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Monday, October 8, 2007 - Page updated at 12:00 AM

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VMware is tops in its esoteric market

San Jose Mercury News

Growing up on the banks of Chesapeake Bay, Diane Greene loved to sail her dinghy. She mastered windsurfing when the sport was new. She studied naval architecture and as a young woman lived in Hawaii, designing windsurfing gear.

Today, Greene, at 52, is best known for navigating VMware, a company that might best be likened to a nuclear submarine.

For years VMware operated in the obscure depths of computer science, gradually developing the know-how and market for its esoteric "virtualization" software.

When VMware debuted on Wall Street last month, its stock took off like a Polaris missile, with a trajectory that has pushed its market capitalization to $25.8 billion. It's third most highly valued U.S. software maker, after Microsoft and Oracle.

Greene has been VMware's CEO since its 1998 launch as a mom-and-pop startup.

She brought business acumen to an idea hatched in the computer-science lab of her husband, Stanford University professor Mendel Rosenblum. Three colleagues were also co-founders.

Silicon Valley insiders credit Greene for her skill in skippering VMware, staring down Microsoft's aggressive tactics and forging alliances on its unorthodox path to the valley's biggest initial public offering since Google.

"I think sailboat racing taught me a lot," Greene said. Racing and running a company, she explained, require preparation, organization and "the right team." It requires a keen awareness of shifting conditions and the ability to weigh all the factors, including rivals: "What are the other boats doing?"

A profile in a trade journal in 2005 described Greene as "humble" and "unassuming." She is variously described as "an engineer's engineer," "a supermom" and "a reluctant celebrity." She is credited for fostering an open, collegial culture in VMware.

"She's certainly not the typical CEO," said Dan Warmenhoven, chief executive of Network Appliance.

NetApp is a rival to storage giant EMC, which acquired VMware in 2004 and has profited handsomely by allowing it to spin out its own stock.

Even in the lobby of VMware's handsome new campus in Palo Alto, Calif., Greene makes a disarming impression. At 5 feet 2 inches, she'd make the short list of short CEOs. There is no power suit. Her smile is warm, her manner personable.

"I always go out and greet my guests," she said later, "and I can't tell you how many times they thought my admin. was greeting them."

Female CEOs are rare in corporate America and Silicon Valley. Within that small sorority, Greene makes a different impression from the likes of eBay CEO Meg Whitman or former Hewlett-Packard leaders Carly Fiorina and Pattie Dunn.

Founders don't have to worry about the proverbial glass ceiling. But even in her previous jobs — at Sybase, Tandem Computer and Silicon Graphics — Greene said she never thought gender limited her opportunities

As a female engineer, "I've always been in the minority, and it's something I just didn't notice," she said.

In business dealings, Greene suggested, her background helps her interact with technologists and perhaps overcome latent bias related to gender. Greene said she has noticed one tangible benefit of being a woman.

"Amazingly talented women tend to gravitate toward VMware. People I know just peripherally will call me and say, 'Gee, I'm interested in joining VMware,' " she said, adding that women fill more roles as engineers, executives and managers than at other valley companies.

Guarded about privacy

Greene comes across less as a valley mogul than the protective mother she is. She is guarded about her privacy, and requested that questions about her family be off-limits.

When she started to tell a story about crabbing in the Chesapeake with her children, she abruptly cut herself off. Inside her compact office, she turned over framed pictures of her children, lest they be captured by a photographer's lens. She is said to have a rule against business interfering with family dinner.

Greene's persona may serve as camouflage for an intense competitor who has won sailing and windsurfing races. "I just engage myself in whatever I'm doing," she said.

A fascination with computer models used in hydrodynamics led her to leave Hawaii to study computer science at the University of California, Berkeley. Future husband Rosenblum was a fellow student; they've been together since 1985.

While Rosenblum pursued an academic career, Greene joined the valley work force. Before VMware, she was involved in two other startups, as CEO of Vxtreme, a video-streaming company, and as a consultant on AdForce, a Web advertising venture.

Rosenblum and some colleagues, meanwhile, were revisiting "virtualization," an idea pioneered by IBM in the 1960s, but of limited use at the time.

Virtualization involves complex software that enables servers to run multiple operating systems, enhancing efficiency and lowering costs and energy use. VMware derives its name from the phrase "virtual machine."

Windows and Linux

VMware offered its first product as a free download, wowing techies who were suddenly able to run Windows and Linux simultaneously.

Greene smiled, recalling one fan's e-mail: "Your brains must be bigger than Volkswagens."

In 2002, as VMware started to gain traction, Microsoft decided to get into the virtualization business. It made a memorable bid for VMware.

Veritas founder Mark Leslie, who then served on VMware's board of directors, disparagingly called it "a standard Microsoft offer letter" that included an unreasonably low price and a thinly veiled threat — that if not accepted, mighty Microsoft would become a direct foe.

When VMware declined, Microsoft instead bought virtualization rival Connectix.

Greene's account is more diplomatic: "We couldn't reach terms."

With the virtualization market heating up and the Microsoft rivalry brewing, VMware soon had several suitors.

In late 2003, VMware's board agreed to an acquisition by EMC for a price that, according to Leslie, was $680 million. The offer, he said, provided a safe harbor from Microsoft's competitive threat.

With tech stocks and the IPO market still in doldrums, Leslie said, EMC's offer was attractive.

Given VMware's current value, EMC scored a fabulous bargain. That's also why some observers now suggest VMware should have passed on EMC's offer and held out longer to do its own IPO.

Greene might count herself among them: "I can't say that my husband and I thought it was ideal, but it would have been selfish not to follow the consensus," she said.

Because 85 percent of VMware was owned by employees and founders, the deal enabled many people to cash in stock options.

"It was a life-changing event for a lot of people, so we said OK," Greene said.

VMware customers Hewlett-Packard, IBM and Dell — all of which compete with EMC in storage — expressed concern about the deal, Greene said.

She and EMC chief Joe Tucci agreed to a hands-off approach that would allow VMware considerable autonomy. Spinning off its own stock has proved to be another smart move.

One benefit is that VMware now has a war chest to make more acquisitions. At VMworld in San Francisco — a three-day virtualization powwow that drew more than 10,500 attendees — VMware announced the acquisition of Dunes Technology, a Swiss software firm.

Dominates growing field

VMware is now recognized as the dominant firm in a growing field, validating the founders' vision that virtualization would broadly enhance information technology.

Early on, Leslie said, VMware had many skeptics among companies that underestimated the virtues of virtualization.

Some executives weren't sure whether to regard VMware as a friend or a foe, or whether it would succeed or fail. Today, it's credited for turning a promising notion into an industry.

Strategizing in that industry, Greene said, has a strong parallel to racing sailboats — "the upwind phase and the downwind phase."

So, is VMware now heading downwind?

"Oh no, there's always a mix. With any growth there's a lot of challenges," Greene said. Later she added: "In many ways we're still at the start of the opportunity."

Copyright © 2007 The Seattle Times Company

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