VMware Ousts CEO Diane Greene

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This year has been rougher. In January, VMware shares fell 34% in one day (BusinessWeek.com, 1/29/08) after the company reported a shortfall in sales and issued a disappointing 50% sales-growth target for 2008. Based on that forecast, analysts were expecting VMware to post sales of $2 billion this year, up 51% from 2007. On July 8, the company said this year's sales would miss even that estimate. Tucci says companies have been scrutinizing deals longer as the U.S. economy stagnates, adding that VMware would provide more detail on the outlook when it reports second-quarter earnings July 22.

Microsoft and Other Challenges

Competition has also intensified. In June, Microsoft (MSFT) released competitive software called Hyper-V. Sun Microsystems (JAVA) and Oracle (ORCL) have also announced plans to include virtual machine software with their products.

Maritz says he'll defend against the threat to VMware's current lineup while navigating toward the emerging cloud-computing market. "I'm the last person to underestimate Microsoft," says Maritz, 53, who spent 14 years with the company before departing in 2000. More recently, he headed a cloud-computing startup called Pi, acquired by EMC in February. "On the other hand, there's no magic there. There's no fundamental secret of writing software that they know and no one else knows. I'm not overawed by competing with Microsoft."

VMware is already developing software to help companies access computing power and applications that reside outside their data centers, says Maritz. "We're in the nascent stages of this. This will play out in the next two to five years."

By elevating Maritz, Tucci has placed a confidant in charge of what's arguably EMC's most valuable asset. Maritz had helped lead development and marketing of Windows 95 and other versions of Microsoft's flagship operating system, He has known Tucci since 1994, when Tucci was CEO of now-defunct computer company Wang Laboratories, which had sued Microsoft for patent infringement, the executives said. Microsoft wound up buying a stake in Wang and licensing some of its technology.

Greene Refuses to Stay On

Greene, 53, co-founded VMware in 1998 with her husband, Stanford University professor Mendel Rosenblum, and sold the company to EMC for $635 million in 2004. But she locked horns with her corporate parent over issues ranging from industry partnerships to the cost of VMware's eco-friendly headquarters in Silicon Valley. In the past several months, VMware has hired key technology and marketing executives to assist Greene amid talk that the company was searching for a replacement. VMware didn't make Greene available for comment. Through a spokeswoman, she declined to respond to a direct request for comment.

Tucci says EMC's eight-member board, six of whom are now EMC employees or directors, tried to persuade Greene to stay in a capacity other than CEO, even offering her the chance to design her own job. But she was unwilling to remain onboard with less than her full former powers, Tucci says. "We were unable to get that accomplished, very unfortunately. We wanted that to happen as a board."

Maritz brings new blood to VMware, and will try to right its stumbles. All the while he'll need to navigate what is for many tech companies an even bigger challenge—transitioning to outside management from a team led by the founders.

Ricadela is a writer for BusinessWeek.com in Silicon Valley.