Microsoft enters virtualization with Windows server

Windows Server 2008 marks Microsoft's first major challenge against VMware Inc, the leader in virtualization, by building the technology into its core operating system.

For the time being, Microsoft will ship Windows Server 2008 with a test version of its "Hyper-V" technology, which adds an extra layer of software that sits between the operating system and hardware, but it expects to add the full feature to the software within six months.

Windows accounts for about two-thirds of shipments of computer-server operating systems, but Microsoft is considered a laggard in virtualization to allow servers to run Linux or Unix operating systems alongside its own software.

"We're very early in the virtualization technology cycle," said Microsoft Chief Executive Steve Ballmer at a launch event in Los Angeles, which was broadcast over the Internet. "Today, we launch our virtualization strategy in earnest."

By building virtualization into the operating system, Microsoft has said it can offer customers virtualization capability for a third of the competitors' prices.

Virtualization is one of the fastest-growing segments of the software industry because it disrupts the traditional business model that marries one machine to one piece of software like an operating system.

"Even though VMware has a lot of customers, made a lot of money and a lot of traction, the bulk of the market is still available to be addressed," said John Enck, research vice president at Gartner. "In the long-term, this is going to be a very credible alternative and credible competition to VMware."

Before the Windows Server launch, VMware announced on Tuesday an agreement to integrate its virtualization software into computer servers from Dell Inc, Hewlett-Packard Co and International Business Machines Corp.

Ultimately, Microsoft sees virtualization technology moving from today's main application of consolidating servers to a wider range of possibilities, including virtual desktops and applications.