The announcement came from new president and CEO Paul Maritz, who took the reigns from dismissed co-founder Diane Greene on July 8. Maritz made the remarks during VMware's second quarter earnings call on Tuesday afternoon.
VMware CFO Mark Peek delivered the bulk of the bad news, stating that VMware will make substantially less money than expected this year. The company originally expected a year-over-year growth rate of 50 percent; that number was revised down sharply, to between 42 - 45 percent.
Peek chalked most of that poor performance up to a tanking of revenue generated by enterprise licensing agreements (ELA). He said that many customers are "forgoing discounts [gained through ELAs] to meet shorter-term needs." He also said that Microsoft's entry into the enterprise virtualization market is likely having an effect, as potential customers are slowing down their rush to buy VMware products, and considering Microsoft's new offerings, like the free Hyper-V.
Maritz gave a brief nod to Greene's leadership of the company, then launched into his take on where VMware is headed. He said it's in its "third stage" of growth. The first was the introduction of the hypervisor. The second was the introduction of virtual infrastructure products and expansion of their use in business.
"Stage three", Maritz continued, "is about dramatically extending the virtual infrastructure and products for more uses and to more users."
One way to do that is to give away the hypervisor, which other vendors already do. Currently, ESXi costs about $500, and ESX, the primary hypervisor, is substantially more than that, depending on the configuration. ESXi's small size (32MB) makes it embeddable, and VMware has a number of deals in place with OEMs like Dell, HP, IBM and others to ship it on servers. Starting July 28, ESXi will cost nothing.
The other way to increase profits is to cut costs. To that end, Maritz said a hiring freeze will go into effect, "except for strategic positions." He didn't elaborate on those statements, or mention if layoffs might be coming.
Senior Director of Product Marketing Bogomil Balkansky said that the price for ESX will not be reduced, but that it shouldn't matter to customers, because ESXi is the future. "We've made it clear that our future architectural direction is ESXi," Balkansky said, adding that both products are "completely functionally equivalent." The price of VI, VMware's suite of infrastructure products, will not change, he said.
Balkansky denied that making ESXi free was a direct response to Microsoft. "There's an inclination to interpret it that way, but I think this is a very logical move for us, given that we have a tried and true record" of making products free after a time. For instance, GSX Server (renamed VMware Server) was made free in 2006. "The timing has more to do with product release schedules and priorities, rather than what a competitor may be doing," he said.
Still, Balkansky added, there is "no question that making it free gives us an advantage and levels the playing field."
Maritz also mentioned several other new areas in which VMware will be aggressive, including extending its reach more strongly into the Asia Pacific region, and becoming more active in "the cloud", which means accessing resources over the Internet. That, perhaps, isn't surprising, since Maritz' former company, Pi Computing, was cloud-focused. Pi was bought by EMC last February. VMware, Maritz said, will "have a lot of relevance in the cloud, and as an on-ramp into the clouds."
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