June 26, 2008 / 3:21 PM / 9 years ago

Microsoft starts selling rival to VMware programs

3 Min Read

<p>An undated screenshot of Microsoft's Hyper-V software.Microsoft/Handout</p>

BOSTON (Reuters) - Microsoft Corp said on Thursday it started selling its new server virtualization software about six weeks ahead of schedule, putting pressure on market leader VMware Inc.

Server virtualization software allows one machine to perform the work of multiple servers, letting companies save money on equipment, electricity, maintenance and other costs.

Microsoft says it charges $28 per server for its software, dubbed Hyper-V, which was put up on its website for download on Thursday. The company previously said it would make the product available in August.

VMware said it charges $495 for the most comparable software in its product line, which is known as ESXi.

"I think this is going to put some pricing pressure on VMware," said Illuminata analyst Gordon Haff.

Haff considered Hyper-V's functionality to be more robust than the $495 VMware ESXi program and said Microsoft's software was more comparable to products in VMWare's ESX family, which start at $1,000 and run as high as $5,750.

VMware shares fell 5.24 percent to close at $58.92 on the Nasdaq. Microsoft shares fell 2.12 percent to $27.75.

Analysts said customers who decide to stick with VMware will have increased bargaining power due to Microsoft's lower price.

John Gilmartin, a product manager with VMware, declined to discuss the company's discounting policy, but said the software maker does pay attention to customer concerns about pricing.

"We are going to always evaluate our pricing model," he said. "We'll keep talking to customers and keep our eye on the market."

Nucleus Research analyst Rebecca Wettemann said she thinks Microsoft would be a credible competitor to VMware.

"Microsoft has to be taken very seriously because of its size. Microsoft is going to make inroads," she said.

VMware controls the vast majority of the server virtualization software market. The company is 86 percent-owned by EMC Corp.

Other companies that compete with VMware include Citrix Systems Inc, Oracle Corp and two privately held companies -- Virtual Iron and Parallels.

Reporting by Jim Finkle; Editing by Dave Zimmerman and Andre Grenon

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