Before the dot-com revolution came to a screeching halt, many IT company valuations hit the stratosphere. In some cases, even what were essentially virtual companies with no prospect of ever turning a profit could send investors swooning.
You got the sense some folks believed all you really needed was a great idea, no matter how impractical or unlikely to turn a profit, attach a brand and lots of marketing hype to it, then cash in with an IPO (initial public offering). Investors obliged by sending valuations to dizzying heights.
It was a virtual bonanza that resulted in very real pain when the market made a crash-landing to rival the Skylab's.
A half-dozen years later, in the midst of a mortgage crisis the making of which had elements reminiscent of the dot-com debacle, "virtual" is in again on Wall Street.
Only this time the company that has sent investors tripping over themselves to buy shares is a real success. Virtualization software maker VMware, a subsidiary of EMC, raised $1.1 billion with its IPO. It was the most money a high-tech company has raised since Google went public three years ago.
As a result VMware, which is expected to earn $235 million on revenue of about $1.3 billion this year, has become the fourth-highest-valued software maker, behind Microsoft, Oracle and SAP. The company is valued at nearly $30 billion, an enormous boost from the $602 million EMC paid for it in 2004.
Even though virtualization technology has existed since the 1960s, when IBM introduced it to partition mainframe software, there wasn't much use for it with the advent of PCs. But that changed after VMware got into the picture a few years back with software that simulates physical computers and gives users an alternative to buying equipment every time they need increased capacity.
For solution providers, having alternatives to present to customers increases the odds of winning the business. Budget-conscious customers, though they often need a little prodding because virtualization seemingly defies the laws of physics, are increasingly amenable to it. Once they understand the benefits of virtualization, say solution providers, the decision to go virtual is a foregone conclusion.
Register today for Ziff Davis Enterprise's Sept. 20 Virtual Tradeshow: Virtualization: Taking Control, Managing Growth, Exploring Opportunities.
Besides saving on the cost of equipment, benefits also include the ability to reduce the number of servers on a network, which in turn translates to reduced energy costs. Virtualization, especially when accompanied by server consolidation, produces savings not only on product that is never purchased but also on reducing existing equipment.
As such, virtualization presents a solution to the growing problem of power consumption in data centers. Electricity to run computer equipment and the air conditioning that keeps it from overheating is a major concern in IT departments as demand for computing and storage capacity increases.
And though hardware manufacturers are addressing consumption by making green products that consume less energy, virtualization and server consolidation also play an important role.
VMware, though it is the superstar of the virtualization movement, is not the only player in this game. The company's market leadership position looks safe for the time being, while scrappy competitors are elbowing their way into the lucrative virtualization market. They include open source developers XenSource, which Citrix Systems has agreed to buy for $500 million, and Virtual Iron.
And let's not forget Microsoft, which though it has hardly made a ripple in virtualization, has been known to take down market leaders. Remember Netscape?
For now there is plenty of room for competitors, considering that spending on virtualization and supporting services is projected to swell to more than $15 billion in 2011, up from $6.5 billion last year, according to research firm IDC.
No wonder Wall Street welcomed VMware with open arms. But more importantly, from a channel standpoint, the projected growth in the virtualization market has the potential for a real boon, considering the transformative nature of the technology.
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