There's been a persistent rumor circulating that Virtual Iron is about to be acquired, fueled in part by a recent Jefferies & Co. research report that said Oracle was interested in the virtualization startup. Why would Oracle, with its own Oracle VM, want a third-tier player in the virtualization market?There's an obvious answer. Oracle VM is based on open source Xen, as is Virtual Iron's hypervisor. So the tools that Virtual Iron has built out around its hypervisor, such as LiveMigration for moving virtual machines around, and LivePower, for detecting and decommissioning underutilized VMs, could be useful in an Oracle customer's environment.

That's the obvious answer, and maybe it's a good one.

But Virtual Iron is a company with good technology and a potentially solid business plan of underselling the market leader. (When asked, Virtual Iron declined to comment "on rumors appearing in the media.")

To cap it off, Virtual Iron has been well-funded by venture capitalists and probably has lots of cash in the bank. Even in this down market, Oracle won't get a fire sale price. And if it doesn't get Virtual Iron now, the firm just might stick around long enough to build a customer base and become a much more expensive acquisition.

I suspect if the deal goes through, it will do so for reasons other than the technology ones listed above. Oracle likes to use acquisitions as a two-edged sword. It wants both the assets of the target company and to weaken a competitor who would benefit by acquiring them itself.

So far, the press has named the competition as VMware, but I think that misses the point. With the recession, virtualization is coming on stronger than many established software makers anticipated. It's beginning to be a factor in what had been unrelated markets. Virtualization got its start in nonproduction jobs, such as software development and testing. Then the lower-priority applications were consolidated on virtualized servers.

Now virtualization is swiftly moving into the production workload, including database applications, if not the database server itself. Oracle can't afford to fall too far behind the virtualization curve in terms of managing virtualized systems, including the database. If it does, it will risk waking up one morning and finding Microsoft has figured out how to sell SQL Server more effectively than Oracle sells its own database. The two contend fiercely for the Windows database market, which even in a downturn is getting bigger. Oracle wants to face down the one competitor that might be able to limit its database market reach.

Microsoft has made giant strides in its own virtualization efforts by accepting Citrix Systems' technology lead and grafting XenSource expertise onto its own virtualization efforts. Citrix now uses the Microsoft virtualization file format, VHD; Microsoft lets Citrix offer the leading management tools, Citrix Essentials, for both XenServer and the Windows hypervisor, Hyper-V.

Citrix represents Xen expertise that's proving competitive, in alliance with Microsoft. With Virtual Iron, Oracle brings part of the Xen brain trust into its own house and gets new tools, and hopefully new legs, under its struggling Oracle VM. It may be willing to pay well for such a rejuvenation. And at the same time it will keep Virtual Iron assets from ever drifting into the Microsoft/Citrix camp.