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At first glance, Citrix’s $500 million offer for hypervisor provider XenSource fills an obvious gap in Citrix’s desktop virtualization product line: while Citrix built its business offering a terminal server deployment path for Windows (and other OSs), XenSource competes the picture by providing a way to virtualize the client side as well. It also nicely steals the headlines a day after VMware’s partial IPO.

But the real buzz is not so much about the deal itself, but what happens with Microsoft, which happens to be the silent 16-ton gorilla sitting in the back of the room. Citrix has had a technology-sharing arrangement with Microsoft for roughly a decade, while XenSource has enjoyed access to Microsoft’s budding Viridian technology (which will form the core of its own upcoming Windows hypervisor itself) as part of Microsoft’s policy to support interoperability with Linux environments. Yet, when Microsoft actually productizes its next generation Windows hypervisor, code-named Viridian, as part of Windows Server 2008, that would be in direct competition with the Xen technology.

As my colleague Dana Gardner summed it up, ‘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.” That is, XenSource’s technology being open source, it doesn’t own it. Or as industry analyst Brian Madden asked, “What exactly did they just pay $500M for?” We’ll be talking about this tomorrow as we record the next BriefingsDirect podcast.

We’ll take the safe route on this one. Citrix had a hole in its desktop virtualization offerings, and as the best-known emerging rival to VMware, XenSource was the ripest fruit for the picking. Nonetheless, as Citrix is not an open source company, we’d concur with 451 Group analyst Rachel Chalmers, as quoted by eWeek’s Peter Galli today that in all likelihood, the combined Citrix/Xen would likely spin out the Xen project into a nonprofit open source foundation, a la Eclipse. In essence, Citrix would be buying a company using the Red Hat subscription model.

Our take is that the deal won’t necessarily shake the cooptition that Microsoft and Citrix have engaged in for years. If you recall, Citrix provided the first Windows terminal server as part of a technology sharing deal with Microsoft, then Microsoft chimed in with its own, followed by Citrix’s fancy footing to extend its terminal server across multiple OSs. When Microsoft finally unleashes Viridian as part of Windows Server 2008, its need for Linux interoperability won’t go away.

About the Author

Tony Baer is a Senior Analyst at Ovum, covering application lifecycle, SOA, and IT Service Management. Tony is a well-published IT analyst with over 15 years background in enterprise systems and manufacturing. A frequent speaker at IT conferences, Baer focuses on strategic technology utilization for the enterprise. Baer studies implementation issues in distributed data management, application development, data warehousing, and leading enterprise application areas including ERP, supply chain planning, and customer relationship management. As co-author of several books covering J2EE and .NET technologies, Baer is an authority on emerging platforms. Previously chief analyst for Computerwire's Computer Finance, Baer is a leading authority on IT economics and cost of ownership issues.

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