August 14, 2007 1:33 PM PDT

VMware surge puts virtualization in the spotlight

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The shift to virtualization has caused some turmoil for the rest of the software industry, however, which has traditionally priced its products based on the number of servers, or in some cases the number of server processors, that are running the code. Some interim pricing moves have largely addressed the current situations, but fundamentally, Haff said, software pricing will have to change more as virtualization takes hold.

"I expect that we are going to tend to see more software being licensed per-employee or per-use or metrics that are really much more tied toward the value that software is delivering as measured directly," Haff said.

One company that has clearly profited from the shift is storage giant EMC, which paid about $600 million for VMware in 2004. The company sold just a 10 percent stake in the company this week, but raised roughly $900 million, with the total market capitalization of the company now hovering north of $10 billion.

"It turns out EMC really got a pretty good bargain there, even though at the time people thought it was an awful lot of money," Haff said.

Virtualization is not the only technology looking for Wall Street cash these days. About 100 companies have filed for stock offerings and are expected to go public sometime this year, including a number of technology companies, said Richard Peterson, director of capital markets research for Thomson Financial.

One tech company that has garnered some attention is NetSuite, an on-demand software applications company backed by Oracle's Larry Ellison. The company hopes to raise $75 million, based on its IPO registration filing fee with the Securities and Exchange Commission. Computer monitor maker ViewSonic has also lined up at the IPO gate, aiming to raise $143.8 million with its offering, according to its registration filing fee with the Securities and Exchange Commission, which it filed last month.

But they will have a tough act to catch the imagination of investors the way VMware has done. And that is largely because virtualization is so widely seen as the future of the corporate data center.

"I don't see it as a flash in the pan," author and blogger Marshall said.

Marshall heads business development and marketing for InovaWave, a privately held company that has a software product designed to speed up virtualization and allow a single server to host more virtual machines than would otherwise be possible by improving input/output tasks such as writing to disk.

Marshall sees a growing market that opens up significant opportunities for companies that can find a niche. But that doesn't mean that Microsoft and others that want to target VMware's market will have an easy go of it.

"They got almost a billion dollars from that IPO," Marshall said. "Part of that money is going to be used to acquire new technology and hire engineers."

News.com's Dawn Kawamoto contributed to this report.

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