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September 4, 2008, 1:15 pm
Red Hat Buys a Seat at the Virtualization Table
By Ashlee Vance
The virtualization software market just got even more crowded, thanks to Red Hat’s $107 million acquisition Thursday of Qumranet. Red Hat will now compete head-to-head against the likes of VMware, Microsoft, Citrix Systems and Sun Microsystems.
Red Hat has been more of a facilitator than anything else in the virtualization game. It bundled a basic layer of open source virtualization software called Xen with the most recent version of its commercial Linux operating system. This allowed customers to run multiple copies of Linux and Microsoft’s Windows on a single physical server. In addition, Red Hat has worked with companies such as VMware and Citrix as they built out their virtualization businesses.
In June, however, Red Hat started to indicate a change in strategy. It decided to create its own version of that base virtualization software and include the code with its operating system. This move toward a custom-built software package meant that Red Hat would try to form more direct links with customers picking up virtualization software rather than letting other software makers encroach on potential business.
Red Hat argues that it has accelerated this strategy via the Qumranet acquisition.
The start-up, with offices in Israel and Silicon Valley, provided the corporate backing for another open source virtualization project dubbed KVM or Kernel-based Virtual Machine (KVM), which is similar to Xen.
More importantly for Red Hat, Qumranet has produced sophisticated virtualization software that stretches well beyond that base layer. Its software handles server tasks and also desktop virtualization jobs where shared software travels out from a data center to desktop machines. Qumranet claims a particular edge over rivals on the desktop front, saying that it has unique technology for speeding the flow of that information so that the virtual desktop software runs just as fast as software being processed directly by a PC.
Now, rather than being a partner of the major virtualization players, Red Hat finds itself very much in competition with them. And the company argues it has an edge by being able to link the virtualization code right into its operating system.
“The acquisition of Qumranet means that Red Hat will be one of only two companies in the world with a comprehensive virtualization solutions portfolio,” said Paul Cormier, an executive vice president at Red Hat, during a Webcast to announce the all-cash deal.
Mr. Cormier pointed to Microsoft as that second company with an operating system on its side and criticized more independent rivals as having an “Achilles’ heel” that will hurt them over time as the virtualization software market expands.
“We’re seeing most companies who are serious about virtualization assembling portfolios of products,” said Gordon Haff, an analyst with Illuminata. “Red Hat is, unsurprisingly, arguing that the operating system should be part of that portfolio — as does Microsoft. I’m skeptical on this point. One can just as well argue, as VMware does, that it’s better to be agnostic to specific operating systems given that essentially all customers have a mixed software environment.”
VMware remains the clear market leader in terms of customers and revenue, leaving Microsoft, Red Hat and others with a lot of work to do if they want to catch up.
Next week, Microsoft plans to hold a customer and partner event in which it will extol the virtues of its own recently released virtualization software. In addition, Sun and Citrix are expected to announce new products in the coming days, and VMware will hold its annual customer conference in Las Vegas later this month.
Red Hat said it does not expect the Qumranet acquisition to contribute material revenue during its fiscal year ending February 28, 2009 but forecasted that the deal could bring in up to $20 million in revenue by the following fiscal year.
Qumranet was backed by Sequoia Capital and Norwest Venture Partners.
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