Citrix to buy XenSource for $500 million; open-source company valuations skyrocketing (UPDATED)

Citrix is going to buy XenSource to step up the virtualization war. In the process, it has set a nice multiple for open-source companies.

Wow. The ink was barely dry on my critique of Tim O'Reilly's position on whether proprietary companies will buy up the open-source companies , and along comes the news that Citrix is buying XenSource. It's a good technology fit, but Citrix would have been one of the last companies I would have accused of a predilection for open source.

Mea ignoranta.

The news is pretty intriguing, and funny on at least one count:

This acquisition moves Citrix into adjacent server and desktop virtualization markets, expected by Citrix 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.

A few things:

  1. $500 million is a hefty premium given XenSource's revenues, which were still pretty modest (less than $10 million in 2007 and almost $0 in 2006). Citrix, in other words, paid a massive premium (50-500X (!!!)) for the brand and position that XenSource presumably has with the Xen hypervisor. It's buying big on a big future for Xen, for open source. Given the premium also paid for JBoss, this should be heartening to open-source companies everywhere. (Indeed, I feel heartened. :-)

  2. VMware may actually get a run for its money now. Citrix is no slouch in this game. The combination of XenSource (server) and Citrix (desktop + channel) is impressive.

  3. Citrix is falling all over itself to maintain its friendship with Microsoft. I know from experience with other companies that I've advised (which had relationships with Citrix) that Citrix loves (in a passionate, bit more than friends sort of way) Microsoft. It's therefore quite funny to see the company tripping over itself to declare its undying allegiance to Microsoft in the first paragraph. Get over it, Citrix. Be your own company and stop slobbering over Redmond. It's fine to partner closely with Microsoft, but you don't need to become ridiculous over it.

Net net: this is a big win for open source, but mostly because it pegs the value of an open source company quite high. We're on a nice trajectory here: Sleepycat's multiple was ~5x. JBoss' was a little over 10x. XenSource is close to 500x (or as much as little as 50x). We're on the right track. :-)

There are a range of open-source companies doing north of $10 million in sales in 2007 - some, quite a bit more. Using the stratospheric XenSource valuation as an example, that means there are several companies (as many as 10, by my count) worth between $500 million and $1 billion. $10 million goes a lot farther than it used to....

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About the author

    Matt Asay is chief operating officer at Canonical, the company behind the Ubuntu Linux operating system. Prior to Canonical, Matt was general manager of the Americas division and vice president of business development at Alfresco, an open-source applications company. Matt brings a decade of in-the-trenches open-source business and legal experience to The Open Road, with an emphasis on emerging open-source business strategies and opportunities. He is a member of the CNET Blog Network and is not an employee of CNET. You can follow Matt on Twitter @mjasay.

     

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