VMWare and the change of the SW industry

On Tuesday I went to the talk of Bill Shelton, Sloan alumni and director of VMWare. VMWare is a Stanford spin-off that supplies proprietary virtualization software for computers. The company was founded in 1998, went public last August and has a market cap of ~$6.7B. The stock was initially priced at $29 per share and today (less than 2 months later) the price is $88 (the first day already closed at $51). This is one of the fastest-growing businesses in the history of the software industry and probably it has had the biggest and buzziest IPO in the hotbed of technology since Google went public in 2004.

The talk was about virtualization and how it changes our lives. Some interesting points (or vectors of disruption, as he called them):

• With virtualization, you get ~500% improvement of ROA (for your HW)
• It is easy to do continuous workload balancing as demand varies
• It is possible to do application mobility (e.g., follow the sun scenarios)
• New security paradigms, as you may have SW of Pepsi and Coke on the same machine
• Billions of revenues now under stress of new deployement model!! a new paradigm for SW companies since now the SW will be tied to the user instead of the physical machines

He was very confident about the company and the made us believe that VMWare is really changing the SW and HW industries. In particular, he mentioned that if we work in a large SW company doing strategy, we will more likely end up analyzing the effect of virtualization into the SW market. And a good sign of the interest that others have shown in VMWare is the $250M that Intel invested in VMWare (despite of VMWare competing with Microsoft, their number 1 partner).

During the Q&A, there was an interesting discussion about the risk and difficulty to introduce VMWare products (or any innovative product in general) into large corporations. Especially for applications like payroll or exchange. There is a clear risk in early technology adoption and corporation do not want to use virtualization but to leave these applications on one box. The reason is that when there is a problem,  people like to hear that it is caused by known things like a driver and not a problem of a new product called virtualization.

Comments

[Francisco]

Interesting. This is the sort of things you would not be enjoying in Madrid... :-)