Subba’s Serendipitous moments

July 10, 2008

VMware Diane Green quits — intriguing!

Filed under: Business,Leadership — Subbaraman Iyer @ 10:56 pm
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Very few CEO exits in the tech world have been as intriguing as VMware’s CEO sudden ouster by the Board in an abrupt manner. She was instrumental in developing a completely new model for computing by defining virtualization. The VM stands for “virtual machine,” because the software tricks servers and other computers into running multiple operating systems, even though most are designed to run only one. Running virtual machines allows companies to buy fewer computers – a cost savings that accounts for VMware’s explosive growth creating the most successful IPO in recent times. In the weeks after its IPO, VMware’s shares moved as high as $125.25, though the stock is now at just 50% of its all time high.

I wonder whether it has just to do with the fact that VMware expected revenues for the full year of 2008 will be modestly below the previous guidance of 50% growth (from $1.3 to $1.9 billion) in 2007 after a 80% growth in the preceding year. I doubt few executives would get fired for a modest drop.

I wonder whether it is the impeding release of Microsoft’s release of Hyper-V and did the Board believe that Paul Maritz would be better equipped to take on Microsoft. It is unlikely that both are going to compete directly as VMware’s sweet spot is in the data centre and Microsoft is more likely to target the desktop and the server areas. For Microsoft the Hyper V is an extension of its server products and its pricing at $29 is intended for faster adoption in the SMB space. It will be another couple of years at least before they face each other directly.

Well a number of competitors (Sun, Red Hat) are now offering stripped down virtualization software for free. However that’s not much of a threat as 80% of the revenues for VMware comes from advanced features that the competition can’t match yet.

So, if it is not business issues that paved her ouster, what could else it be? My own assessment is perhaps that it could be just the relationship between Diana Green and the Board members, a majority of whom are from EMC (both current or former executives) by virtue of the fact that EMC still holds about 87% of VMware. Has the relationship been strained for some particular reason? That seems to be the most plausible way to explain the sudden departure.

With this transition, would the rules of engagement between EMC and VMware change? Would EMC now sell VMware and use that against its competition?

VMware will have lost that spark and singular passion that only CEO/founders are usually able to provide. All I can say is that this is one of the most intriguing high profile CEO exists in recent times!

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