January 21, 2008 / 5:30 PM / 12 years ago

Microsoft targets VMware with new deals

SEATTLE/BOSTON (Reuters) - Microsoft Corp (MSFT.O) said on Monday it bought a start-up company called Calista Technologies and expanded its alliance with Citrix Systems (CTXS.O), targeting the fast growing virtualization market.

Microsoft Chairman Bill Gates speaks at a keynote address at the Consumer Electronics Show (CES) in Las Vegas, Nevada January 6, 2008. Microsoft acquired a start-up company called Calista Technologies and expanded its alliance with Citrix Systems, targeting VMware Inc's early lead in virtualization technology. REUTERS/Rick Wilking

Microsoft’s moves are part of a broader call to arms against the early leader VMware Inc (VMW.N) in the market for technology that allows a single computer to act like many “virtual” machines, thus expanding its capacity to run various types of software and multiple operating systems.

“This is Microsoft coming out and staking the claim that they are serious about virtualization,” said Forrester Research analyst Natalie Lambert. “When you think of VMware, you think virtualization. That is going to be a hurdle for Microsoft.”

Virtualization is one of the most important developments in the software industry, because it disrupts the traditional business model, which marries one machine to one piece of software, such as an operating system.

The technology allows companies to save on hardware costs by running existing equipment more efficiently, while allowing companies to deploy applications faster without worrying that certain pieces of software will clash with one another.

Microsoft, the world’s largest software maker, acquired Calista for an undisclosed sum. Calista designs technology that helps compress and deliver “virtualized” desktops running on a remote computer server.

Citrix is developing a software tool that helps Microsoft’s new Windows Server 2008, which will incorporate virtualization technology known as Hyper-V, to be compatible with Citrix’s competing XenServer product.

The two companies will also join together in marketing desktop virtualization, which separates a computer’s desktop from its physical location. For example, a traveling worker may access the desktop computer in his office by calling up a virtualized version of the machine over an network connection.

Microsoft leads a pack of entrenched software makers including Oracle Corp ORCL.O and Sun Microsystems Inc JAVA.O looking to close the gap on VMware, the first company to commercialize server virtualization technology.

Analysts say the virtualization wars have just begun and scores of companies — start-ups and tech giants — are working to figure out how virtualization can be adapted to improve all types of products from security software to microchips.

Shares of VMware, which is majority-owned by data storage firm EMC Corp EMC.N, have nearly tripled since its initial public offering in August, but the stock is off nearly 35 percent from its late-October highs due in part to concerns about increasing competition.


Microsoft plans to release Windows Server 2008 in February. Six months after that release, Microsoft plans to introduce Hyper-V, an extra software layer that sits between the hardware and operating system. It will compete with VMware’s main server product.

The company has reported multiple delays in completing the virtualization component of Windows Server 2008.

By building virtualization into the operating system, Microsoft said it can offer customers virtualization capability for a third of the competitors’ prices. Customers will also need to buy a Microsoft product called Systems Center Virtual Machine Manager to manage virtualized and non-virtualized servers.

Bob Muglia, a Microsoft senior vice president at its server and tools business, wrote customers an e-mail that Microsoft’s vision is for virtualization technology to move from today’s main application of consolidating servers to a wider range of possibilities including virtual desktops and applications.

“At Microsoft, we believe that in the coming years, server virtualization will become ubiquitous. Adoption of other forms of virtualization is just beginning, too, and their potential value remains largely untapped,” Muglia wrote.

VMware shrugged off Microsoft’s plans, saying it is working to expand its offerings beyond its core server product.

For example, the company started public trials of a new product called VM Stage Manager, software that technology companies and IT departments can use to track and manage their own software development efforts.

“Virtualization is not one of those things where you do one thing and it’s done,” said Raghu Raghuram, vice president of products and solutions.

Reporting by Daisuke Wakabayashi in Seattle and Jim Finkle in Boston; Editing by Steve Orlofsky

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