Analysts and some users characterize the underlying virtualization hypervisor as a commodity product and say that the real competition will happen over management tools. Is that your take? The picture is slightly different. You got single-node virtualization -- virtualization of a single server slicing and dicing it. That's what the company did when the ESX server came out in 2001. Then you got management of the virtual machines on top of it. That's a second dimension of it. That's what we did when we introduced Virtual Center in 2003. And then when we did our VMware Infrastructure 3 launch in June 2006. We took it to a third generation, which is about taking a collection of these such servers, pooling the resources together and using it to manage the capacity of the data center in a different way. And then be able to provide better availability, so that if a single [piece of] hardware fails, things get automatically restarted somewhere else, providing better load balancing of the entire data center. That to us is a new way of doing systems infrastructure that's broader then just management, and that's where we see our customers going. One third of our customers in three months [since the June release] have started deploying Infrastructure 3, and that's all about this new model.

You have reduced your prices, something users and analysts say is a result of Microsoft and Xen. Is that true -- and will there be further price reductions? What we did when we introduced VMware Infrastructure 3 is we segmented the feature set. There are a class of customers that want to get just started out with virtualization of a single node and some basic management. And there are other classes of customers that want it for enterprise storage. And there's a third class of customers that want to run their entire data center infrastructure. We said these are different layers of functionality and we are offering them at different price points. The lowest one, which includes a hypervisor, charges $1,000 on a two-way box. That certainly is lower than the previous one-price-fits-all approach.

Our motivation for doing this is to say that there is a certain class of customers that just want to play around with our software and use it for entry-level cases, and we are giving them a free product for that. The future competition that is going to come in from Microsoft with the hypervisor and Xen-based hypervisors, are basic consolidation. We are priced very comfortably with that.

Large users don't want a single IT environment; they want multiple products -- and they are going to want that with virtualization? Absolutely.

How are you going to add value for people who say, "We think VMware may be the most mature product out there, but we're going to have some Microsoft, Xen. ..." How are you going to deal with that? How do standards fit into this? There are three standards that are really important for customers, especially customers that want to have multiple environments. One is management of the virtualized environment -- so you put in a hypervisor, you run a VM [virtual machine]. But that's not enough; obviously, you want to manage them. The [Distributed Management Task Force], which has a task force for management of server infrastructure, has put together a working group. And we are working with Microsoft, as a matter of fact, IBM and all the others to advance standards, and we will implement those standards.