VMware ousted co-founder and CEO Diane Greene Tuesday, replacing her with former Microsoft executive Paul Maritz. (Read our recent Q&A with Greene.)

The VMware board of directors, which is composed mostly of directors and officers from VMware owner EMC, announced its decision to make a "change in the leadership of the company," saying the move will help VMware "extend its lead in the virtualization market" Maritz has been on the EMC payroll since February as president of its cloud computing division.

Greene is one of five VMware co-founders, along with her husband, Mendel Rosenblum, VMware's chief scientist. The Greene-led VMware had a profound impact on the IT market by introducing x86 server virtualization, a technology modeled after what IBM had done decades earlier with the mainframe.

VMware, founded in 1998, thoroughly dominated the new virtualization market, but now faces increasing market pressure, most notably from Microsoft and its new Hyper-V virtualization software.

VMware's stock took a nosedive in January, and was down 26 per cent Tuesday.

In a recent interview with Network World, Greene observed that there is some "instability" associated with VMware's "unusual" ownership situation. EMC bought VMware in 2003, and spun off part of the company in an IPO last year. EMC retains control of 86 per cent of VMware.

Greene fought to keep VMware as separate from EMC as possible, explaining the need for VMware and its partners to "execute in an unfettered way."

EMC CEO Joe Tucci, who is also president of VMware's board of directors, thanked Greene for her decade of service at VMware.

"As one of the founders and leaders of VMware, Diane guided the creation and development of a company that is changing the way that people think about computing," Tucci said in a statement.

Maritz retired from Microsoft in 2000 after 14 years managing the development and marketing of products such as Windows 95, Windows NT, Database, Tools and Applications. Maritz in 2003 founded Pi Corporation, a cloud storage vendor that helps customers keep track of personal data. Pi was acquired by EMC in February of this year, and Maritz became president of the EMC Cloud division.

"VMware is in a tremendous position to extend its lead in the virtualization market," Tucci said. "Paul is a leader in the software industry. He has decades of experience building one of the greatest franchises in software history, Windows. Paul was instrumental as part of the core executive leadership team in building much of Microsoft's success."

VMware will announce earnings on July 22, and Maritz "will make observations about the second half of 2008," the company said.

"While VMware is not updating guidance for Q2, we expect revenues for the full year of 2008 will be modestly below the previous guidance of 50 per cent growth over 2007," VMware stated.

Maritz was also named to VMware's board of directors.