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See below, $810M today, IDC predicts it to be $1.8B by 2009

As x86 server virtualization software vendors roll out tools to better manage virtual environments, corporate users in growing numbers are looking at virtualization technology for more than test and development and simple server consolidation, according to a pair of reports from IDC.

Virtual machine software “is moving beyond test and development and production consolidation to high availability and disaster recovery,” writes IDC analyst John Humphreys in a September research report titled, "Worldwide Virtual Machine Software 2005 Vendor Shares." “These new use cases will drive future growth and adoption for the new technology.”

In a separate report, "Worldwide Virtual Machine Software 2006-2010 Forecast", also issued last month, Humphreys predicts that an already strong virtualization software market will expand to more than $1.8 billion in 2009. The market stands at about $810 million today, up 46% from $560 million in 2005.

As far as the vendors offering the software, the market is heating up as companies such as Microsoft, SWsoft and the open source Xen virtualization technology get more serious about taking on market leader VMware.

VMware, owned by EMC, continues to dominate the market it created, growing its revenues nearly 80% from $172 million in 2004 to $310 million in 2005. It held a 55% share of the market in 2005, according to IDC.

Microsoft grew its virtual machine software revenues 48% between 2004 and 2005, expanding from $33 million to $49 million and grabbing 8.7% of the market last year.

SWsoft, which takes a different approach to x86 server virtualization by employing the technology on top of a single instance of an operating system, rather than enabling multiple operating systems to run on a single physical box, was the fastest growing virtual machine software vendor. It grew revenues 98% between 2004 and 2005, jumping from nearly $24 million in 2004 to about $47 million last year. Despite the fast growth, its market share hovered around 8% in 2005.

Others, including Xen, brought in about $15.6 million in 2005, up from $12.4 million in 2004, but account for just about 3% of the market.

At the same time, Humphreys notes that Linux is the fastest growing platform for virtual machine deployments – opening up a big opportunity for Xen – and accounted for 40% of the dollars spent on virtual machine software in 2005. Windows accounted for 28%, with most of the rest going to Unix and mainframe environments.

One big driver for the fast-growing virtual machine software market is an expanded view of how the technology can be deployed, Humphreys says. While x86 server virtualization software initially was presented as appropriate for test and development and server consolidation, it is maturing into a broader platform for utility computing, analysts say.

VMware, for example, in June introduced VMware Infrastructure 3, which heightens the focus on management and high availability to enable customers to group virtual resources into a pool that can be allocated according to application demands.

“Overall, IDC views virtual machines as a foundational technology to … dynamic IT,” Humphreys writes. “Virtualization decouples the application from the underlying hardware and allows customers to create service-oriented infrastructure whereby they can begin to manage services and employ policy-based automation to manage and deliver the underlying infrastructure.”

The challenge for users moving forward is to differentiate among the vendors according to the types of management tools they offer, Humphreys says.

Users need to “focus primarily on the management, operations and service level of virtual environments and not on how they virtualize,” he writes. “Virtualization will need to integrate with legacy management tools and enhance management functionality to solve specific business issues.”

As part of that shift toward better integration, vendors are working toward opening up their frameworks in order to create a standard virtual machine interface that will reduce vendor lock-in and enable customers to move among the different virtual machine software vendors, analysts say.

“Common interface frameworks will ultimately provide customers with greater choice in their selection of virtual machine technology,” Humphreys notes.

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