Why EMC Showed VMware's Greene the Door, Hired Microsoft-Savvy Scrapper

With the release of Hyper-V, the contest between Microsoft and VMware stopped being a footrace and started being a hockey game. And Paul Maritz looks more like the kind of guy who can scrap it out in a corner than Diane Greene, no matter how well she's done by VMware and its customers until now.

VMware parent company EMC isn't saying much about why it decided to replace VMware founder and CEO Diane Greene with former-Microsoftie and former-cloud-computing entrepreneur Paul Maritz.

But I don't think you have to be a genius to figure it out, given the brick wall that's careening toward VMware as it toodles along at on own comfortable course.

First, it has nothing to do with the upcoming earnings announcement Wall Street analysts call "disappointing" following a warning that VMware won't quite hit the fifty-percent profit target it had posted. It also won't match the 69 percent revenue increase it posted for the first fiscal quarter of this year.

If Diane Green deserves to get fired for that level of growth and profit, most other CEOs, including EMC's Joe Tucci, deserve to be kidnapped and beaten by thugs. I'm not saying they don't, of course, just that they are praised lavishly for results that pale in comparison to Greene's.

And it's not entirely to avoid founder's syndrome.

True, Greene did found the company—with her husband Mendel Rosenblum—in 1998 and steered it to astonishing success, an enriching buyout and helped lead a developing revolution in the tech industry. Founders with that kind of background are often pushed out after their own pride and tunnel vision prevent them from seeing the new direction the company has to take.

Greene shows few signs of that. VMware did far more than any other company to develop and popularize virtualization and to advance the management of virtual servers beyond simple consolidation and administration. VMware execs and the company as a whole do tend to focus too much on their own hypervisor and on their technical superiority over Microsoft's virtualization products, but not to the extent of crippling the company.

If they stuck with just butting heads with Microsoft, it would certainly have crippled VMware eventually. Microsoft does not butt heads, it tries to smother them. Or, if it's competing over a technology that fits so neatly and effectively into the operating system as virtualization does, it simply crushes them. But it's not clear that VMware would have fallen into that trap, either.

And it's probably not even because of the tensions that reportedly existed between Greene's management team and that of Tucci at EMC which owns 85 percent of VMware's stock and was destined to win that scrap eventually.

All those things probably contributed, especially management tensions that probably arose as disagreements over how best to compete with Microsoft.

What really did her in appears to have been a combination of the need for a more experienced executive, the need for an executive with the chops to compete effectively with Microsoft and the need for an executive who could learn to beat Microsoft by moving beyond the part of the market Microsoft is most likely to occupy.

Maritz may not qualify on the first item, at least not as CEO. He certainly managed huge operations during his 14 years at Microsoft, including the development and rollout of Windows 95, NT and other products. His experience as CEO is limited to a stint as leader of Pi Corp., a cloud-computing company he started and then sold to EMC.

But EMC doesn't need a pure, independent, entrepreneurial CEO in charge of VMware. It needs someone who can run the company effectively and efficiently as an organization that's kind of independent, but is actually an integral part of the parent company's strategy and technology, in much the same way that the Windows 95 and NT development groups were at Microsoft.

That experience certainly gives Maritz the chops to compete with Microsoft. He understands operating-systems strategy from both technical and business perspectives. Who better to lead a fight against the evil empire than one of it's own former generals?

Microsoft has enormous advantages in the installed base of Windows Server products, in the comparatively low cost of its Hyper-V-based virtualization, in the number of people trained in Windows management, the comparatively low training curve to make a Windows Server admin into a Windows Server 2008 with Hyper-V admin, and in the number of management applications it and its partners produced for Windows and are rapidly adapting to virtual Windows servers.

VMware is in no way beaten by Microsoft. It still dominates the market for server virtualization and is growing by leaps and bounds, though its financial statements hint the speed of that growth may be slowing.

Even assuming the absolute best case for Microsoft, and worst for VMware, the two companies are going to be competing—hard—for customers, channel partners and ISVs for several years.

EMC needs an executive who is canny enough to match Microsoft's big moves and the persistence to match it in the month-to-month, year-to-year grind it uses to overcome even stubborn competitors.

Maritz might not be the right guy for that job, but he looks like a better candidate on paper than Greene does. He certainly has the right background and training for it.

He also has the vision to be able to rise above that scrap and look for the kind of opportunity that can change the rules and momentum of the game.

In this case it's cloud computing—a form of virtualization at so high a level that the abstraction is a metaphor, not an emulation layer. Rather than "abstract" the hardware from the software by making an OS believe it lives on a server by itself, cloud computing abstracts the whole IT infrastructure by making the customers believe they can get any IT service they want by plugging a wire into a wall.

Cloud computing is an intensely data-center centric business, one that Merrill Lynch predicts will be worth $160 billion by 2011. Predictions that some new technology will grow at an astonishing rate are not unusual in this business, of course. But Merrill Lynch's customers are schooled in finance, not technology, so its predictions have to be more conservative and (presumably) less wrong than the predictions of tech-analyst companies.

Maritz has been leading EMC's shift toward cloud computing, a market for which it has far more credibility and resources than most of the other vendors who see clouds as the next strategic metaphor. Amazon, Microsoft, Google, SalesForce.com, NetSuite all say the're becoming cloud-computing providers, and they may succeed for people looking for very small clouds.

But if you want to put more than your email and personal productivity applications in the cloud, you need the likes of IBM, Sun, Dell, Akamai and other heavyweight data-center players, a league within which EMC is a successful player.

With high-end storage boxes, virtual storage, virtual-server and RSA security assets in its portfolio, EMC can make a strong case for itself as a one-stop shop for cloud-based data-center services. It could also profit not only from customers, but competitors as well, by selling those technologies to other companies trying to build out their own clouds.

Stock prices for both EMC and VMware dropped today after the news broke that Greene would be moving on, but they'll go back up quickly enough. The dip is the usual bit of disappointment that someone with the originality and track record of Diane Greene has been ousted. No one likes to see an effective founder shown the door.

But no one likes to see a successful and innovative company get beaten down by holding onto its original piece of ground too firmly, either. With the release of Hyper-V the contest between Microsoft and VMware stopped being a footrace and started being a hockey game. And Paul Maritz looks more like the kind of guy who can scrap it out in a corner than Greene, no matter how well she's done by VMware and its customers until now.

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