In virtualization, the hypervisor (also called a virtual machine monitor) is the low-level program that allows multiple operating systems to run concurrently on a single host computer. Hypervisors use a thin layer of code in software or firmware to allocate resources in real-time. You can think of the hypervisor as the traffic cop that controls I/O and memory management.
There are two types of hypervisors: Type 1 and Type 2.
Type 1 hypervisors run directly on the system hardware. They are often referred to as a "native" or "bare metal" or "embedded" hypervisors in vendor literature.
Type 2 hypervisors run on a host operating system. When the virtualization movement first began to take off, Type 2 hypervisors were most popular. Administrators could buy the software and install it on a server they already had.
Type 1 hypervisors are gaining popularity because building the hypervisor into the firmware is proving to be more efficient. According to IBM, Type 1 hypervisors provide higher performance, availability, and security than Type 2 hypervisors. (IBM recommends that Type 2 hypervisors be used mainly on client systems where efficiency is less critical or on systems where support for a broad range of I/O devices is important and can be provided by the host operating system.)
Experts predict that shipping hypervisors on bare metal will impact how organizations purchase servers in the future. Instead of selecting an OS, they will simply have to order a server with an embedded hypervisor and run whatever OS they want.
To keep their market-share, each of the major virtualization software vendors have announced plans to work with hardware manufacturers to embed their hypervisor into the manufacturer's firmware.