By William Van Winkle		  
 
IN AUGUST, AMID THAT HIDEOUS stock market sell-off, VMware launched its IPO, rocketing from 48 to over 66 in just one week while the rest of the market did its best impression of a manic-depressive seizure. VMware has been called “the next Google” by some, and it’s no coincidence that Citrix snapped up another virtualization heavyweight, XenSource, that same week. XenSource signed a partnership deal with Microsoft a year ago that would let Xen-based Linux boxes interoperate with Microsoft’s forthcoming Windows Server Virtualization hypervisor (code-named Viridian). But now with Citrix doing a Tantric embrace with Xen, Microsoft has a fresh enemy on the virtualized desktop front. Not immediately, of course. As the new kid in virtualization, Microsoft will want Viridian to play nice with everybody else on the block. Microsoft will learn the ropes, earn its allies, adopt the best elements from its competitors, then, in good Microsoft fashion, probably aim to obliterate the field with its third-generation offering.

The point is that there’s a ton of activity in virtualization, and the entire industry seems to be jockeying for position over what is currently only installed on a single-digit percentage of systems. To some, this seems like a lot of hoopla over nothing. After all, media center PCs were supposed to be all the rage, but you still don’t see them in living rooms. The trouble with living room media center systems is that they violate a few key tenets of successful technologies. Anyone who has been in this industry long enough will recognize a few basic truths:

1. When consolidation can offer 80% more value for only a 20% or less cost increase, count on it to happen. Look at integrated graphics. Intel doesn’t make a single discrete graphics chip (yet), but the company is the largest graphics vendor in the industry. Integrated network adapters. Integrated audio. Software-based RAID. When you can increase functionality for pennies, the market will demand it as a must-have bullet point, even if that feature set goes largely under-utilized or unused.

2. Most transistors in modern chips sit around wondering if they can collect unemployment. As pointed out in this month’s cover story, AMD notes that most servers are only using 15% of their total processing bandwidth. With four apps and 11 browser tabs open, the original-generation Centrino notebook I’m typing this article on is using only 13% to 25% of its processor bandwith. That’s a single core, 1.7 GHz Pentium M chip, mind you. Hit CTRL+ALT+DEL on the nearest PC and see if your experience is similar. The MIPS arms race is alive and well. The trouble is that few people need all of the bandwidth at their disposal.

3. There are two kinds of devices: single-purpose and general-purpose. Single-purpose devices can span the entire price gamut. You can have a $30 Timex or a $13,000 TechnoMarine; all either one does is tell time. But the trend in general-purpose devices is to have more functionality for less overall expense.

Media center PCs in the living room were general-purpose devices being shoehorned into a single-purpose role, which in turn fought against point #1. And in general, all the MIPS in a media center box were sitting around idle. With virtualization, though, you have general-purpose PCs and servers leveraging convergence, unused bandwidth, and increased functionality for less money. It all adds up to the inevitable widespread adoption of virtualized machines across nearly all segments. You see it on servers today. You’ll see it in desktop scenarios, such as a Symantec-driven virtualized security appliance built into a regular productivity PC. (This is expected with the arrival of Weybridge, Intel’s second-generation vPro platform, later this quarter.) You see it with enthusiasts ranging from Mac users wanting to simultaneously run Windows via Bootcamp to everyone who used to build multi-boot configs and can now run their OSes as virtual machines. Sure, the business appeal of virtualization far outstrips the consumer appeal, but isn’t that how technologies always start out?

Every analyst seems to have an opinion on the prospects for virtualization, and given the lack of a track record, there may be more crystal ball than crystal clarity about these numbers. But here are a few: In May, Gartner predicted that today’s 500,000 virtual machines will rise to 3 million by 2009, and by 2015 virtualization will impact nearly every facet of IT. In July, Intel noted that 25% of enterprise data centers will be virtualized by 2010. Also in July, IDC foretold that the 7% of servers currently virtualized will jump to 50% by 2011, adding that this number might be a bit conservative. Just after this, the dark side inevitably reared its head with Bernstein declaring that, because of virtualization, x86 server shipments will tumble from double-digit gains to zero unit growth between 2007 and 2012.

With that last point, a lot of systems resellers will probably grit their teeth and worry for the future of their box business. I would. So I sought out Carl Eschenbach, executive vice president of worldwide field operations at VMware, and asked him if virtualization inherently posed a real revenue threat to system builders. Obviously, the company has a biased interest in virtualization. Sanford Bernstein analyst Toni Sacconaghi pegs VMWare’s market share at about 85 percent. The company has over 20,000 users, 100% presence in the Fortune 100 and 84% presence in the Fortune 1000.

“We actually accelerate technology purchases through our VARs,” he replied. “VMware’s value proposition saves customers huge amounts of money and frees up their budgets to go buy new technologies, like new servers or NASes or SANs. They’re not just selling a standalone server. They’re selling beefier boxes to support virtualization along with all the storage associated with it and services around it. There really is no threat to partners to sell less hardware.”

I disagree to a point. A business needing a SAN is going to implement one regardless of whether or not its servers are virtualized. I’m also skeptical of the “beefier” server hypothesis given that so much bandwidth goes unused even today. Intel is pushing hard to plant quad-core chips into dual-core price bands, and virtualization enhancements are now a given. You might get a bump on the memory count, but that’s like counting pennies in the big scheme of things.

No, the counterbalancing revenue starts with licenses. According to IDC, $1 billion in server virtualization licenses were sold last year. That number should triple by 2010. Then come the services.

“A dollar spent on VMware licenses will typically ‘drag’ along four to six dollars in services,” says Eschenbach. “When people implement VMware for the first time in their data center, 70% of the time on average, it connects to network-attached storage on that server. So people are selling consulting services around the entire data center—NAS or the rearchitecture of the data center or their switch fabric—while they’re selling new hardware into the account.”

So is virtualization a revenue killer? Not at all—if you’re a solutions-oriented reseller. If you’re a whitebox shop in the habit of selling PCs and servers with little else, virtualization has doom and gloom written all over it. Ultimately, virtualization is about more bang for the buck, and that’s what all buyers in every market segment want. If you’re not providing that extra bang, the guy down the street will.

This means you need to get up to speed in a hurry. One very aggressive forecast by the 451 Group predicts that 2007 is the year virtualization will explode and that the server market will be saturated by 2010, so there’s no time to lose. You need to pick one or two virtualization vendors, get educated, and dig into selling.

You might suppose that getting trained on virtualization deployment would be a long, convoluted process, but it doesn’t have to be. VMware has its VIP reseller program featuring three tiers: Professional, Enterprise, and Premier, with the higher levels requiring more commitment in expertise and customer support. Until just recently, this meant that Professional members didn’t have access to VMware’s entire product portfolio. As of August, that changed. Now, all it takes is about six hours of online tutorial and testing to become certified as a VMware Sales Professional. According to Eschenbach, resellers who complete this training often start selling within 72 hours and closing deals in only one to two weeks. Resellers can get additional education as well as tech support through the Partner Resource Center.

Of course, it makes sense to be able to demonstrate the benefits of virtualization first-hand. A server running four virtual machines, each with a different application set, is persuasive, especially if you can make one virtual machine crash on demand and illustrate how none of the others are impacted. From there, it’s a snap to bring in the storage, redundancy, and rebuild aspects of a virtualized solution. Or, harkening back to last month’s discussion of PC blades, show how one server host running VMware’s Virtual Desktop Infrastructure (VDI) can power a fleet of thin clients and do the job with more security and manageability than conventional thin client models. If that all sounds too cumbersome, consider offering people with new PCs a copy of the free VMware Player, which allows a system to run multiple guest OSes in the form of virtual disk images produced by other VMware products. Many of these are free and community-developed. This might seem like a play for enthusiasts, but what parents wouldn’t value an isolated virtual machine for their kids to use for Internet access?

“If you look at virtualization today, not very many people have implemented it,” says Eschenbach. “There’s a huge market opportunity, and there’s not a lot of expertise that exists within the customer prospect base. Therefore, there is significant upside in value for our partner community when it comes to selling services. It’s not just about selling a hardware server that’s maybe running virtualization on top of it. It’s about how you’re going to implement it and change the architecture and the dynamics of your data center for the use of this technology. Because it’s so new to some folks out there—and this is even true of the SMB market, where we see one of the largest opportunities. I think all types of resellers can enjoy success with our success with our products, and with the service offerings around VMware, they can enjoy even richer margins.” 		 
         
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