Competition between VMware and Microsoft got a little tighter on Thursday with the release of Windows Server 2008 R2, which includes a major update to Microsoft's Hyper-V virtualization software. VMware dominates the server virtualization market, but Microsoft hopes to change that with its new offering, Hyper-V R2. The update adds important capabilities that help Microsoft close the functionality gap with VMware and other rivals. But analysts still see the product falling short in a few areas required for running enterprise-class applications.