Virtualized infrastructures may be "the mainframe for the 21st century," as VMware CTO Stephen Herrod said in April, but the company will move increasingly toward virtualization and management of smaller devices during the next year or two. \nThe strategy won't change much about the way the company currently operates, according to VMware executives and analysts who follow the company. But VMware will begin to make more noise about its plans for desktop and mobile virtualization products beginning with the VMworld conference in San Francisco Aug. 31. [ For timely virtualization news and expert advice on strategy, see CIO.com's Virtualization Drilldown section. ]The company may announce at that point its plans for the next edition of its VMware View desktop virtualization products and plans to add virtualization clients for a variety of smartphones and other handheld devices to enable them to become secure, managed participants in mainstream corporate applications, according to sources familiar with the company's plans. \nVMware executives wouldn't comment on specific announcements, but did say the company would continue to push development of the desktop virtualization market and its products for that market, with the expectation that sales will begin to take off starting in mid-2010 to 2011. \n"I'm a huge believer in the desktop opportunity," says Tod Nielsen, VMware's chief operating officer. \n"Every IT executive I see talks about those 500 million desktops in the enterprise," he says. "They hate them. They're hard to provision, hard to manage, hard to secure, and if they have to go touch every one of them to accomplish something, it's a big problem." \nDespite recent enhancements that allow virtual desktops to operate even disconnected from the server that controls them, sales of VMware View have been relatively slow, and the market for desktop virtualization in general is not growing quickly, Nielsen says. \n"On our earnings call [CEO] Paul [Maritz] said 20 to 30 percent of our sales time is spent on proof of concept of desktop virtualization," Nielsen says. "We don't think that's going to be a revenue kicker until 2010 and into 2011. 2009 is more about proof of concept; 2010 is when this race is really going to take off." \nDesktop virtualization means more to VMware than just control of laptops and PCs, however, Nielsen says. It also includes handhelds, smartphones and a range of other devices that could become highly mobile, wide-area-networked clients for mainstream business applications, if customers take to the handheld-virtualization technology VMware is developing following its acquisition in November of the French Trango Virtual Processors, whose Mobile Virtualization Platform could put a lightweight version of VMware's ESX on iPhones, Blackberries, Windows Mobile and other mobile operating systems. \n"Right now it's expensive for an ISV to develop onto phone operating systems because you have to write a different version for everyone," according to Steve Bonney, vice president of business development at Bayscribe, a software developer that builds high-volume, server-based dictation systems for medical facilities. \n"That way you end up giving doctors a $500 smart phone to access medical records and another to access the dictation system while they've got a Blackberry already in their pocket."Run a virtual client on that and ESX in the cloud, then you can port applications to any handheld." \nThe Trango technology is a good start, as is building it into the VMware View suite, but VMware would make handheld virtual machines more attractive to ISVs and end users with better audio, video and image capabilities, Bonney says. "I'm hopeful VMware will push hard on that mobile technology and invest in rich media on their thin client stuff," he says. What's Behind Desktop Virtualization Holdups\nDesktop virtualization in general, and VMware's approach in particular, contains more challenges than just market acceptance to grow significantly, however, Rose says. \nNearly every virtualization vendor's approach is to run virtual desktops on physical servers in the data center. Companies are cautious about adding physical servers in the data center now, even those loaded with many virtual desktops, due to concerns including lack of space and power costs, he adds.\nVMware did take some significant steps toward a distributed model of virtual desktops\u2014in which the individual PC or other local server acts as controller or data-synchronization intermediary between the physical PC and the backend server\u2014when it released beta versions of its VMware Offline Desktop in March, Rose says. \nThough it's still an experimental product, some testers have found problems getting it to install. \n"Right now the use cases for centralized virtual desktops are fairly limited, so it will continue to be a tactical development for now," Rose says. "In five-years-plus, as desktop virtualization expands out to edge devices, then there's more of a possibility for it." Financial Pressures\nVMware doesn't have the time to wait, however, so it will continue to focus on its data-center-focused products and increasing penetration within existing customer organizations to increase revenue, Nielsen says. \nVMware is under unaccustomed pressure from Wall Street, following two consecutive disappointing earnings announcements. July 22 the company announced a drop in net income of 37.8 percent compared to a year before, due to flat revenue and the increasing cost of sales and R&D. \nVMware stock rose on the news because the results matched analyst expectations. But tech analysts called the results misleading. Though total sales dropped only 3 percent, sales of software licenses dropped, a situation which was only partly offset by an increase in maintenance and service revenue. \nSales of enterprise licenses made up 15 percent of sales compared to 20 percent a year earlier, according to Mark Peek, the company's chief financial officer, who called the corporate IT sales environment challenging. \nIn April, VMware increased its revenue by 7 percent compared to a year earlier, but did it by increasing maintenance and services revenue by 48 percent to make up for a drop of 12 percent in license sales. \nNumbers like that could push the company toward a strategy designed to increase maintenance and professional services revenue and away from expensive research and development, especially of products such as VMware View, which has little near-term chance of increasing overall revenue, says Gordon Haff, high-performance computing infrastructure analyst at Illuminata in Nashua, N.H. \nThat's not a good strategy for a company in a dynamic and relatively young technology area, however, Haff says. \n"Companies would always like to sell more licenses than services," Haff says. "Services might be profitable, but not as much as the incremental sale of software licenses, which are much lower cost than delivering services." \nDespite the concerns of some Wall Street analysts, the market for server virtualization is not close to saturation, either in large companies or small- to mid-sized companies, according to Chris Wolf, data-center strategy analyst at The Burton Group.\n"There is still a lot of room for growth, and customers are still largely happy with them," Wolf says. "One client of ours told me they were doing some hardware refreshes, moving from servers with two processors to six, and because the restrictions on VMware licenses cover six-core systems, it wasn't costing anything additional in licensing. They loved that, but it might not have been as good for VMware revenues." \nVMware has been increasing its market share among small to mid-sized businesses as well, Rose says. \nThat's partly due to greater marketing to SMBs and partly due to pricing that, in some cases, is lower even than competitors that trade on their comparatively low cost, Wolf says. \n"We had a client that bought a VMware setup for something like $2995 when the comparative Citrix base price was over $5000, so VMware's been working hard on that aspect," Wolf says. \nVMware continues to wrestle with whether to charge by the core, by the number of VMs deployed, or other measures, Nielsen says. For now the company plans to stick with current pricing, which encourages enterprise customers to use as many virtual machines as they want as a way to spread the use of virtual servers through the organization. \n"We're trying to get customers from 10 percent, 20 percent, 30 percent virtualization to 100 percent virtualization and we need better management tools to manage that," Nielsen says. Things like capacity planning, things to manage VM proliferation and lifecycle. In the virtual world you could have a VM with a lifespan of 30 minutes; we have to be able to plan for that, provision it and clean up after it." \n"In the near term that's certainly their best revenue source," Haff says. "With virtualization covering such a small percentage of systems, they don't have to catch 100 percent of all the potential customers; they just have to do well catching the 85 percent that's not virtualized yet." \nVMware will also continue developing services it didn't think would be major issues for its traditional customers, Nielsen says. \nSMB customers, for example, are far more interested in the high-availability\/data-recovery capabilities of virtual infrastructures than VMware execs thought, Nielsen says. In the past it hasn't been a lack of interest that limited those functions in SMB markets, it's been the price. \n Do you Tweet? Follow everything from CIO.com on Twitter @CIOonline.