After its much-discussed and over-subscribed IPO, VMWare (VMW) remains a subject of attention. Even when the topic is not VMWare, they become part of the story. Some of the items I have seen floating around the blogosphere include the following:
Citrix (CTXS) recently announced that they were acquiring XenSource, an open source server and desktop virtualization vendor. As one of the only competitors to VMWare that actually has viable products and customers, VMWare became part of the story.
In discussions of Microsoft's effort to develop and release their virtualization solution, it has been pointed out that Microsoft (MSFT) is devoting significant R&D funding but has not yet released the software and is said to be behind schedule. An interesting side note is that Microsoft and XenSource inked an agreement last year in which they would work together to ensure that Linux and XenSource software will operate with the Microsoft Veridian "hypervisor" virtualization engine. This is similar to an agreement Citrix signed with Microsoft years ago. What a tangled web is developing here.
There have also been some discussions of how server virtualization differs from desktop virtualization and how the expected increase in desktop virtualization may not favor VMWare. It's true, there is a difference, but both VMWare and XenSource offer solutions for the two alternatives. And Citrix, itself, offers a different flavor with its Presentation Server which offers a virtualized display off a central server. There are a couple of other players in this space but they are smaller and may not have the heft to compete with VMWare and Citrix in large scale data centers.
Some have made much of XenSource being an open source vendor that supports Linux as well as Windows. VMWare is not open source but they also support Linux and Windows, as well as Solaris and NetWare. As discussed above, Microsoft is making sure they can handle both Linux and Windows, too.
Finally, the newest VMWare killer is Pano Logic. This is a small start-up that has developed a device that replaces the PC entirely in a desktop virtualization scenario. The device allows all the functionality of a PC to be implemented on a server with only the keyboard, display and the Pano device actually residing on the users desk. Interistnly, the company's chief executive formerly worked at XenSource.
The bottom line after all this discussion is that, for now, VMWare is still by far the front-runner in the virtualization space. We know that Microsoft will be a formidable contender when they release their product. The only real change in the situation is that XenSource now has the deeper pockets of Citrix available to obtain more R&D funding. This should help XenSource become more competitive on a quicker timetable. And it may mean that Citrix will look to become the one-stop shop for all types of virtualization and application access and delivery solutions. This could make for an interesting alternative to VMWare. Large corporations, the kind most likely to adopt virtualization, will be very careful about adopting an approach as radical as Pano Logic's but it is worth keeping an eye on. As these solutions become more common, we will see the virtualization companies begin to compete on price. And here is where we may see VMWare's weakness emerge.
The only remaining question is whether VMWare merits a stock price over $70 per share. For now we'll let others argue about that one.
Disclosure: author does not own shares in any stocks mentioned in this article.
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