Does virtualization need a new pitch? 1 November, 2008 By Paul Weinberg

Among the key findings is that global virtualization license shipments in the second quarter of 2008 (2Q08) increased 53 per cent year over year, compared to a 72 per cent year-over-year increase the previous quarter.

Brett Waldman, research analyst for system software at IDC, described the slippage in virtualization license shipments as "modest." He stated it arose out of general sluggishness in server sales.

"Virtualization licenses are very much tied to new server sales and if those decline due to the current financial turmoil, it will be difficult for virtualization licenses to maintain its high year over year growth. However, IDC does expect this to lead to more servers being repurposed for virtualization and higher density deployments -- i.e. more VM's per server."

Nevertheless, Waldman also indicated that high volume server consolidation opportunities in the large enterprises are "starting to dry up," which is "resulting in smaller deals overall" for vendors with customers.

This new dynamic translates into virtualization software vendors such as VMware, Microsoft and Citrix having "to adapt their go-to-market strategies," and tackle new customer segments such as the mid-market.

In the same second quarter for 2008 virtualization has penetrated on a global basis about 15 per cent of organizations -- mainly large enterprises, he said.

"It is still early days [for virtualization technology]; I mean it is double what it was two years ago."

The IDC report, "vague" in terms of business context, is nonetheless bad news for sellers of virtualization solutions in face of a looming economic recession, argued Bill Moran, research director at Ptak, Noel & Associates.

Without server consolidation serving as the main raison d'être for virtualization, it is doubtful that managers will invest in the upfront costs of this technology, even if it represents a money-saver in the long run, he stated.

"Virtualization is probably going to get postponed along with a lot of other things. Companies are going to say 'yes, it is a good idea, I want to do that; I should do that, but let me tell you right now I am going to slash the budget.'"

The other selling points for virtualization -- flexibility and speed in setting up virtual servers, high availability and disaster recovery -- are not compelling enough reasons for immediate adoption in this period of financial difficulty, Moran continued. "There are a lot of other advantages to virtualization [besides server consolidation]; they are a little more amorphous [for the customer]."

In other IDC findings for 2Q08, worldwide virtualization software revenue grew 15 per cent year over year in 2Q08, compared to 32 per cent growth in the first quarter of 2008.

At 39 per cent the x 86 server platform generated the largest growth in virtualization software revenue, followed by EPIC (Itanium) at nine per cent growth year over year.

In terms of worldwide virtualization software licenses shipped, the x86 server markets had a 60 per cent year-over-year growth, followed by the EPIC with 18 per cent, in this same quarter.

VMware's products held 44 per cent of the global x86 market, followed by Microsoft at 23 per cent with Virtual Server 2005 and Hyper-V.

"Hyper-V had a surprisingly strong showing for a product that entered the market very late in the quarter. What we saw was that a lot of customers were most likely using beta versions of Hyper-V."

The entry of new players into virtualization such as Microsoft and Citrix has led over time to the dislodging of VMware from a virtual monopoly position in that technology on the x 86 platforms, Waldman explained.

Nevertheless, VMware led in 2Q08 with 78 per cent of overall virtualization software revenues, he added.