In the blink of an eye, the one-sided competition to virtualise the world's data centers and desktops turned into a fairer fight last week.
XenSource, a distant No. 2 to VMware in the virtualisation software market, went from "a pipsqueak," in the words of one analyst, to a contender, following its agreement to be acquired by Citrix Systems. About US$100 million of the US$500 million purchase price is earmarked for unvested XenSource stock options, as the company looks to attract and retain the brightest minds in virtualisation. XenSource, built around the open source Xen virtualisation software, also will benefit from Citrix's sales force and close partnership with Microsoft.
VMware, with a dominant 85 percent of the market, isn't sitting still. Its parent company, EMC, last week sold almost 13 percent of the company in a public share offering, collecting US$957 million to be used mostly for research, development, and marketing. Led by president Diane Greene, VMware is positioning itself as the operating-system-agnostic supplier of virtualisation software, which lets servers run multiple operating systems and applications simultaneously, helping companies consolidate servers and reduce data center energy consumption.
The events of last week showed, if nothing else, that virtualisation is a market worth fighting over. VMware's stock price was up more than 90 percent above its IPO price by week's end, buying into a profitable company with revenue on pace to pass US$1 billion this year. XenSource drew its premium price despite being an unprofitable startup with only a few hundred customers. The reason both companies are popular is growth: Virtual software and services will amount to an US$11.7 billion market by 2011, more than twice the US$5.5 billion in 2006, predicts IDC.
The frenzy centers on software called hypervisors--VMware's ESX Server and the open source Xen. Hypervisors translate application logic calls to the operating system into machine code that the x86 instruction set inside a chip can execute. Because hypervisors are OS-neutral, they break a stranglehold Microsoft and other big system vendors have had on the tie between the application and the chip. This architecture opens new ways for an application to handle processing tasks, reducing the exclusive role of the operating system.
Tom Petry, director of technology for Collier County School District in Florida, moved into server virtualisation 18 months ago, then desktop virtualisation six months later. Using VMware ESX Server and its Virtual Center management tools, the district virtualized 500 Hewlett-Packard blade servers in the data center. By loading up the blades with 16 Gbytes of memory, Petry gets 32 to 35 virtual machines per server.
For the district, that's mostly meant savings in support. Petry uses the blades to generate 2,000 virtual desktops accessed by PCs and HP t5720 thin clients, and it plans up to 10,000 virtual desktops, with several students using each virtual machine a day. The payoff comes from the district's 80-person IT staff spending less time provisioning new machines and being able to troubleshoot individual desktop problems from the data center.
With US$1.1 billion in revenue last year, Citrix is best known for its Presentation Server, which delivers application results from large servers to individual users over a company network. Because the application runs in the data center and not on a PC, and can be scaled to meet variable numbers of users, it's also easier to maintain and administer.
The XenSource acquisition opens up the possibility that virtualisation, under Citrix sponsorship, will shift into delivering full desktops--a combination of an operating system and user application set--as virtual machines that are refreshed frequently. It's not outside the realm of possibility, say Citrix officials, that one day such virtual machines will follow mobile workers around via the Internet, converting any available PC into a personal desktop. Virtualisation so far has been mostly a consolidation play in the data center or in the developer's test bed, where one piece of hardware can be virtualized into several different test environments.
Near term, Citrix is banking on server virtualisation, not the embryonic desktop market, so Citrix expects to concentrate on making XenSource a head-to-head competitor with VMware's ESX Server hypervisor, as well as its Infrastructure 3 VM management software.
XenSource took a step in that direction the day before VMware's IPO, when it released XenEnterprise v4, which mimics some elements of VMware's Infrastructure 3. Reviews of Xen (including ours) say it's come a long way as a low-priced alternative to VMware. XenSource products have typically been 25 percent of the price of VMware's. With the release of XenEnterprise v4, prices moved up to 50 percent to 60 percent. "We don't want to be the low-priced alternative," XenSource president Peter Levine told financial analysts on the morning of the deal.
Citrix CEO Mark Templeton envisions the company offering a hypervisor geared to perform particularly well under Windows, thanks to its and XenSource's close relationships with Microsoft. It will build better VM management software on top of Xen, following the direction of XenEnterprise v4, to help data center administrators handle their burgeoning VM workloads. Those added management products will work with both Xen-based products and with those based on Microsoft's Viridian hypervisor, which is expected to be added to Windows Longhorn Server within six months of Longhorn's launch next year. The strategy is much the same as Citrix positioning its Presentation Server products on top of Microsoft Terminal Services, Templeton says.
As far as pushing desktop virtualisation, Levine last week soft-pedaled the possibility that XenSource under Citrix would be in a hurry. "On the desktop side, we're looking at the promise of a huge opportunity," he said. "But there's still a lot of technology development, a lot of customer awareness, a lot of need to cross the chasm."
That huge opportunity is the prospect of 30 million desktops getting virtualised over the next five years. Desktop virtualisation promises to make tasks such as provisioning a desktop for a new employee easier to do from the data center. Instead of uniformity, desktops can be customized from group to group or even employee to employee. Most of a company's staff, for example, might keep running Windows XP, while power users get upgraded to Vista. Desktops would be easier to administer as virtual machines governed by policies in the data center than built as individual pieces of hardware.
Citrix itself took a tentative step toward this capability with Citrix Desktop Server, designed to work with either Microsoft's Virtual Server or VMware's VMware Server. With the acquisition of XenSource, it will be able to offer its own desktop virtualization engine and desktop management products based on it.
Citrix expects XenSource to go from "a few million" in revenue this year to US$50 million next year. It plans to spend US$60 million to US$70 million, including significantly beefing up XenSource's 20-person sales and marketing team. The following year, it projects US$200 million in revenue from its new XenSource unit.
Citrix also plans to keep XenSource's engineering staffs where they are. XenSource's headquarters and marketing are in Palo Alto, Calif., but the location of two engineering teams says more about the history of the company: in Cambridge, England, near the university, where the open source Xen hypervisor originated under Ian Pratt; and in Redmond, Wash., where proprietary work such as interoperability with Microsoft products gets done.
THE MICROSOFT QUESTION
Citrix, too, has close ties to Microsoft, reflecting a 15-year technology-sharing relationship. Citrix officials avoid any hint of competing directly with Microsoft for possession of the desktop. But that competition could increasingly be the elephant in the room.
Parts of Citrix's proprietary ICA protocol for its virtual presentation layer found its way into the Windows operating system, giving Citrix Presentation Server a leg up on the competition. Presentation Server users--there are an estimated 10 million--need a license from Microsoft as well as Citrix.
Yet this partnership is sure to be strained when Microsoft wades deeper into the virtualisation field on its own with the Viridian hypervisor, likely next year. "That will be rev one of Viridian," says Forrester Research analyst Frank Gillett. Citrix will have two years after it closes the XenSource deal to supply Xen-based products to Windows users, then Microsoft will show up with the second release of Viridian, probably in 2010, and begin taking market share for itself, Gillett predicts.
Microsoft--which today has only a very basic virtualisation product, Virtual Server--will offer Viridian in Longhorn Server in line with its usual "low-price, high-volume" strategy, says Larry Orecklin, general manager of the Microsoft system center group and virtualisation. Microsoft may charge for Viridian, or it may include it as part of the operating system, he says.
Citrix's Templeton thinks the cooperation with Microsoft can continue as it builds management tools that handle both XenSource and Viridian virtualisation products. Customers that want to make use of more than one virtualisation engine may find the Citrix dual-pronged strategy useful, but VMware is unlikely to allow itself to be fettered by any of Microsoft's interests. It will compete head to head with Microsoft in hypervisors, VM management, and virtualising other elements of the data center.
A taste of what's to come lies in VMware's willingness to launch its own storage file system, as it did four years ago. That move helped it produce the most popular new feature of Infrastructure 3: the ability to move virtual machines while they're still running from one physical server to another without disrupting end users.
Gillett says storage management vendor Veritas, part of Symantec, was upset enough by VMware providing a storage file system that it struck an alliance with XenSource to further XenSource's ability to produce live VM migration on the Veritas file system. XenSource announced that capability as part of XenEnterprise version 4 last week. By creating a pool of virtualised storage under its software, it can bring new management tools to virtual machines, such as XenEnterprise v4's XenMotion live migration.
At LinuxWorld this month, Mendel Rosenblum, chief scientist and co-founder of VMware, suggested hypervisors make operating systems vulnerable to replacement by other software that can assume their role on top of a hypervisor. Such talk is a threat to Microsoft, but it's also highly theoretical. Almost no such software exists.
With VMware being none too careful about whose toes it steps on, it's making both enemies and rapid strides in the virtualisation field. Its success also is encouraging a number of promising startups, such as Kidaro, SWsoft, Virtual Iron, VizionCore, and XDS.
Meantime, with Citrix supplying new marketing resources, XenSource must grab share from VMware and cut new ground in desktop virtualisation. It has about two years to do so. At that point, Citrix will know whether it spent its US$500 million wisely.
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