Mike D’s Blog

By now I’m sure you’ve seen the recent IDC report showing virtualization market share numbers for Q2 2008. It’s on pretty much every blog and news site that I visit. If you just scan the headlines you might come away with the impression that Hyper-V zoomed from 0% to 23% of the market in just the 4 days it was available in Q2 2008. After reading through the IDC report in full I’m having some real trouble figuring out the math. They came up with the numbers by counting unit shipments from the OEMs yet VMware delivers only a small portion of licenses through the OEMs. At the most I could try and stretch these numbers to say 3 – 5% market share for Hyper-V if I counted beta usage but there’s still a lot of inaccuracies in this report. Here are the details of where the math breaks down…

This Isn’t News

First of all Microsoft didn’t all of a sudden grab market share. Last year was the first year of this report and Microsoft was reported as having 20% market share at the time by shipments. In Q1 2008 they dropped to 18% and now they’re back to 23%. In the course of a year they climbed 3%. This is probably just normal survey error at work. To back that up VMware showed a similar trend going from 51% in 2007 to 42% in Q1 2008 and now back up to 44% in Q2 2008.

Meanwhile, VMware’s share of new shipments was 44% in the second quarter, down from 51% the previous year but up from 42% in the first quarter of 2008.

Microsoft captured 23% of new shipments with Hyper-V and Virtual Server 2005, up from 20% last year and from 18% in this year’s first quarter.

- NetworkWorld, Microsoft narrows gap with VMware

This is the problem with surveys and more importantly the problem with inaccurate or incomplete shipment counts.

How Do You Count Microsoft Shipments?

I’m scratching my head at how you actually count shipments of Microsoft’s virtualization software. Microsoft Virtual Server is a free piece of software downloaded off Microsoft’s website. There’s no SKU to get it from OEMs. OEMs don’t sell Virtual Server. So how do you count unit shipments from an OEM for something they don’t ship?

If we can’t count Virtual Server accurately then how about Hyper-V? Microsoft Hyper-V released to manufacturing on June 26, 2008 – just 4 days before the end of Q2. Actually there were only 2 business days with Hyper-V shipping since it was released on a Friday and the quarter ended on a Monday. So did Hyper-V really ship enough units in 2 days to get 23% market share? I doubt it. According to IDC analyst Brett Waldman the majority of the market share is still from Virtual Server.

Waldman said shipments of the legacy Virtual Server 2005 still comprised the majority of Microsoft’s shipments in Q2, however.

- InfoWorld, Microsoft makes gains in server virtualization

So, IDC, care to share exactly how you count unit shipments from OEMs for something that the OEMs don’t ship?

This Isn’t a Total Count for VMware

Throughout this article I’ve been talking about unit shipments from the OEMs. That was the basis for where IDC got their numbers.

Virtualization licenses represents the amount of virtualization platform shipments for a given vendor in a given quarter. New server shipments virtualized maps the amount of virtualization platforms shipments that are sold directly by the hardware vendors. Virtualized server revenue represents the hardware revenue of new server shipments virtualized. Virtualization software revenue represents the software revenue associated with virtualization platform sales.

As you can see we’re looking ONLY at marketshare from licenses sold through the OEMs – not through resellers or direct from the virtualization vendor. It has been well documented that VMware is selling a lot of ELAs (enterprise license agreements).

We have achieved significant revenue growth to date by focusing on delivering new virtual infrastructure software solutions technology and products, expanding our network of technology and distribution partners, increasing product awareness, promoting the adoption of virtualization and building long-term relationships with our customers through the adoption of enterprise license agreements (”ELAs”).
- Page 17, Q2 2008 VMware 10Q

These ELA agreements get fulfilled in several ways – through OEMs, through traditional partners, and sometimes from VMware directly. Needless to say not all of the revenue or the unit shipment goes through the OEMs. Unfortunately, revenue breakdown by channel is not available in the public VMware statements. If you look at Microsoft they do ship the vast majority of their operating system and virtualization software through the OEMs. This stark contrast in delivery models directly skews the market share numbers in this IDC report to make it look better for Microsoft and worse for VMware. VMware would have been happy to deliver the accurate shipment numbers to IDC but IDC refused to hear our side of the story. After all, this was a sponsored survey and I can give you 3 guesses who sponsored it and the first two don’t count.

One more thing to point out is VMware Server. VMware Server has the same delivery method (free over the web) as Microsoft Virtual Server. VMware Server is not delivered through the OEMs. If Virtual Server gets to count for Microsoft market share then where is the VMware Server count on the VMware side? With a few million downloads of the product over the past couple of years I’m sure that will beef up the VMware numbers by units shipped.

What About the Revenue Numbers?

IDC reported VMware revenue numbers as 78% market share. Personally I think this number is a little low. Microsoft just started shipping a pay-for virtualization product 2 business days before the end of Q2. Before that they were free. Most of the other competitors in the space are also free (all of the embedded Xen players such as RedHat, SUSE, etc). The other pay for solution out there is Citrix which reported just a few million in revenue in the beginning of 2008. Compare this to the $456 million that VMware announced at the beginning of the year. Virtuozzo took down 16% of the revenue number, no doubt from the market they created in the hosting side of the world. This begs the question of where is the rest of the 6% for revenue market share coming from?

What’s Really Being Used?

Market share studies are always interesting since most of the time they take a subset of the environment and look at what was shipped. Often times they don’t count what people downloaded from a website and are using or got through means the study isn’t counting and using. IDC actually did do an “in use” study in Europe in Q1 2008 – just before the study we’re currently talking about. In that study they found that VMware was being used by 82% of the respondents.

VMware is the clear market leader in providing virtualization technology with 82% of the sample using VMware. Despite high levels of Linux use, only 3% of the sample were using Xen as their virtualization platform. Microsoft was used by 13% of the sample base with various Unix technologies and mainframe accounting for 14%.

- IDC, Server Virtualization Now Firmly Embedded in European Organizations

I know this is only the European contingent but nearly half ( 47.4%) of all VMware revenue comes from the International market according to the Q2 2008 10Q from VMware. You can do your own extrapolations from there but it shows a much higher use case then the partial count 44% shipment number.

Just the Facts

Some last minute corrections to the numbers being reported by IDC before a recap. In the IDC report they stated that VMware revenues had increased 27% year-over-year.

VMware grew its x86 server virtualization software business 27% year over year and maintained the number 1 position in the market with 78% revenue share in 2Q08.

- IDC, Virtualization Continues to See Strong Growth in Second Quarter

The only problem with the statement is VMware reported revenue growth of 39% year-over-year in their quarterly filing to the SEC. Just another case where IDC is either reporting the numbers wrong or understating the total market share for VMware.

This Was a Sponsored Report

As with most analyst reports this one was sponsored. IDC won’t give up the name of who actually sponsored it but I can tell you it wasn’t VMware and the ones that did sponsor it are a competitor in Redmond. That’s just fine that people sponsor reports and I would have no issue with it as long as the information was accurate. When the firm putting out the report just publishes inaccurate or incomplete date then they look as foolish as Forrester did when they wrote about Open Source adoption. I’m actually surprised that Matt Asay didn’t pick up on the inaccuracies in this IDC report. I guess we have to give him some time since usually he’s spot on.

Recap

Here’s the main points you need to know about this report from IDC:

1) This was a small sampling using just the OEM’s numbers.
2) How do you count unit shipments for free products not delivered by the OEMs?
3) Microsoft only went up 5% from the previous measure.
4) VMware also went up 2% from the previous measure.
5) Hyper-V was only shipping for 2 business days in Q2 2008. There was no Hyper-V impact to these marketshare numbers.
6) VMware still commands a huge lead in actual product use.
7) There are real factual errors throughout the report.
This was a sponsored report with no input on revenue, shipment details, or feedback from VMware.

Conclusion

Microsoft bloggers, general bloggers, and press – make sure you realize that the sky is not falling with VMware market share. The methodology used in this report is questionable at best and does not reflect the total market share, revenue, or shipments from VMware. As for IDC, it’s back to the drawing board for this report. You’re starting to look like Laura Didio (formerly with Yankee Group) now.

Update (10/28/2008):

I just posted an update with the Gartner numbers that are in the wild here.

Update 2 (11/4/2008):

I posted the last notes about the IDC numbers. This came from a call I had with IDC.