A top VMware exec explains how it avoided getting crushed by Microsoft in its early days — and the lesson startups can learn from it (VMW, MSFT)


VMware COO Sanjay Poonen

  • VMware COO Sanjay Poonen says that in its early days, Microsoft could have “obliterated” VMware.
  • Microsoft had created a competing product that worked better with its own Windows operating system.
  • So rather than tackle the challenge head-on, VMware found success by focusing on Linux, a free operating system that, at the time, Microsoft all but pretended didn’t exist. 
  • By the time Microsoft finally embraced Linux, it was too late: VMware was firmly entrenched as a major industry player. 
  • The lesson, Poonen says, is that startups can win against tech giants by finding whatever it is that their competitors can’t or won’t do, and doubling down on that advantage. 
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In the early days of VMware, Microsoft could well have edged it out of the market, if it weren’t for one key strategy. 

“In some senses, VMware has over the course of time had to navigate among other bigger companies,” VMware COO Sanjay Poonen told Business Insider in a recent interview. “The early days of VMware, the company that should have probably obliterated us was Microsoft.”

In 2001, VMware pioneered the market for virtualization, a key technology for increasing server efficiency that would go on to form the foundation for modern cloud computing. By 2003, however, Microsoft got into the market in earnest, releasing a similar product for its Windows operating system. 

At the time, VMware was a little startup, while Microsoft had already been around for going on three decades. And, unsurprisingly, Microsoft’s own virtualization software worked better with Windows than anything VMware could come up with. 

With little chance for VMware to catch up on Windows, it took a different strategy. VMware decided to focus on Linux, an open source operating system popular with developers. 

At the time, Poonen says, Microsoft basically “denied that Linux existed.” To Poonen’s point, Microsoft spent years competing fiercely with Linux and other open source software, and in 2001, former Microsoft CEO Steve Balmer even called Linux “a cancer.”

It meant a huge opportunity for VMware to go after a massive market that Microosft was all but ignoring. 

“Building a better product not only for Windows but also Linux put VMware on the map,” Poonen told Business Insider.

By the time Microsoft finally started accepting Linux, under CEO Satya Nadella, VMware was already well-established as a multi-billion dollar company and a pillar of the enterprise software market. 

Read more: A Microsoft engineer says that the use of Linux has overtaken Windows on its own Microsoft Azure cloud

Overall, Poonen says that startups should take away the lesson of the David and Goliath story. To take on a giant in the technology industry, you need to figure out where exactly you have the advantage, and strike quickly. For VMware, this advantage was Linux.

“I think you have to have first off an incredible David and Goliath mindset,” Poonen said. “You have something about what you built that is disruptively innovative and then the incumbent will have scaled, but won’t have speed. If you have something that’s disruptively innovative, you can move fast.”

While Microsoft and VMware remain competitors, things are cooling off a little: Earlier this year, the two announced a cloud partnership that forms the foundation of a formal friendship.

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