Wed, July 23, 2008 — IDG News Service — VMware Tuesday said it will offer the small-footprint version of its ESX virtualization software free, responding to pressure from Microsoft and other companies that are threatening VMware's lead in the virtualization market.

The next version of ESXi, which will come in about two weeks, will be available at no cost, said VMware CEO Paul Maritz on a conference call Tuesday to discuss the company's second-quarter earnings. ESXi is a basic hypervisor, which is technology that separates the OS from server hardware so multiple OSes can run virtually on one physical server.

Maritz said the move to make the already low-cost product free is part of VMware's plan to make its virtualization and network infrastructure products "as freely available to everyone in the industry" as possible as it diversifies its products beyond merely enabling virtualization. A former Microsoft executive, Maritz replaced VMware cofounder and former CEO Diane Greene, who was ousted in a sudden move two weeks ago.

VMware is facing some of its toughest competition yet as Microsoft and other companies seek to commoditize the core virtualization technology on which VMware's business was built by offering it as part of the OS.

Speaking about his "alma mater" Tuesday, Maritz called Microsoft a "formidable" competitor, but "not an invincible" one.

"I know that Microsoft can afford to play a long waiting game," he said. However, in markets where another company already has a sizable lead -- such as VMware does in virtualization -- it can be "really hard to catch [up] even for Microsoft," Maritz said.

VMware reported US$456 million in revenue for its 2008 second quarter, which ended June 30. It was an increase of 54 percent from the same period last year. However, consensus estimates from Thomson Financial analysts expected the company to fare slightly better, predicting $458.6 million in revenue for the quarter.

Non-GAAP (generally accepted accounting principles) net income for the quarter was $92 million, or $0.23 per diluted share, which was in line with analyst estimates.

VMware fell more than 14 percent from a close of $37.97 to $32.50 in after-hours trading Tuesday.

VMware Tuesday said it will offer the small-footprint version of its ESX virtualization software free.