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VMware, XenSource, and The Future Of Virtualization

Big moves by the two companies change the landscape for one of software's hottest markets.

In the blink of an eye, the one-sided competition to virtualize the world's data centers and desktops turned into a fairer fight last week.

XenSource, a distant No. 2 to VMware in the virtualization 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 $100 million of the $500 million purchase price is earmarked for unvested XenSource stock options, as the company looks to attract and retain the brightest minds in virtualization. XenSource, built around the open source Xen virtualization software, also will benefit from Citrix's sales force and close partnership with Microsoft.

Greene's got VMware in front

Greene's got VMware in front
VMware, with a dominant 85% of the market, isn't sitting still. Its parent company, EMC, last week sold almost 13% of the company in a public share offering, collecting $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 virtualization software, which lets servers run multiple operating systems and applications simultaneously, helping companies consolidate servers and reduce data center energy consumption.

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The events of last week showed, if nothing else, that virtualization is a market worth fighting over. VMware's stock price was up more than 90% above its IPO price by week's end, buying into a profitable company with revenue on pace to pass $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 $11.7 billion market by 2011, more than twice the $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 virtualization 18 months ago, then desktop virtualization 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.

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