Profiting From Virtual Reality

05/20/2008 12:00 am EST


Tobin Smith

Founder and Chief Research Analyst, Transformity Research LLC

Tobin Smith, founder of ChangeWave Research, says virtualization saves energy and increases enterprises’ efficiency, and VMware is the big leader in the field.

The message we've been receiving from the information technology (IT) world is clear: Corporations are spending on the essential hardware and software, but they are being very careful when it comes to everything that falls below that threshold.

In a depressed business spending environment, virtualization is one of the only software [sectors] showing a [likely] increase in corporate purchasing. (Virtualization makes it possible to run multiple applications and operating systems on the same computer, increasing efficiency—Editor.) The prime reason virtualization remains a high priority in IT planning is because it's a means of delivering efficiency and cost savings to the data center.

According to VMware (NYSE: VMW), for every server virtualized, customers can save about 7,000 kilowatt hours (kWh), or four tons of CO2 emissions, every year. VMware has virtualized more than six million server workloads since 1998, resulting in an estimated energy savings of nearly 39 billion kWh—or about $4.4 billion—roughly equivalent to the total energy consumption of Denmark for one year!

Recent ChangeWave Alliance surveys have shown a sharp slowdown in US business software spending, and our April results are no exception. However, the bright "green" spot in the midst of all this gloom is increased corporate spending on virtualization.

VMware has strengthened its domination over the virtualization software market—with its share rising 12 percentage points in our latest ChangeWave survey (from 58% in January to 70% currently).

None of the other major competitors have exhibited anything like this explosive growth. We note, however, that Citrix Systems (Nasdaq: CTXS) also showed a strong five-point move to 26% in current share, while Microsoft (Nasdaq: MSFT) jumped three points to 22%.

Customer satisfaction results also bear out VMware's dominating position in the industry: 56% of its customers said their firm is "very satisfied" with VMware's virtualization products, the highest rating among major vendors. IBM (NYSE: IBM) came in second with 49%. Citrix (25%) and Microsoft (12%) received significantly lower satisfaction ratings.

Finally, we asked about which virtualization vendors companies are planning to purchase or upgrade virtualization software or services in the next six months. VMware once again reigned over the competition.

Looking ahead, while 12% said their company will purchase virtualization products in the next six months, among this group VMware has better than a fourfold lead in planned purchases over its next closest competitor, Microsoft.

VMware remains the clear leader here, with a skyrocketing current market share and extremely strong planned purchasing momentum going forward. And it's still early in the game for VMW, which has several catalysts on the horizon including virtualization increased OEM channel distribution, broader deployments in the enterprise, and virtualization in other technologies beyond servers. (The stock closed above $69 Monday, more than 40% off its 52-week high—Editor.)

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