," said Suraj Dalal, a senior systems engineer at New York-based Guardian Life Insurance Company of America.

Dalal said that Guardian has had 250 virtual machines running in production for more than two years. The company uses virtualization for Windows NT 4.0 and Windows 2000 consolidation, for disaster recovery and for quality assurance testing.

"The fact that VMware is going to be a complete subsidiary of EMC is the best thing that could have happened," Dalal said. "They will play no favoritism to any hardware vendor."

One of VMware's products, GSX Server, competes directly with some software sold by Microsoft. Redmond bought the virtual machine software assets from Connectix Corp. earlier this year. The software lets customers run multiple operating systems on one machine. VMware differs because it also makes products that support Linux.

"The Microsoft buy of Connectix was a shot over the bow to VMware," Eunice said. "It portends the future commoditization of system virtualization. But when you look into the Connectix deal, Microsoft will not be in the business of supporting Linux."


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