Now that Microsoft has validated the VM idea by offerning its own virtualization software I would expect VMWare will find itself needing to rely less on the underlaying O/S ‘cooperation’ with virtualization architecture. While processor support for virtual machines provides way to avoid a Microsoft O/S level lock, a hadware dependent VM solution could prove problematic to market as AMD and Intel continue to slug it out.

At this early stage in the Virt market’s maturity, margins are still relativly high and will remain so until Microsoft matures their own product offering. I doubt Xen can capture enough market share to seriously erode VMWare’s profit margins by aggressive pricing and their best bet appears to be to walk a line between the market leaders VM and Microsoft.