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Embracing the World of Virtualization


Rising to the surface are companies that have embraced the world of virtualization and are playing a critical role in providing tools to manage the complexity of it.

Adam Katz is currently a partner at Marker Advisors, an independent firm providing technology research to a select group of institutional investors. Prior to Marker Advisors, he spent 8 years at M.S. Howells & Co, an institutional brokerage firm that provided high touch research and prime brokerage services to the buy-side, and most recently served as the company's CEO. Please join us in welcoming Adam to the fold!

About every eighteen months or so, I'll get a call from my father asking for help. For a man who would rather break his back lifting old furniture than ask for assistance, this can only mean one thing, computer problems.

Last week's call included an explanation that some virus and/or malware invaded his operating system, which has now crashed and needs to be reinstalled, along with Office, PC Anywhere, Firefox and a slew of other applications. In truth, that's me paraphrasing. I'm not certain that my father's singluar ability to communicate an Information technology (IT) problem through the colorful use of certain medical terms would be fully appreciated here. After talking him down from the ledge, I suggested that running a virtual operating system on his machine might be the way to solve this problem going forward.

While technology has matured overall, the intersection of regulation and innovation has created an infantile landscape where the rules of engagement have changed. One such example is virtualization. Virtualization essentially decouples software from hardware by either partitioning several software stacks on a single piece of hardware, or clustering several software stacks over several pieces of hardware that can be used interchangeably. Without virtualization, IT departments are forced to deploy software stacks on a fixed piece of hardware with a fixed operating system.

Why is this important? In certain virtual environments, applications are free from the hardware, meaning that if a bundle of software is running on a server having performance problems, the bundle can seamlessly switch over to another server without creating so much as a hiccup for the user. In fact, the user will likely never even know that a change has occurred. This clustering increases the likelihood IT administrators will seek to use company resources differently, and at the very least, stop over provisioning hardware and software systems to account for the most intensive outcomes. Moreover, it eliminates the need for the constant and laborious management of that infrastructure. In investor speak, this means less hardware and labor, more systems management tools, more application lifecycle management tools, more service oriented architecture, and more application development tools. The elephant in the room is that virtualization will affect software traditionally sold on a 'per server' basis; for many companies, this pricing structure will likely have to evolve to include virtual machine (VM) pricing.

On a smaller scale, as consumers become more accustomed to buying software based on needs and functionality as opposed to just accepting what is preinstalled, the ability to partition VMs on a single piece of hardware becomes more significant. For example, if you are a consumer working on a single workstation that is a VM, you may use the Microsoft (MSFT) Vista operating system (OS) to run some apps, but you may choose to use a different VM to run Linux or Apple-based apps, all on the same physical computer. This essentially reduces the relevancy of the operating system on which your app resides and places more importance on the performance of the application itself. If you find a better app that runs on a different OS, you may be inclined to change not just the app, but the OS it runs on. Apps that were once unavailable to you can now be easily deployed. Further, partitioning allows for isolating problems such as viruses and malware to a specific VM. If the VM gets infected beyond the point of repair, you can scrap the entire VM, replicate an uninfected VM and start over without having to call the Geek Squad to come to the rescue.

Keep Your Eye on These Names

Rising to the surface are companies that have embraced the world of virtualization and are playing a critical role in providing tools to manage its complexity. This is one of the important themes in technology where I believe the rubber meets the road over the next several years, and from where the next wave of technology leaders will emerge. Going forward, I will be sharing insights on various themes which will include virtualization and how it is already affecting the data center – for example, by creating a need for servers that have higher CPU capability, the end result has data centers needing less of them. Companies that have been adapting to this change are selling into verticals that rely on heavy CPU usage like IBM (IBM), Hewlett-Packard (HPQ), SunMicro (SUNW), Rackable Systems (RACK) (which I own) and Dell (DELL) is trying to get there but doing well by competing on price. Operating system distributors Red Hat (RHT), Novell (NOVL) & Microsoft (MSFT) have portions of their business models that are at risk as VMware (the 800 pound gorilla in providing virtual layers and is owned by EMC (EMC)) likely makes the OS less relevant than in the past. System management companies like Citrix Systems (CTXS), Quest Software (QSFT), and Opsware (OPSW) (I own it), Mercury Interactive (now owned by HP), BMC Software (BMC), CA, Inc. (CA), IBM/Tivoli, Symantec (SYMC) will become more in-demand (generally speaking) as the need to manage increasingly complex environments is elevated. Even database vendors like Oracle (ORCL) and SAP AG (SAP) will have to rethink how they charge per seat or per server, as we see multiple VMs running on a single piece of hardware. This is a sea change that's impacting almost every area of IT. I am looking forward to sharing some knowledge on this topic with all of you and I look forward to your feedback. And if I never have to re-install the operating system on my father's laptop… even better.
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Positions in RACK, OPSW
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