Just two days after VMWare's record-setting debut on Wall Street, Citrix has snappped up a rival virtualisation company, Xensource. 

Citrix will buy the privately-owned California-based company, which develops enterprise-grade virtualisastion solutions, for about $500-million in cash and stocks.
The acquisition moves Citrix into adjacent server and desktop virtualisation markets, expected to grow to nearly $5-billion over the next four years.
The combination of Citrix and XenSource brings together significant customer, technical, channel and go-to-market synergies. This will allow Citrix to extend its leadership in the broader application delivery infrastructure market by adding key enabling technologies that make the end-to-end computing environment far more flexible, dynamic and responsive to business change.
The acquisition will also strengthen each company’s strong partnership with Microsoft and commitment to the Windows platform.
The acquisition is expected to close in the fourth quarter of 2007 subject to the satisfaction of closing conditions.
XenSource provides enterprise-class virtual infrastructure solutions built on the open source Xen hypervisor.
Originally created by the founders of XenSource at the University of Cambridge, the Xen virtualisation “engine” is now developed collaboratively by an active open source community of senior engineers at many infrastructure companies, including hardware vendors like Intel, IBM, HP and AMD.
This open collaborative approach significantly accelerates the innovation of the Xen engine, leading to continual improvements in performance, scalability and cross-platform support.
The acquisition announcement comes on the heels of a substantial new release of XenEnterprise, the company’s flagship commercial product line powered by the Xen engine.
XenEnterprise v4 marks a significant milestone in XenSource’s transition from a next-generation technology company into a leading provider of comprehensive enterprise-class virtual infrastructure solutions. With powerful new management, availability and ease-of-use features, XenEnterprise v4 raises the bar as the most open, scalable, high performance virtualisation platform on the market.
Channel partner and customer enthusiasm over the XenEnterprise product line has lead to a rapid increase in customer demand. Version 4 will further accelerate an installed base that has more than doubled in the last 90 days to over 650 customers.
“The combination of Citrix and XenSource brings together both presentation and server virtualisation to deliver more choice and flexibility to the market, particularly Citrix's strong installed base,” says John Humphreys, program vice-president of Enterprise Virtualisation for IDC. “By adding mobility, monitoring and storage integration in the recently introduced XenEnterprise v4, XenSource has narrowed the capability gap and delivered a viable virtualisation solution for server consolidation.”
Upon close of the acquisition, the XenSource team and products will form the core of the new Virtualisation & Management Division of Citrix dedicated to building and growing these important new businesses. Peter Levine, XenSource, CEO, will lead the new division, reporting directly to Mark Templeton, Citrix president and CEO.
Under Levine's leadership, Citrix is also committed to maintaining and growing its support for the Xen open source community, led by XenSource co-founder and Xen project leader, Ian Pratt.
Between now and the close of the acquisition, XenSource will work with the key contributors to the Xen project to develop procedures for independent oversight of the project, ensuring that it continues to operate with full transparency, fairness and vendor neutrality – principles that are critical to the continued role of Xen as a freely available open source industry standard for virtualisation.
“Today is a great day for the virtualisation market because customers will now have a strong alternative that is open, proven and backed by one of the most successful end-to-end software infrastructure leaders in the entire industry,” says Levine. “This move is not about competing for the 5% of the market that is already being served. It’s about steering into the 90% white space that is wide open, both at the server and in new emerging opportunities at the desktop.”
The acquisition will also strengthen each company’s strong partnership with Microsoft and commitment to the Windows platform. As an independent company, XenSource has built a strategic relationship with Microsoft designed to ensure broad interoperability between XenSource products and the upcoming Microsoft Windows hypervisor, code named “Viridian”.
This relationship complements and broadens the successful partnership between Citrix and Microsoft in the Windows application delivery, application networking and branch office infrastructure markets.
"Although the market is still in the earliest phase, virtualisation already offers significant opportunities for cost savings and innovation,” says Bob Muglia, senior vice-president: Microsoft Server & Tools Business. “Citrix and XenSource have long been strong partners for Microsoft and it is exciting to see them team up to help move the market forward.”
Virtualisation has become one of the most talked-about technologies in recent years because it breaks the “hard-coded” link between hardware and software, allowing individual computing components to be dynamically combined and reassembled for maximum efficiency and agility.
Citrix has long been a leading provider of virtualisation technologies at the user tier of computing with products that deliver mission-critical applications to end users with the best performance, security and cost savings. This acquisition will allow Citrix to extend its use of virtualisation into the logic and data tier of applications, improving overall customer value and enhancing its position as a market leader in end-to-end application delivery infrastructure.
In the data centre, this means extending virtualisation to the servers that run the business logic of applications and the storage systems that manage application data. Citrix customers and partners are increasingly requesting non-proprietary, easy-to-use server virtualisation solutions that are optimised to work best on the Microsoft Windows platform.
Citrix currently intends to distribute the XenEnterprise product line through more than 5 000 channel partners with proven expertise in enterprise data centre solutions built on the Windows Server platform. The company also plans to leverage its strong relationships with leading server and data centre infrastructure partners to create additional routes to market through OEM sales channels.
In the storage market, Citrix will continue the XenSource strategy of leveraging key industry partners to ensure that the open-architecture XenEnterprise product line fully supports leading storage management and infrastructure solutions and a robust ecosystem of storage software vendors.  
The two companies share a strong belief that customers should be able to manage their virtual environments with the same proven storage management solutions they use for their physical environments. This strategy is exemplified by the recently announced partnership between Symantec and XenSource which ensures that XenEnterprise works transparently with Symantec’s Veritas Storage Foundation and Veritas NetBackup solutions.
At the desktop, the combination of Citrix and XenSource will help make the emerging market for virtual desktop delivery a mainstream reality. Industry experts estimate that up to 30-million office workers will move to virtual desktops over the next five years, creating a new $1-billion market for desktop virtualisation.
While much of the underlying technology to realise this vision exists today, the available solutions are still far too complex and expensive for most customers to assemble, integrate and manage. By combining the capabilities of XenEnterprise v4 with the newly-released Citrix Desktop Server, Citrix will be able to provide customers with a comprehensive set of desktop delivery solutions that offer economics, ease-of-use and end user experience.
Citrix further intends to enhance this strategy by incorporating other relevant application delivery infrastructure technologies such as Citrix EdgeSight end user experience monitoring, Citrix Access Gateway for secure application access, Citrix WANScaler™ for accelerated delivery to branch office users, Citrix GoToAssist for remote desktop support and the OS-streaming and provisioning capabilities from its recent Ardence acquisition.
“We are tremendously excited about the opportunity to add the XenSource products, team and culture to the Citrix family," says Mark Templeton, president and CEO for Citrix. "Incorporating XenSource’s dynamic virtualisation services into our market-leading application delivery infrastructure will enable our entire product line to be more flexible, agile and dynamic, qualities that have never been more important than they are today.
"We believe application delivery will be a defining issue for IT over the next decade because applications are the language of business. Companies that are fluent with application delivery will be the winners, while those who do not will lag behind, struggling with the pace of change in an increasingly dynamic world.”