VMware to Undergo Major Strategy Shift

UPDATED: Increased competition, unwillingness to change, EMC's growing frustration all led to CEO Diane Greene's ouster.


UPDATED: Diane Greene's ouster as CEO of VMware may have been sudden, but it was not a spur-of-the-moment thing; parent company EMC had been planning it for months, observers say.

As increasing competition and the ready availability of free hypervisors eroded VMware's dominant position in the market, the company's board of directors wanted the technology-driven company to become more business-driven, but considered Greene lacked the business skills to take it to the next level.

Her resistance to change and frequent clashes with EMC (NYSE: EMC) CEO Joe Tucci further exacerbated the situation, industry observers say. "There has been bad blood between Diane and EMC for many years," Rachel Chalmers, 451 Group research director, said.

When EMC bought up Pi and took its founder and CEO, former Microsoft (NASDAQ: MSFT) senior executive Paul Maritz on board in February, observers felt Greene's time was running out.

"I felt at the time that EMC didn't acquire Pi to have yet another data workflow product in their suite," Carl Howe, Yankee Group's director of enterprise software research told InternetNews.com.

Maritz, who had led Microsoft's Windows 95 and Windows NT efforts and its database, tools and applications divisions, was seen as having the business experience Greene lacked. Another point in his favor was that, as a former senior executive at Microsoft, he knew how that company, which had VMware (NYSE: VMW) squarely in its sights, worked.

"They wanted to get somebody who has talent and who can fight a good battle, particularly against a competitor with deep pockets. I think Diane's departure was engineered," said Howe.

Maritz is also famously combative, being willing to do what it takes to win, which observers say is yet another factor in his favor. He reportedly said Microsoft would "cut off Netscape's air supply" when Netscape led Microsoft in the battle for the browser market, but later denied making the statement.

EMC is certainly looking to tap Maritz's skills. "VMware's growing at roughly 50 percent a year, and as the business continues to grow, it becomes more complex and needs a more seasoned leader to deal with the complexity," EMC spokesperson Dave Farmer told InternetNews.com.

EMC had good reason to plan a change of management at VMware. It had paid out $1.1 billion to purchase VMware with an eye to bundling the software with its own storage products, but couldn't do so because Greene flat-out refused. Also, Greene wanted as little to do with EMC as possible, requesting that EMC assign one executive to handle all dealings between the two companies.

Further, Greene's meager business skills were stretched to the limit by the popularity of VMware's products. "Everybody wanted a piece of VMware and there was a lot of jockeying among partners, but they didn't have the expertise to deal with that smoothly," said Jay Litkey, founder and CEO of Embotics, who described his firm as "a very good partner" of both VMware and Microsoft.

However, it's still struggling with its roadmap, and "everybody, whether they were a very large or a small company, found it very challenging to work with them," Litkey said.

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TAGS: Microsoft,EMC,Hyper-V,VMware,ESX

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