One of the things that will be interesting to observe as the cloud matures will the influence the internal and external clouds will have on each on each other.
To this end, I think Microsoft have benefited from years of experience with the web hosting industry, and as a result have completely nailed the correct approach for them to take into the cloud. VMware doesn't have the benefit of this experience, and should watch Microsoft closely as the key to their strategy has more in common with what VMware needs to be successful than one might think. That key being cost.
For years, Microsoft never made a dent in the web hosting space. It would be naive to attribute this solely to the stability and security of the platform - IIS 5 had a few howlers sure, but so has Apache over the same time. IIS 6 however was entirely different - in it's default configuration, not a single remotely exploitable vulnerability has been publicly identified to date. But there was the cost angle - Windows based hosting charges were far greater than comparable Linux based offerings, and they pretty much stayed that way until SWsoft came along with Virtuozzo for Windows in 2005. The massive advantage Virtuozzo had (and still has) over other Virtualisation offerings from a cost perspective is that only a single Windows license is required for the base OS - all the containers running on top of that base don't cost anything more. Now all of a sudden web hosting companies could apply the same techniques to Windows as they had used for Linux based platforms for years, and achieve massive cost reductions.
I can see a similar problem for VMware in the external cloud space. Let's compare 2 companies currently offering infrastructure based cloud services - Terremark and Amazon.
Terremark's 'Infinistructure' is based (among other things) on hardware from HP, a hypervisor from VMware (although it's not clear if this is the only hypervisor available), all managed by an in house developed application called digitalOps which apparently had a developmemt cost of over $10mil USD to date.
Amazon's EC2 on the other hand uses custom built hardware from commodity components, uses the free open source Xen (and likely their own version of Linux for Dom0), and of course a fully developed management API based on open web standards.
Comparing those 2, which do you think will _always_ cost more? If VMware want to seriously compete in the external cloud space, they need to address this. Right now I see 2 options for them. One is to unshackle the free version of ESXi, so that the API is fully functional and hence 3rd parties could write their own management tools to sit on top and not have to pay for the VMware tools (and then have to write their own stuff anyway, as Terremark have done). The other is for VMware to enter the hosting space themselves, as they would be the only company in a position to avoid paying software licenses for ESX and their VI management layer.
I'm sure VMware realise they only have a limited time in which to establish themselves in this space, because 2 trends are in motion that have the potential to render the operating system insignificant, let alone the underlying hypervisor: application virtualisation, and cloud aware web based applications. But if will likely be some time before either of those 2 will be adopted broadly in the enterprise, and hence VMware are pushing the fact that their take on cloud is heavily infrastructure focused, and thus doesn't require any changes in the application layer.
Sure, unshackling free ESXi would mean missing out on some revenue from external cloud providers, but it will go a long way towards insulating them from any external cloud influence creeping into the internal cloud. What do I mean by that? Say I was a CIO, and I had 2 external cloud providers vying for my business. While they both offer identical SLA's surrounding performance and availability, one of them offers a near seamless internal/external cloud transition based on the software stack in my internal cloud. It is however 3 times the cost of the other provider. After signing a short-term agreement with the more expensive cloud provider, I would be straight on the phone to my directs asking for an investigation into the internal cloud, with a view to making it more compatible with the cheaper external offering.
Which is why Microsoft have got the play right. They know that no 3rd party host can pay for Windows and compete with Linux on price. So instead of go after it with Hyper-V on an infrastructure level, they're taking a longer term approach and going after the cloud aware web based application market. Personally, I can't ever see VMware becoming a cloud host, which means they need to do something about unshackling ESXi. And fast - the clock is ticking.