Virtualization: It's about doing more with less

VMware Inc. has just served up the most successful high-tech stock offering since Google Inc. went public. But why such a rush to buy? Most investors understood the value of Google's powerful Internet search tools. But few people have a clue about server virtualization, VMware's core business.

The world's corporate and government data centers are spending millions on server virtualization. It's a way to dramatically increase their processing capacity, by getting more work out of the computers they already have.

"Today we're all nicely trained that each server has one application on it," said Michelle Bailey, a virtualization researcher at IDC Corp. in Framingham. "Virtualization changes that equation."

Because servers usually run one program per machine, they rarely use more than 10 or 20 percent of their computing power. Software by VMware makes use of this wasted capacity by subdividing a computer into a number of "virtual machines," each of them behaving as if it were a separate computer. Each virtual machine can run a different operating system -- Windows, Unix, or Linux, for example -- and each can run a different software application.

"It's not part of the operating system, yet it runs all of the operating systems," said VMware president and chief executive Diane Greene.

Instead of running, say, e-mail, Web server, accounting, and personnel management programs on four separate machines, a virtualized server could run them all at once. That's four times the work from a single computer. So companies that virtualize their servers can cut back on purchases of new machines, and reduce their power and cooling costs.

A virtualized data center can also merge many servers into a single large pool of computing power. Upgrading or repairing hardware becomes easier, because programs can be shifted from machine to machine at the touch of a button.

IDC has predicted the overall server market will grow only around 2 percent between now and 2011, largely because companies will virtualize rather than buy more server hardware. Server company revenues will remain strong, however, because customers will buy more powerful servers, which can support a large number of virtual machines.

According to IDC, the market for virtualization services, like those sold by VMware, will climb from $5.5 billion last year to $11.7 billion in 2011.

VMware will have to share the market with Microsoft Corp., which offers virtualization software for the server version of its Windows operating system. Microsoft plans a major upgrade, dubbed Viridian, in 2008.

There's also a challenge from Virtual Iron Software Inc., a privately held firm in Lowell that claims about 750 users of its virtualization product. Virtual Iron president John Thibault hailed the success of the VMware stock offering. "VMware created this market," he said. "They have created what I think is a magnificent company."

Hiawatha Bray can be reached at bray@globe.com.