VMware: The Next Microsoft or Netscape?

Aug.17.10 | About: VMware, Inc. (VMW)
The tech industry is in the midst of its next rebound, fueled by the spread of virtualization, the network-connected device explosion and the pending emergence of the new (infrastructure 2.0) network.
In May I wrote about today’s tech triumvirate of Cisco, Microsoft and VMware and how the future of IT will take shape based on critical decisions being made within the walls of these three stellar companies. A call from an analyst this AM sparked an update.
While Google (NASDAQ:GOOG), Amazon (NASDAQ:AMZN), Oracle (NYSE:ORCL) and others could rightfully lay claim to being as influential as Cisco (NASDAQ:CSCO), Microsoft (NASDAQ:MSFT) and VMware (NYSE:VMW), the latter enjoy strategic leverage because of their positions in networking, endpoints and operating systems and virtualization.
These three once distinct worlds (networks, endpoints/operating systems and virtualization) are about to crash together, and I think Cisco and VMware today have the high ground. The faster that Cisco and VMware address the new system/network automation demands, the greater the accessible virtualization market and the higher the margins. The longer they take, the better opportunity Microsoft has of catching up and being close enough to VMware in the all important virtualization and private cloud space.
This means that VMware is poised to establish itself as a premier tech powerhouse, the likes which haven’t been seen since the PC crashed the mainframe party. That leads me to a question posed by a recent phone call with a financial analyst: Will VMware become the next Microsoft or the next Netscape?
The following is inspired by our conversational answer to his question:
Virtualization is the Spark
As virtualization spreads into production data centers it reduces costs and accelerates IT processes. Yet the automation enabled by virtualization eventually runs into networking issues as a critical mass of servers is virtualized. We’ve talked about these issues extensively at the infrastructure 2.0 blog.
Cisco’s Urquhart also blogged about this in fall 2008 in “the network: the final frontier for cloud computing” before most had figured out the critical link between networks and private cloud computing.
The Network is the Fuel
Just as Microsoft embraced Intel and then consolidated once separate arrays of desktop tools and applications onto the consolidated desktop that we know today, it is likely that VMware will embrace Cisco (or another networking player) and unleash a new wave of IT spending driven by the elimination of operating costs and manual process delays in the network and the data center.
VMware could do for the data center what Microsoft did for the desktop and usher in the age of private cloud computing (IT automation) by automating once cumbersome processes.
Yet this age isn’t about the personal computer anymore either; it is more about the network becoming the computer, as forecasted by Oracle’s Larry Ellison and others. The network is already being populated by ever larger population of mobile devices, the next wave of computerization:

More than 1 billion mobile devices will access the Internet in the New Year, research firm International Data Corp. (IDC: 33.83 +0.03 +0.09%) says. That’s catching up to the 1.3 billion users that use a PC to go online, and the rate of growth for mobile users is 2.5 times the growth rate for PC use. --- Daily Markets Feb 6, 2010

As more devices are attached to the network -depending on it for connectivity with hosted applications- the network, in effect, becomes the “motherboard” for thinner and thinner applications running on ever more specialized and consumerized form factors, including sensors and specialized tools and appliances. Cisco’s new Cloud CTO Lew Tucker said as much when he talked about IT expenses increasingly tracking to the cost of electricity. He echoed previous statements about the network becoming the computer.
This all makes Cisco and the Acadia partnership ever more interesting, ever more relevant to the shape of IT. IT automation (enabled by network automation) is a game changer.
The short answer: If VMware can grow the virtualization market beyond today’s network limitations it will increase differentiation, increase the virtualization payoff (further increase the market) and forever change the landscape of the enterprise tech industry. If it doesn’t then others (likely Microsoft) will be close enough to crash their party; and they could get “Netscaped.”

Disclosure: No positions