Microsoft's Latest Threat: VMware

microsoft's No. 1 rival is a household name, Google. But a strong candidate for No. 2 is a company scarcely known outside the technology industry: VMware.

"VMware is definitely a threat," said Gary Chen, an analyst at IDC, a research firm. "After Google, it is the company Microsoft fears most."

Google and VMware, which is based in Palo Alto, California, pose a broadly similar challenge to Microsoft, by potentially undermining the dominance of its most lucrative desktop software and operating systems. Google represents the attack from above, while VMware is the assault from beneath.

Google, the search giant, is offering free and advertising-supported software for e-mail, word processing, calendars and spreadsheets online as alternatives to Microsoft's popular Office products. For Web-based programs like these, it is the browser -- not an operating system like Windows -- that is the vital layer of software on the computer.

VMware is the leader in so-called virtual machine software, which allows a computer to run two or more operating systems at once. Its software resides on top of the hardware and beneath the operating system.

But as VMware's technology becomes more powerful and adds more features to its products, it is starting to supplant the operating system from below -- just as the browser can from above.

VMware's leadership adds an edge to its challenge. A year ago, Paul Maritz, a former senior executive at Microsoft, took over as chief executive. In the late 1990s, he was regarded as Microsoft's third-ranked executive, the person with the most responsibility and authority after Bill Gates and Steven A. Ballmer.