VMware CEO Diane Greene fired for 'lack of operational experience'

VMware CEO Diane Green is suddenly and unexpectedly out, and channel partners are wondering what this change means for them.

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In the wake of VMware CEO Diane Greene's sudden exit from the company, partners are wondering what to expect from the virtualization giant. VMware channel partners are on the lookout for potential channel strategy changes that could come with new leadership.

"It is not so much a surprise that Diane would leave. It was inevitable that she was going to leave eventually," said David M. Lynch, vice president of marketing at Embotics, a virtualization management solution provider in Ottawa. Lynch referred to the well-known sour relationship between Greene and VMware board of directors chief Joe Tucci. "It was a surprise that it was so sudden. It literally looks unplanned."

The VMware board of directors announced Greene's departure Tuesday morning in a statement, not calling it a firing or a resignation. But later in the day, Tucci told Reuters that the board decided to fire Greene because she didn't have what it takes to run the company now that it has grown so large.

"After careful consideration we felt ... we wanted to get some leadership with more operational experience," Tucci said. The board asked Greene to stay on in another position, he said, but she declined.

Greene will be replaced by Microsoft veteran Paul Maritz, who has been running the cloud computing business of VMware parent company EMC.

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VMware also announced Tuesday that it would not meet investor and analyst expectations of 50% revenue growth for fiscal year 2008 -- hinting that there was a connection between the company's poor performance and Greene's departure.

An executive with a large Microsoft partner, who asked not to be named, questioned those low earnings figures. He speculated that VMware may be deferring revenue to make the current quarter numbers lower so that the company could then arrange an "upside surprise" for the next quarter -- so numbers would appear positive during the first quarter under the new regime.

Greene founded VMware 10 years ago with her husband, Stanford University professor Mendel Rosenblum, and a group of students, who are all credited with being the first innovators of server virtualization. EMC -- where Tucci is also CEO -- acquired VMware in 2003 and then spun off a portion of the company in a hugely successful IPO last year. Since then, VMware shares have slumped.

But Greene, who spent her first years with the company evangelizing then-unknown virtualization, is widely acknowledged as the force that drove the technology into the mainstream. And she is highly respected among company ranks.

Greene's ousting could "affect the morale at VMware," Lynch said. "We could see a domino effect in the rest of the management team." Those kinds of dramatic management changes could ultimately affect channel strategy, he said.

Still, "potential strategy redirection" is "of interest but not of concern," Lynch said.

Marvin MacKay, sales and client relationships director at systems integrator William Ives Consulting in Charlotte, N.C., said generally management change "can easily trickle down" to the channel and affect the way a company treats partners, but he doesn't see that happening at VMware.

"It really depends on the foundation of the channel," MacKay said. VMware has "one of the best" programs his company deals with, he said.

Beyond that, VMware has become the "de facto standard" and the technology is solid, which won't change even with new leadership, said Keith Norbie, storage and virtualization director for Nexus Information Systems, a VMware partner in Plymouth, Minn.

"There is tons of opportunity no matter who is leading [VMware]. The technology is what it is," said Norbie.

Some partners, however, think a little strategy change wouldn't kill VMware. Dave Sobel, CEO of VMware partner Evolve Technologies in Washington, D.C., said he doesn't think Greene's ouster will have a major effect overall on the channel. However, Sobel added that Maritz would be wise to slow down VMware's push into every area of virtualization and narrow the company's focus.

"They're going in all different directions," he said.

Partners have complained that VMware creates channel conflict by continually adding new partners and integrating new technologies into its hypervisor to push into too many niche market segments, causing excessive competition among resellers.

VMware isn't as channel-friendly as it could be, according to Lynch, and it sees partners as "a necessary evil" to "fill product holes." Microsoft and Citrix are more partner-friendly, he said, which gives him hope for Maritz.

"[Maritz] has a lot of maturity," Lynch said, noting that Maritz's time with Microsoft could lead him to be more "partner-centric."

MacKay, however, said it's too soon to tell what Maritz will bring to the table for channel partners.

"There's no way to know. People change as they get into different roles," he said.

Norbie said he will be watching over the next 18 to 36 months for the effect that Maritz's cloud computing background will have on VMware.

"If you could present the ability to run a cloud-based computing environment on VMware as a key enabling technology, you've got some pretty significant compelling attributes that go well beyond Microsoft," Norbie said.

Maritz is known as a highly competent executive, and there seems to be faith that he can spearhead growth and maintain market leadership for VMware. Maritz spent 14 years at Microsoft, retiring in 2000. For part of that time, he was third in rank behind Bill Gates and Steve Ballmer. After that he founded software startup Pi Corp., which was later acquired by EMC.

Maritz's connection to Microsoft could come in handy. VMware's largest looming battle is with Microsoft and its recently released virtualization play, Hyper-V. But the competition doesn't stop there. VMware is finding itself at battle with Oracle, Sun and Citrix, among others.

One thing is sure: Partners say Greene will be missed at VMware. Lynch called Greene a quiet "techie type" whose focus was strong leadership and staying involved in the company. Norbie described Greene as "a real big part of the heart and soul" of the company. Greene is also one of the most noted female executives in IT, having ranked on quite a few lists of top women executives in the industry.

Clearly, Microsoft will be watching these developments closely. The company has told partners to exploit Microsoft's own Hyper-V virtualization wares in a battle with VMware. "The biggest question to Microsoft will be, can its partners now sell VMware? Hyper-V is here, but come on -- it's not a serious competitor yet," one Microsoft partner said.

The consensus is that Microsoft will continue to push the notion that virtualization is part and parcel of the operating system rather than a way to circumvent that operating system. The fear among VMware partisans is that Microsoft will commoditize technologies that VMware has charged a premium for.

VMware shares fell 24%, or $13, to $40.10 on news of Greene's departure. When the company first went public, shares rose to $125.25, but fell soon after.

News writer Colin Steele and senior news editor Barbara Darrow contributed to this report.

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