VMware vSphere is a truly remarkable product that has redefined the idea of “unprecedented disruption” in the IT infrastructure market. On a feature basis, vSphere 5 remains a generation ahead of competing offerings from Microsoft, Citrix, and others, and VMware is in an excellent position to retain and grow this position. But no company is invincible, and VMware’s Achilles Heel is beginning to show: Tiered licensing puts the unbeatable differentiating features out of reach for many customers, and they are rapidly adopting alternatives.

The First-Class Virtualization Platform

I’ve been watching the development of server virtualization for many years, dabbling with pre-VMware solutions in the 1990’s. But VMware was the first company to introduce “killer” features that made open systems virtualization more than a novelty. And VMware has continued aggressively to innovate, delivering what is today the best virtual datacenter solution.

It all started with vMotion. VMware leveraged the hardware abstraction that naturally accompanies virtualization to enable mobility of virtual machines. But VMware didn’t stop there. They added killer management and automation features like Distributed Resource Scheduler (DRS) that transformed a cool technical capability to a real operational differentiator. Transformative features like DRS make vSphere simply untouchable in the market.

This is the core of VMware’s genius: They understand that technology is worthless without productive application, and that businesses will pay big money for technology that delivers operational differentiation. VMware doesn’t compete in the “faster, better, cheaper” marketplace; they sell software that fundamentally changes the way IT operates infrastructure.

What About the Mass Market?

But not every VMware customer sees operational transformation. Some just want a functional disaster recovery or high availability solution. And many can’t afford or justify the costly Enterprise-level licensing that includes “the good stuff” in vSphere. For these customers, VMware’s reputation doesn’t match their experience with the product.

I’ve talked with some companies so enamored with VMware that they try with little success to build a useful virtual infrastructure around the free ESXi hypervisor. Others are rapidly moving forward with a Microsoft Hyper-V or Citrix XenServer deployment.

Not all non-VMware shops are missing out on something great (though I don’t recommend the ESXi route!) Transformation isn’t for everyone, and XenServer, Hyper-V, or KVM is good enough for many. These shops could adopt VMware but choose not to, often because of limited ROI for lower-level vSphere licenses.

The VMware tipping point happens somewhere between vSphere Standard and Enterprise licenses. vSphere Essentials isn’t any great shakes, and Standard is only slightly better. But Enterprise really turns the tables, and Enterprise Plus is a must-have for large virtual infrastructure deployments. That’s why I titled this piece “sub-Standard deployments” – I was referring to the vSphere license level, not the dictionary definition of that term!

A Compelling Ecosystem

If VMware can’t win on features, why do so many “sub-Standard” customers still choose vSphere? It’s all about the ecosystem!

VMware vSphere is analogous to the iPhone or Microsoft Windows in that it attracts the earliest and best third-party development. As the multitude of ecosystem companies at VMworld this week can attest, VMware compatibility is the first demand an IT infrastructure startup gets these days. And many find the VMware “sphere” so compelling that they focus exclusively on this one environment.

Consider the wild success of companies like Veeam, Tintri, Zerto, and Nutanix, all of whom launched as VMware-only offerings. They knew that a focus on VMware would be an unbeatable differentiator in the market and reaped massive benefits in return. Customers who want the latest and greatest third-party products must also use VMware.

But this is changing. Veeam has added Hyper-V support, and they (along with Tintri, Zerto, Nutanix, and most other “VMware-exclusive” offerings) could easily be ported to Hyper-V, Xen, or even Amazon EC2! Non-VMware customers are demanding these products while also rebelling at the high cost of the Enterprise licenses some require.

Stephen’s Stance

Call it the gold standard or call it first class: Open up VMware vSphere with a high-end license and you’ve got the best product on the market. And the VMware ecosystem is where all the coolest stuff happens. But less-demanding customers are increasingly turning to alternative offerings from Microsoft, Citrix, and others. VMware seems fit and ready to innovate and defend the high end of the market, but can they also retain the base? This is their Achilles Heel.