Citrix, weary of waiting for Microsoft, buys XenSource

With the virtual desktop infrastructure market heating up, Citrix shelled out $500 million for XenSource so Citrix can get its own hypervisor and virtualization tools.

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Citrix Systems Inc. of Fort Lauderdale, Fla., said on Wednesday that it will purchase XenSource Inc. of Palo Alto, Calif, the commercial backer of the open source XenSource hypervisor, paying approximately $500 million in cash and stock for a company with less than $5 million in revenue. The deal is expected to close midway through the fourth quarter.

It's not a competing universe; it's an alternative universe.
Simon Crosby,
CTOXenSource Inc.

The purchase is a natural one for Citrix, the application delivery vendor and close partner of Microsoft, which has recently made moves to enter the emerging virtual desktop infrastructure (VDI) market to augment its core Presentation Server/Microsoft Terminal Services business.

With VDI, a desktop runs in a virtual machine (VM) on a server that is available to remote users. Citing industry statistics, Citrix said that over the next five years, 30 million office workers will move to virtual desktops, representing a $1 billion desktop virtualization market.

In April, Citrix introduced the first component of its Citrix Desktop Initiative (DDI) with its Citrix Desktop Server. According to Michael Rose, associate research analyst at Framingham, Mass.-based research firm IDC, Citrix Desktop Server is "fundamentally a connection broker, nothing else," but the company has several other products in its roster that it can tack onto a Citrix Desktop Server sale. Citrix WANScaler, for example, improves application delivery over a WAN, while Citrix EdgeSight allows administrators to view a remote application's performance from the end user's point of view. The company, said Rose, may also integrate its Ardence operating system streaming technology with Citrix Desktop Server to help reduce storage costs associated with keeping lots of similar VM images.

Destination integration
Today, Citrix sells Citrix Desktop Server to broker the delivery of virtual machines running VMware, the market-leading virtualization platform. The problem with this approach, said Rose, is that "as a customer, you end up dealing with a lot of different vendors, with support difficulties, with pricing complexity." Now with XenSource under its wing, Citrix will be able to sell Citrix Desktop Server bundled with the Xen hypervisor and say to customers, "You want VDI? Here you are," said Rose. "It's a much easier sell."

Once XenSource is in-house, the expectation, said Natalie Lambert, senior analyst at Forrester Research Inc., is that Citrix will "swap out" VMware for XenSource, adding that the joint technologies could be integrated "next to immediately." Lambert also expects Citrix to start using its own Independent Computing Architecture (ICA) protocol rather than Remote Desktop Protocol. "It's the stronger protocol, and it's what's differentiated them from the competition so far," she said.

To support Citrix Desktop Server, the required integration between Citrix and XenSource is "very little," said XenSource CTO Simon Crosby. On the protocol front, "ICA is simply a driver that you add into the guest or into the platform; it's pretty straightforward." Integrating ICA, Crosby said, "is quite interesting, as it has some very substantial performance benefits."

Crosby added that in all likelihood, many Citrix Desktop Server customers already have VMware installed in their shops and that the company would continue to support those environments. "It's not a competing universe," he said. "It's an alternative universe."

Citrix vs. VMware or Citrix vs. Microsoft?
Because of the strong synergies between Citrix and VDI, it's easy to forget that by acquiring XenSource, Citrix also gains the ability to move into another "adjacent" market: server virtualization.

Yet that is exactly what Citrix plans to do, said XenSource's Crosby. "Citrix is very clearly in the server virtualization market," he said. "There's a very big market there, perfect for their channel and perfect for us." The core XenSource team will continue to run as an independent division focused on the server virtualization space, while other Citrix divisions will become "consumers of our products," Crosby said.

"We're in the starting gates now, and it's time to show VMware that we're worth having around," Crosby said.

But while analysts have been positive about Citrix's VDI-type offerings, there are doubts about the company's ability to sell straight server virtualization in the data center, as VMware has done so successfully.

"As a server virtualization provider for the data center, they're going to need to gain credibility, to overhaul their salesforce, and learn a new set of buyers," said Frank Gillett, a vice president at Forrester Research. "It's not to say that they can't do it, but it's going to be a challenge."

But the chasm between Citrix's existing customer base and VMware's data center crowd may not be all that wide, said IDC's Rose. "People that buy Presentation Server are in the data center," he said. And with 160,000 customers worldwide, "Citrix has a very large Rolodex."

Meanwhile, there's an elephant in the room, and its name is Microsoft Corp.

By all accounts, Citrix has a strong and privileged relationship with Redmond, and some have wondered whether Citrix -- as it buys a viable virtualization platform well in advance of the release of Windows Server Virtualization (i.e., Viridian) -- will put the two companies at odds.

At a recent press conference, Wes Wasson, Citrix vice president of marketing and product strategy, said that Citrix will unequivocally support Viridian with its virtualization services when it comes to market. In fact, because of architectural similarities between XenSource hypervisor and Viridian, Citrix anticipates being able to build products that will work on XenSource as well as Viridian.

"It's not entirely unlike what Citrix did with Terminal Server," said XenSource CEO Peter Levine: that is, "build value-added products on top of the Microsoft platform."

In that case, why bother spending $500 million for XenSource? Why not just wait 18 months for Viridian to ship?

Wasson's comments suggest that Citrix has waited long enough for Viridian, which has been fraught with delays and feature cuts. "Our market is about delivery of comprehensive solutions," he said. "We will build on Viridian when it ships, but it's not in production today. We think that the market is now, and that equation doesn't shift when Viridian shifts."

Technically, supporting both platforms is feasible, said Crosby. "It's not entirely trivial, but it's not that hard either," he said. "It's just a [physical-to-virtual] operation." Plus, "we use VHD [Virtual Hard Disk] already, and we're on the Viridian code-drop path, so we know what to expect."

Whither Xen?
The acquisition also raised questions about what would become of the open source Xen project. Its creators and lead architects are on XenSource's payroll, and the project is the foundation of virtualization technologies from Red Hat Inc., Novell Inc. and Virtual Iron Software Inc.

Crosby said that Citrix had made substantive guarantees toward the project. "Citrix is very committed to the open source Xen community and to the project" in terms of both head count and resources, he said.

The company has also talked about forming the Xen Foundation, which would perform some loose oversight function, although plans are still hazy. Whatever the case, the intent is there, Crosby said. "We want to make sure that there's an inscrutably unbiased home for Xen," he said, "although we will continue to play a major role in it, I'm sure."

At least one member of the open source Xen community thinks that Citrix's acquisition of XenSource may be a good thing for Xen as well. "It will be a good thing for the project," said Tim Walsh, director of product marketing at Virtual Iron, a virtualization startup whose hypervisor is based on the open source Xen project. Once an independent and autonomous entity oversees the project, "it will remove a shroud of doubt about the distinction between the commercial entity and the community," said Walsh, "which has been lacking."

Let us know what you think about the story; email Alex Barrett, News Director.

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