VMware, a young Silicon Valley company, was the early leader in a fast-growing market for what is called virtual-machine software. That puts it on a collision course with Microsoft, the industry's Goliath.
A virtual machine essentially mimics a computer so that several copies of an operating system -- say, Windows or Linux or both -- can run on one physical machine. It allows computing chores to be done on fewer computers, using less electricity and taking up less space, promising a way to control costs at corporate data centers straining to keep up with the ever-increasing demands of the Internet age.
It is also a product that occupies strategic ground in computing, as a layer of code that resides between a computer's hardware and the operating system, usurping some tasks and potentially undermining the importance of the operating system.
In a meeting with corporate customers in New York last month, Microsoft chief executive Steven Ballmer said: "Everybody in the operating system business wants to be the guy on the bottom," the software that controls the hardware.
He vowed that Microsoft, whose Windows operating systems are the main source of its corporate wealth and market power, would "compete very aggressively with VMware."
When quizzed on Microsoft's plans, Ballmer replied: "Our view is that virtualization is something that should be built into the operating system."
Bundling new technology into Windows has long been the Microsoft game plan.
The most storied case came a decade ago when Microsoft overcame the challenge posed by another Silicon Valley high flier, Netscape, offering another crucial layer of software, the Internet browser. Microsoft feared a competitor's Web browser, running on top of the operating system, could reduce the power of Windows.
"There are certainly some analogies here to what Microsoft did with Netscape," said Mendel Rosenblum, a founder of VMware and its chief scientist.
The tactics Microsoft used in the browser battle, of course, led to a host of antitrust troubles for the big software maker in the US and Europe.
This time, in the market for virtual-machine software, Microsoft is more restrained.
Bowing to customer requests, Microsoft began more than a year ago to change its software licenses so its products could run in virtual machines like VMware offerings.
But in recent months, VMware said, Microsoft has introduced new restrictions on how Microsoft products can be used in virtual machines in new ways, beyond simply dividing a single physical computer into several virtual ones.
This next wave of virtual technology, analysts said, includes software that lets virtual machines move freely across many physical machines, juggling computing chores, so that applications do not crash and Web response times are faster.
Another promising new ability is running desktop personal computers as virtual-machine software, hosted and managed securely from a data center.
VMware, however, points to license changes on Microsoft software that it said limit the ability to move virtual-machine software around data centers to automate the management of computing work. A white paper detailing VMware's concerns will be posted tomorrow on its Web site (www.vmware.com), the company said.
"Microsoft is looking for any way it can to gain the upper hand," said Diane Greene, the president of VMware.
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