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Virtualization Hacking Away at Server Revenues

OK, so it's much more likely that the economy is to blame than VMware is, but server revenues were down pretty sharply year-over-year in the second quarter of 2009.

While most of the 30 percent overall drop in revenues is likely down to companies having smaller IT budgets or putting off spending, some of it -- according to an analyst at IDC, the firm that prepared the revenue report -- is the result of server and software virtualization.

Now, the server market isn't going away, and we're sure that it'll bounce back to some extent when (if) the economy as a whole does. But it's clear that the market is changing and that virtualization is driving that change. The server business as a whole likely won't be the cash cow it has been for Microsoft and partners in the past. A nice little earner, sure. But a bonanza? Probably not.

As we mentioned last week, VMware is a real threat to Microsoft's enterprise business, which explains why Microsoft is working so hard to catch VMware in virtualization. This isn't a battle between two (or more) companies on the same playing field; it's a battle between two computing models and, for once, Microsoft isn't the market leader in one of them.

At least not for now. Redmond is catching up with VMware in terms of technology, and although the EMC offshoot remains the virtualization market leader by some distance, it can feel the behemoth breathing down its back.

Still, it's virtualization technology, not just VMware, that's taking a chunk out of server revenues. That means that (as we've said here before) Microsoft will have to balance its money-spinning server business with the virtualization business it desperately hopes to grow. That means that partners will have to do the same thing. Hopefully most channel players have adapted to the new model by now. If not, now's the time.

One interesting little note from the IDC numbers: The fall in year-over-year Linux server revenues (13.8 percent) was much smaller than that of Windows Server revenues (27.7 percent). Take that for what it's worth.

What's your take on how virtualization is affecting your server business? How have you coped with this changing computing model? Sound off at

Posted by Lee Pender on 09/09/2009 at 1:22 PM


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