Why the Hottest New Tech Solution Will Go Cold
Virtual Desktop Infrastructure could become a big market, but the challenges will bring it down first.
Virtual desktop infrastructure (VDI) is one of the hottest new technology solutions in the market today, enabled by the revolution that is server virtualization. Many vendors (and investors) are hyping VDI as the answer to the thorny problem of managing and securing desktop/laptop computers. And with Windows 7 (MSFT) as a catalyst, it’s supposed to grow into a billion dollar business within a couple of short years.
So says the hype.
We believe that while desktop virtualization is an important trend, the VDI hype has gotten far ahead of IT market realities, and is likely to steer many down the rabbit hole with Alice.
A quick review: Server virtualization technology (popularized by VMware’s (VMW) ESX and vSphere) separates the physical server from the operating system and applications. Up until this year, the main driver of server virtualization has been server consolidation; that is, running multiple virtual applications on a single physical server -- essentially mimicking the operation of many servers on a single one.
The second major driver of server virtualization is mobile workloads. This allows application packages (called virtual machines) to move from computer to computer while continuing to serve users. This capability enables both inexpensive clustering and disaster recovery, and is a primary technology driving the “Cloud” -- it pools computing and storage resources for better utilization and performance.
VDI is a derivative of server virtualization. It’s a desktop operating system and application(s) running in a server virtual machine, which then “remotes” graphics (or screens) to a desktop/laptop computer connected to the network.
It’s very similar to a solution that’s been around since the mid-1990s, generally called “Terminal Services (TS),” the best example of which is Citrix Systems’ (CTXS) XenApp. If you use Bloomberg Professional, you're using XenApp.
The major technological advantage of VDI over TS is better application compatibility. However, VDI is by no means perfect, and I'd like to share a few of the downsides I believe will limit the use of the technology for the intermediate term.
From an investor perspective, the VDI market is projected to be much larger than the market for server virtualization. The thinking is, “There are 30 million servers and 300 million to 400 million desktops… Therefore, VDI has to be a big market.” Hence the hefty earnings multiples given market leaders Citrix Systems and VMware.
Investors are expecting both vendors to individually produce somewhere between $100 million and $150 million in 2010 VDI revenue -- essentially two to three times 2009 revenue.
While stoking the fire, neither company will actually break out VDI revenue, so it’s going to be hard to ascertain the real numbers. Nevertheless, the revenue growth is still in 2010 analyst expectations.
Marker Advisors has been following the virtualization world for more than six years, has participated in nearly every VMWorld conference worldwide, and has tracked the VDI market from its infancy. We at Marker Advisors speak weekly with customers and partners that are testing and deploying VDI technology all over the world. After conversations with many dozens of professionals working with this technology, Marker believes the following to be the actual state of the VDI market:
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