Citrix/XenSource union raises virtualization ante; challenges will grow

Battle brews over who controls the virtualization software that controls the data center.

Underneath the dollar signs of Wednesday’s Citrix acquisition of virtualization vendor XenSource, are the shifting motives of a complex web of vendor alliances aiming to provide corporate users with virtual environments and the tools needed to manage them.

With its $500 million acquisition of XenSource, Citrix cemented the evolution of its desktop tools via virtualization and established its intent to deliver server virtualization; XenSource, which will operate as a division of Citrix, now has the capital and sales channel to become a serious corporate alternative to VMware for server virtualization; and Microsoft – partner to both companies – may just have found the alliance to bridge the gap between its hypervisor vaporware this year and next year’s shipment of the real deal.

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Underneath the dollar signs of Wednesday’s Citrix acquisition of virtualization vendor XenSource, are the shifting motives of a complex web of vendor alliances aiming to provide corporate users with virtual environments and the tools needed to manage them.

With its $500 million acquisition of XenSource, Citrix cemented the evolution of its desktop tools via virtualization and established its intent to deliver server virtualization; XenSource, which will operate as a division of Citrix, now has the capital and sales channel to become a serious corporate alternative to VMware for server virtualization; and Microsoft – partner to both companies – may just have found the alliance to bridge the gap between its hypervisor vaporware this year and next year’s shipment of the real deal.

What users will get is a Citrix desktop virtualization environment and a number of options for deploying and managing virtualized servers on Windows. And they will see a determined effort from the Citrix/XenSource/Microsoft triumvirate to pool resources to battle VMware, which has nearly 85% of the virtualization market.

Corporate users, most notably Windows shops, will now have a legitimate alternative to VMware if they don’t want to wait for Microsoft to deliver its first-generation hypervisor technology in mid-2008.

In addition, Microsoft’s partnership with XenSource means users could opt for the Citrix/XenSource hypervisor now and migrate to the Windows Server Virtualization (WSV) hypervisor and Microsoft’s management tools when they ship.

Or they could mix and match, moving to WSV for their hypervisor and staying with Citrix/XenSource management tools.

XenSource and Microsoft are already working on that kind of interoperability and today 90% of XenSource’s 650 customers run the company’s technology on a Windows-only platform, according to Simon Crosby, the company’s CTO.

“For Citrix, [WSV] becomes the base operating system component for its next business, just as Windows Terminal Server has been for Presentation Server,” according to a note authored by 451 Group analysts William Fellows, Rachel Chalmers and John Abbott.

In that Microsoft/Citrix partnership around thin-client technology, Citrix has access to Microsoft source code via a deal where it licensed its thin-client technology to Microsoft for the early versions of Terminal Server. Citrix now uses that insider information to build tools for the platform that Microsoft does not offer, a business that nets the company more than $1 billion annually.