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http://www.businessweek.com/stories/2008-11-13/vmwares-lofty-cloud-computing-goalsbusinessweek-business-news-stock-market-and-financial-advice

Technology

VMware's Lofty Cloud Computing Goals


Former Microsoft executive Paul Maritz is now determined to turn his new employer, VMware, into a leader in cloud computing

As the No. 3 executive at Microsoft, Paul Maritz presided over the company's Windows juggernaut, turned aside threats from Netscape and Sun Microsystems (JAVA), and pressed the company to embrace the Internet. Now, the longtime software executive is looking down Microsoft's barrel from the other end, trying to help his new employer, VMware (VMW), triumph where past Microsoft competitors fell short.

In his new role, Maritz is leading VMware's charge in the mounting battle over cloud computing, the trend that's leading companies to shift computing power away from their own machines and into the hands of tech powerhouses such as Microsoft (MSFT), Google (GOOG), Amazon.com (AMZN), and Salesforce.com (CRM). VMware wants to be a player in cloud computing, too, and Maritz, CEO since July, is undertaking a major engineering project to try to get there. "That says to Microsoft, 'We're coming right after you,'" says Jayson Noland, an analyst at Robert W. Baird who has a neutral rating on VMware.

VMware needs some victories. In less than a year, it has gone from hypergrowth business success story and stock market darling to a company whose slowing growth and plummeting shares led to the ouster (BusinessWeek.com, 7/8/08) of its former CEO and co-founder Diane Greene. Shares of VMware slumped 1.22, or 5%, to 22.42 on Nov. 12.

VMware held 2007's most successful initial public offering by specializing in virtualization software that helps companies cut costs by making more efficient use of their computers. Now, VMware needs to show customers and investors that it can move beyond virtualization and remain worthy of a chunk of companies' tight tech budgets while avoiding a competitive onslaught from Microsoft. "If VMware just coasts on its past achievements and lets Microsoft catch up, it will have a problem," says a former Microsoft executive, who asked not to be identified as he maintains ties to Maritz. "But I don't think you'll see them sit still."

Making His Mark

Maritz is on the move. "In technology, if you stand still, eventually your value proposition evaporates," he says, holding forth in a sunlit conference room at the company's Palo Alto (Calif.) headquarters. On Nov. 10, VMware announced it had bought the French company Trango Virtual Processors, moving it into the market for software that powers mobile phones. In late October the company launched its first advertising campaign, featuring customer testimonials. Even competitors say Maritz is already making his mark. "He's a great hire for VMware," says Marc Benioff, CEO of Salesforce.com. "He understands where VMware should go."

Next stop: an ambitious project called the "Virtual Data Center Operating System," a complex piece of software that promises to help companies make their IT operations even more efficient by acting as a traffic cop among their hundreds of servers, disk drives, networking devices, and applications. VMware has hundreds of engineers working on the system, scheduled to make its debut next year. It's designed to position VMware as a technology "platform" for cloud computing, around which other companies could add capabilities and build their own businesses. "VMware is one of the few companies in the industry that can aspire to have a platform," Maritz says. "There will be three or four credible players in that marketplace, and we plan to be one of them."

When Maritz was the highest-ranking Microsoft executive behind Bill Gates and Steve Ballmer, he was known for an intellectual, deliberate style that helped fend off competition while mediating between warring factions at Microsoft. "Paul is not one of those Ballmer types who says, 'We're going to destroy and gut them,'" says Tod Nielsen, CEO of Borland Software (BORL), who spent 12 years at Microsoft in the '80s and '90s. "He likes to be behind the scenes."

One area where Maritz excelled was turning Microsoft's products into platforms, which made those products all the more indispensable to customers. "The more people can do on your platform, the more they want to use it," says Michael Cherry, an analyst at consulting company Directions on Microsoft. The same could hold true at VMware. "They have elements that can define the next computing platform," Nielsen says. "That's what Paul loves."

A Leader in Philanthropy

Maritz, 53, was born and raised in Zimbabwe, where he still maintains a ranch; he was educated in South Africa. Since leaving Microsoft in 2000 after 14 years, he's been involved in philanthropic projects and is chairman of the Grameen Foundation, which makes microloans mainly to poor women in Africa, and stems from the work of Nobel Peace Prize winner Muhammad Yunus. This year, Maritz took a job at EMC (EMC), which owns most of VMware's stock and controls virtually all of its voting rights and board, after EMC bought Pi, a startup Maritz had headed.

Near the end of Maritz's Microsoft tenure, tensions were mounting. Executives Brad Silverberg and Jim Allchin were fighting over how quickly to embrace the Web and possibly imperil the company's desktop dominance, and Maritz was under pressure from Gates and Ballmer to settle the dispute, according to Nielsen. Meanwhile, he was called as a witness in the government's landmark antitrust case against the company. "His life was not fun," says Nielsen. "We had a couple of hard years trying to find our way through all the bad news." Maritz won't talk about his Microsoft tenure, but Nielsen and others say he left on good terms and stuck to his guns by developing the company's Web-oriented .Net products.

Microsoft isn't the dominant company today that it was in the '90s, but it's running on new fuel since Maritz left. It has pulled out an old weapon against VMware, folding similar features of its software into Windows, and giving them away free to customers that buy server versions of the operating system. Analysts say the competition will likely cut into VMware's pricing power and market share; Wall Street expects the company's sales this year to rise 42%, to $1.88 billion (BusinessWeek.com, 10/21/08), vs. 88% growth in 2007.

Meanwhile, Microsoft is making its own cloud computing push, developing software called Windows Azure (BusinessWeek.com, 10/28/08) that covers some of the same ground VMware aspires to conquer. Mike Neil, Microsoft's general manager of virtualization, dismisses a threat from VMware, calling the company's cloud computing initiatives "a branding exercise."

A Cloud Advantage?

Maritz acknowledges Microsoft's clout. "I have a deep appreciation for what Microsoft is and what they can do," he says. Yet he sees an opening for VMware's cloud platform as an alternative for companies that don't want to limit themselves to writing Windows software, for example by working with Linux and other open-source software.

Maritz could face a tough task assembling an ecosystem of developers around VMware, partly because introducing a new software platform that hardware and software companies need to support will cost them extra development time—a scarce resource at a time when industry profits are under pressure. "If Maritz gives me yet another derivative [operating system], I will roll my eyes," says Steve Mills, the senior vice-president in charge of IBM's (IBM) software group.

Maritz hasn't wielded his tech-industry prowess on as important a battlefield in eight years. The computer industry is watching to see whether he still carries as big a stick.


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