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"We left a nice stocking stuffer for customers and partners," Mike Neil, Microsoft's general manager of virtualization, told me on Dec. 13. He noted that VMware just released "a $5,000 upgrade. That seems like a lump of coal to me."

I presume that Neil referred to VMware's November 11 Infrastructure 3 Update. Price range is $995 to $14,995, depending on edition.

A month ago today, my colleague Steven J. Vaughan-Nichols asked, "Is VMware a dead duck?" He wrote: "Today, VMware has about 80 percent of the virtualization market. By 2011, I think it may be lucky to have 8 percent of the market." SJVN's reasoning: Free virtualization software. From a bundling perspective, meaning Hyper-V as part of Windows Server 2008, Microsoft fits into that "free" category.

VMware isn't Microsoft's target, although the virtualization software developer will likely be a Hyper-V casualty of some kind. Microsoft is trying to capitalize on a much broader server consolidation trend, of which virtualization is a facilitating technology.

"When we developed the Hyper-V technology, server consolidation was one the key things we focused on," Neil said. "We think we've hit the mark with that."

It's a mark Microsoft wouldn't want to miss. Gartner predicts the number of deployed virtual machines will rise from 540,000 at the end of 2006 to more than 4 million in 2009. The major driving force—as in 90 percent of users—is server consolidation.

Virtualization is an important addition to Windows Server 2008 that won't make the Feb. 27 launch. Neil said that Hyper-V was "still on target for release ... within 180 days of release of Windows Server 2008." I asked if maybe today's beta indicated that Microsoft might release sooner. To that he responded: "The key word there is within 180 days."

Bill Hilf, general manager for platform strategy and Windows server marketing, joined Neil on the phone this morning. He expressed loads of confidence about Windows Server 2008, which last week went into broad release candidate testing.