Citrix buys XenSource as VMware challenger beefs up enterprise virtualization 16 August, 2007 By Paul Weinberg

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"VMware is definitely the market leader and most analysts now consider XenSource to be number two," stated John Bara, vice president of marketing at XenSource, in an interview completed just before the acquisition announcement.

Interestingly, Bara conceded that XenSource had a lot of ground to cover as a small player with more than 600 commercial accounts in a billion dollar virtualization market that is at least three quarters owned by VMware. "We've got to start somewhere," stated Bara.

The acquisition by Citrix of VMware's primary competitor in the server virtualization market -- announced the day after VMware's successful IPO offering on the New York Stock Exchange, makes up a lot of that ground, very quickly. Analyst firm TBR believes that XenSource will benefit from the increased resources, distribution channels, and account presence afforded by Citrix, although they agree that VMware will continue to be the dominant market leader for the foreseeable future.

Among the new advanced management features in XenEnterprise v4 are XenMotion for live migration; XenCenter, a new management user interface; Xen64, a native 64-bit hypervisor for demanding applications; XenResourcePools which offers the ability to automate the addition of new computing and storage resources; and, XenAPI which enables direct access for ISVs and OEMs to develop solutions with XenEnterprise V4.

One step that has put XenSource and Virtual Iron, both users of Xen for their virtualization solutions, into the enterprise virtualization solution "table stakes" are recent improvements in Intel and AMD processors that make it easier technically for the Xen hypervisor to function in a Windows environment, explained John Sloan, a research analyst at Info-Tech Research Group.

The second step, Sloan continued, is the addition of resource management features such as virtual machine migration into new enterprise virtualization solutions from XenSource and Virtual Iron.

XenSource and Virtual Iron had to at least match what is available in VMware's Virtual Infrastructure in terms of manageability for the virtual IT environment, stated Sloan. "Both Virtual Iron and XenSource are more legitimate competitors for VMware now."

So, there are now three major players operating in enterprise virtualization for both Windows and Linux.

Nevertheless, XenSource's association with the Xen hypervisor project, when it was exclusively Linux oriented, has given the company some street cred, added Sloan.

"XenSource is the shepherd of the Xen standard, and the Xen implementation of the open source hypervisor; and they are also an enterprise company that is surrounding the hypervisor with some value add services such as management capability, motion capability, and other types of tools."

James Staten, principal analyst at Forrester Research, suggested that there is a downside to people equating XenEnterprise with the Xen hypervisor.

"A lot of people will say 'I have Red Hat and Red Hat includes Xen; so I am covered, I don't need XenEnterprise.'"

It will be XenSource's job to instruct the market that Xen is not easy to deploy minus the company's latest offering of XenEnterprise, Staten explained.

Staten said that XenSource's other challenge was that as a small company it lacks a sufficiently large eco-system of independent software vendors, support providers and platform providers that surround successful vendors like VMware. He thought XenSource's developing partnerships with the likes of IBM and Symantec had been a step in the right direction. He also thought -- the day before the sale to Citrix was announced -- that the logical next step was for XenSource to be bought.

The Citrix deal greatly broadens its market, adding much needed resources and market presence to XenSource's ongoing expansion efforts. Citrix expects XenSource to add $50 million of revenue during fiscal 2008, and between $60 and $70 million of costs following the acquisition. Although XenSource is demonstrating positive progress in terms of adding high-end management functionality into its product line, TBR believes that expanding distribution channels and partnerships will be a key enabler for the company's future growth.