VMware Replaces Co-Founder Greene with Microsoft Hotshot

Published: July 10, 2008

by Timothy Prickett Morgan

Call it a sign of the times, or the inevitable result of Microsoft entering a market that someone else has controlled for a while. Whatever the case, the coincidence, if that is all that indeed it is, that the VMware subsidiary of disk array maker and software wannabe EMC decided to oust its co-founder, Diane Greene, as president and chief executive officer, at the same time as Microsoft delivered its Hyper-V hypervisor for Windows, and replaced her with a Microsoft hotshot is still pretty jarring.

Probably not the least of which for Greene herself, who was able to sell VMware to EMC and yet orchestrate the takeover in such a way that VMware retained a large amount of autonomy for the past several years.

Joe Tucci, who does double duty as president, chief executive officer, and chairman of EMC and as chairman of VMware--OK, that's quadruple duty, I know--put out the traditional "thanks, but no thanks" statement about Greene's departure. "As one of the founders and the leader of VMware, Diane guided the creation and development of a company that is changing the way that people think about computing," Tucci said in the statement. "The board thanks her for her considerable contributions to VMware and wishes her every success in the future." The company did not offer much of an explanation of why Greene is departing, but there were some hints. The statement said that VMware would report its financial results on July 22, and that the Paul Maritz, one of the key executives from the middle years of Microsoft and an executive who already gets his paychecks from EMC thanks to an obscure February 2008 acquisition, would be taking over the helm at VMware. The statement added that Maritz would be on that conference call with Wall Street analysts later this month, and would "make observations about the second half of 2008." The statement went on to add that "while VMware is not updating guidance for Q2, we expect revenues for the full year of 2008 will be modestly below the previous guidance of 50 percent growth over 2007."

The tongues will all be wagging about how Greene was done in by a revenue miss. This is so not likely. What is likely is that EMC believes that it needs a more seasoned executive to take on the Hyper-V onslaught and the annoyance of XenServer from Citrix Systems, and who better to take on that task than an ex-Microsoftie?

Maritz was part of the development tool team at Intel before he took a job at Microsoft in 1986, where he was part of the five-person senior executive management team until he left Microsoft in 2000. During his tenure at Microsoft, Maritz was responsible for steering the launch of multiple releases of Windows 95 and Windows NT, the SQL Server database, and various development tools. After leaving Microsoft, Maritz set up a company called Pi Corporation, which created a cloud-based personal information management system. (Everything is soon going to be "cloud-based," so get used to it.) In acquiring Pi, EMC established a Cloud Infrastructure and Services Division and installed Maritz as its president and general manager.

Virtualization and utility computing--which is what I am determined to keep reminding people this really is--go hand in hand, but having sold off a portion of VMware as a public company, EMC cannot easily merge its cloud and virtualization efforts. Unless, of course, it sells off its cloud assets to VMware and then tries to reposition it as the "cloud and virtualization" expert. I think it is highly likely that this is the strategy that EMC will unfold in the coming months, and this strategy is about reviving VMware's flagging stock price as much as it is about trying to take on Microsoft and Citrix. What Greene would think about such a strategy, we'll never know. And we will probably never know what her thoughts were for the future direction of the company she helped create. But clearly, EMC was not happy about something.

Wall Street is not so happy, either. The announcement of Greene's departure probably did not drive the company's stock price down 25 percent to $40 a pop on Tuesday, but the suggestion that the second half of 2008 might have some issues probably did. That knocked VMware's market capitalization down to $20.4 billion, which is still utterly ridiculous for a company with $1.3 billion in annual sales in 2007 that might break $2 billion this year and that brings 16.5 percent of revenues to the bottom line. Of course, with Microsoft jumping into the market with Hyper-V and Xen now backed by Citrix, there is no question at all--not even a teeny tiny bit--that VMware is under intense profit pressure.

This is something, in my experience during interviews, that Greene was never particularly interested in admitting would come to pass. Her attitude was that VMware would just keep wrapping more software around a commoditized hypervisor and make money that way, and I would always say that sooner or later, other hypervisors would emerge--particularly on the key Windows platform on which VMware makes most of its money--and VMware would have to cut what I consider are exorbitant prices for a volume server market. I was the first to say that VMware had to make the money while it could, while it still had almost total control in data centers, but that it had to be ready for the dramatic shift when other--and cheaper--hypervisors and tools would be available.

That day is here, today. And VMware may or may not be ready. The numbers and product launches in the next few quarters will tell the tale for sure.

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