Will vSphere 4.1 help VMware compete with Microsoft, Citrix for small-business users?

With the release of VMware vSphere 4.1 this week, VMware hopes to lure the elusive and price-conscious small and midsize businesses that are still, in many cases, in the early stages of trying to figure out their virtualization strategies.

Among the laundry list of new features in VMware vSphere 4.1 are changes to VMware’s licensing at the low end of its product line — changes designed to appeal to the small-business market that has been complaining about high prices and missing features. While VMware has the lion’s share of the enterprise virtualization market, the SMB market is splintered among VMware, Microsoft, Citrix, Parallels, and other Xen and KVM offerings. Microsoft Hyper-V and Citrix XenServer have been gaining a lot of attention in the small-business market because of their free and low-cost small-business offerings that include such customer feature favorites as live migration and high availability (HA).

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With vSphere 4.1, VMware answers that challenge by making its vMotion live migration feature available for the first time in the VMware vSphere Essentials Plus and Standard editions. As a bonus, VMware has upgraded its vMotion technology to deliver a five-fold increase in migration speed while supporting up to eight simultaneous migrations between two physical servers.

In an effort to entice small-business customers, the company has been running a promotional price on its entry-level Essentials license, lowering the price from $995 to $495. Evidently it helped because VMware now says it is going to make the price cuts permanent. At a price of $495 for six CPUs, that brings the price down to $83 per processor — a very affordable price for a small-business shop. The only problem is that this edition doesn’t offer live migration or HA capabilities, both of which can be found in the free version of Microsoft Hyper-V R2.

But adding new features such as vMotion comes at a cost. The price of the VMware Essentials Plus bundle, which offers virtualization across three machines or six processors, has gone up 15 percent from $2,995 to $3,495. The Standard Edition, which was $795 per processor, has gone up 20 percent to $995 per processor. Will that make a difference to small businesses?

VMware also announced it was going to modify its pricing model to offer a more pay-as-you-go style of pricing for its VMware vCenter management solutions. Under the new pricing plan, VMware would charge on a per-virtual-machine basis rather than on a per-processor basis as it does today.

This change recognizes the problems that per-processor licensing can cause for customers in a virtual environment. The pricing change also serves as a reminder of how competitive virtualization technologies are getting as companies use them to deploy their cloud solutions. Within the world of cloud computing, customers are more worried about services and flexibility rather than having to count and manage the number of sockets or CPUs they have in their physical servers — so perhaps VMware’s pricing change will make more sense as we evolve into this new world of clouds.

During the press announcement, VMware described its new pricing model:

As virtualization and cloud computing become more prevalent models of IT infrastructure, the virtual machine is rapidly becoming the standard measure of infrastructure deployments. In a virtualized environment, the hardware configuration is abstracted and changes frequently due to virtual machine migrations across the datacenter, making hardware-based licensing complex. The new virtual machine-based licensing model for VMware vCenter offers customers better alignment between software costs and benefits delivered. This new model will also better support customers’ needs to port computing environments across diverse hardware configurations, including multiple CPU scenarios, without incurring additional costs.

Jeff Byrne, a senior analyst with the Taneja Group, agrees with VMware’s assessment and went so far as to say the company’s move to per-VM licensing may have a bigger long-term customer impact than all other vSphere announcements this week. “We believe that virtual servers deserve a licensing model that provides users with the same kind of agility and flexibility that is delivered by the technology itself. We believe that the VM — including guest operating system and applications — is a much better unit of measure of the value that a user receives for running solutions on a virtual server,” Byrnes added.

“As the platform of choice for many cloud-based applications, a VM can be tied to a specific business service, which will allow service providers to track and measure the delivery of user-specific services to specific VM deployments. We realize that most major software vendors have long operated on a hardware-based licensing model for their products, and that many vendors and end-users will be resistant to change. But this particular change makes too much sense to resist any longer,” Byrnes said.

“In the long run, both the user and the virtualization industry can only benefit,” he added.

The new pay-as-you-go licensing model will go into effect on Sept. 1, and again, it will only be available on VMware vCenter management products. The question is, how long will that limitation last? How long will it be before VMware decides — or is pushed by customers — into providing the same type of licensing model for the rest of its virtual infrastructure components? Or will these changes not appeal to the mass market? Only time will tell.

This article, “Will vSphere 4.1 help VMware compete with Microsoft, Citrix for small-business users?” was originally published at InfoWorld.com. Read more of David Marshall’s Virtualization Report blog and follow the latest developments in virtualization at InfoWorld.com.