Citrix makes bold virtualization move with XenSource acquisition

Citrix Systems Inc. today roared full throttle into the ever-expanding desktop virtualization arena, when it announced its intention to acquire XenSource, Inc. of Palo Alto, Calif. The news comes right on the heels of VMWare's huge IPO pop.

The $500-million acquisition will provide the Fort Lauderdale, Fla.-based Citrix with a major piece of the virtualization puzzle, adding XenSource's infrastructure solutions, based on the open-source Xen hypervisor, to Citrix's existing application and presentation technologies. This will add the vital OS component to their virtualization engine.

Citrix has said it expects the virtualization market to grow by $5 billion over the next four years. Today's move will put the company right in line for a piece of that pie. It had better, given the rich price Citrix is paying for XenSource.

The acquisition also sets the stage for Citrix to move boldly into the desktop as a service business, from the applications serving side of things. We've already seen the provider space for desktops as a service heat up with the recent arrival of venture-backed Desktone. One has to wonder whether Citrix will protect Windows by virtualizing the desktop competition, or threaten Windows by the reverse.

The acquisition also piggybacks on XenSource's release of XenEnterprise V4, which added new management, availability, and ease-of-use features to the company's flagship product. That release earned high marks in a head-to-head product comparison published this week by Computer Reseller News (CRN). XenSource also said its installed base has doubled to over 650 customers in the last 90 days.

Fellow ZDNet blogger Dan Kusnetzky has some good thoughts on the news.

Historically, the attempts to meld technology companies having dissimilar management styles and cultures have not turned out very well. It doesn’t take long to find disasters. Some examples are IBM’s acquisition of Rholm or CA’s acquisition of Ingres are really good reference points. In both cases, the key talent that made the companies what they were left quickly after their home was acquired. Both IBM and CA were left holding very expensive shells of what had been thriving, innovative companies. It’s hard to imagine how Citrix will be able to meld an open source company into their heavily Microsoft-focused environment.

The move further cements an already strong relation with Microsoft on the part of Citrix, but complicates the picture when it comes to open source. XenSource has worked with Microsoft to ensure interoperability between XenSource products and the upcoming Windows hypervisor, code-named "Viridian." But Citrix had worked with Microsoft much longer and more deeply in the Windows application delivery, application networking, and branch office infrastructure markets.

Indeed, few companies have straddled the Microsoft co-opetition vacuum as well as Citrix. Interestingly, both companies have thrived by each other, even while on a strategic level one could easily project potential discord ... some day.

While Citrix has had a strong presence in user-tier virtualization, the XenSource acquisition will extend the company's reach into the logic and data tier, extending virtualization to the servers that run the business logic of applications and the storage system that manage applications data.

Citrix said today it intends to distribute the XenEnterprise product line through more than 5,000 channel partners with expertise in datacenter solutions, and to work with server and datacenter infrastructure partners to create additional routes to market through OEM channels.

When it comes to the desktop, Citrix says the combination of its Desktop Server with XenEnterprise v4 will create comprehensive desktop solutions, and Citrix intends to incorporate such other Citrix technologies as:

• EdgeSight -- for end-user experience monitoring
• Access gateway -- for secure application access
• WANScaler - for accelerated delivery to branch office users; and
• GoToAssist -- for remote desktop support.

The deal, includes the assumption by Citrix of approximately $107 million in unvested stock options, has already been approved by the boards of directors of both firms, and now requires regulatory approval and the approval of XenSource stockholders.

The deal wasn't a total surprise, and was predicted by Dennis Simson and Philip Winslow writing at DABCC last week. Their take on the acquisition was generally upbeat:

While these companies’ virtual infrastructure management tools are more immature versus more-established vendors, if Citrix can develop robust management software through increased R&D while leveraging the open source Xen hypervisor, Citrix could establish itself as a strong competitor in both desktop and server virtualization within two to three years.

ZDNet bloggers Dan Farber and Larry Dignan see the move as an opening gambit in a virtualization land grab that got underway with VMWare's IPO.

Not everyone is jumping with joy over the acquisition. CRN found some customers who expressed dismay that joining with Citrix would diminish XenSource's agility and turn it into just another commodity product. What people think is more important among the community development crowd, a place Citrix has not had much experience to date.