VMware openly criticizes Citrix acquisition of XenSource

Posted by virtualization.info Staff   |   Thursday, February 14th, 2008   |  

Worldwide customers (and sales managers) were waiting for this moment since the day Citrix acquired XenSource, in August 2007: the moment when VMware includes its own analysis of the acquisition among its guerrilla marketing strategies.

The company never took a too neat position until late January 2008, when it sent to its sales channel a scornful email instilling the doubt that Microsoft will cut Citrix out of the virtualization game despite their current partnership.

VMware took so much to become openly against Citrix probably because the two were great partners before the XenSource acquisition. But Citrix suddenly became a competitor offering the second most popular hypervisor on the market, tightened a partnership with VMware’s biggest threat (Microsoft), and plan to cut support for ESX Server on its upcoming connection broker XenDesktop.

There’s enough to radically change the relationship with Citrix, and after the January email, it comes a second even worse indirect attack, explictly commenting the value of XenSource deal and the announced strategy.

The author is Mike DiPetrillo, Specialist System Engineer of Industry Research and Competitive Analysis department at VMware, which goes pretty bad on his personal blog:

Unfortunately I can’t disclose what VMware was doing revenue wise at the time but I can say that is was a LOT more than what XenSource was doing when Citrix bought them. In Q4 of 2007 XenSource did $2 million in revenue with expenses around $5 million. So basically they lost Citrix a couple of million. Ouch. Don’t worry, the future looks brighter, or does it. For 2008 Citrix expects revenue to hit $50 million for XenSource but expenses will be around $60 million. Another loss. So why did Citrix buy this company again?

In Q3 XenSource announced 1,000 customers. On the call they said they added another 400 customers. Good growth! That puts the total at 1,400 customers. Then came the partner count – 1,817 partners certified to sell XenSource. Hmmm. So now we have 1,817 partners trying to get business from the 1,400 customers that total $2 million in revenue (that’s $1,100 in revenue per partner). Good days to be a Citrix partner.

OK. So Citrix didn’t buy XenSource for the revenue. They didn’t buy XenSource for their partners to get rich. Maybe they bought them for the products and to be the #1 virtualization company in the world (that’s VMware’s goal).

Well, Mark Templeton (CEO of Citrix) said it himself: We’ll be the third player in server virtualization after VMware and partner Microsoft.

OK. So the strategy is go and spend $500 million on a company that’s losing money, switch all of your current successful products and branding over to the losing company, and then exit the market when your larger partner moves into the market. Is this the end of Citrix then? Terminal Services in Windows Server 2008 closes the gap pretty nicely. Virtual Desktops are also taking large chunks of market share. Time will tell where Citrix ends up.

Between Citrix moving everyone from XenSource to Hyper-V later this year and Ubuntu starting the Linux vendor migration to KVM the future looks pretty bleak for XenSource…

Read the whole post at the source.

While it’s true that this is an employee opinion appearing on a personal blog it’s worth to note that Mike’s position in the company is highly relevant, and that VMware has a very strict policy about personal blogging efforts.

It’s hard to believe that this post appeared without being reviewed first (no matter what’s the official position of VMware).

Update: virtualization.info just received a notice from VMware which grants that there is no policy about personaly blogging (besides obviously revealing company secrets) and Mike DiPetrillo’s post wasn’t reviewed at all before publishing.

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