With the arrival of Russian software company Parallels, the virtualisation marketplace is maturing rapidly.

There's a clear leader in VMware, the 800lb gorilla that's setting the pace in a number of areas. But can it stay ahead? Naturally, the company's president Diane Greene thinks so, but there's a number of challenges ahead.

The establishment
VMware offers products at the desktop, server and data centre levels, with its Workstation, GSX and ESX product offerings. And it recently branched out into services, with the announcement of what the company's official screed called "a set of focused server consolidation assessment services that assess the capacity utilisation of an organisation's IT infrastructure, identify opportunities for consolidation and help deliver a virtualisation roadmap for effective server containment and consolidation." It's a way of helping users get more out its products, in other words.

In addition, VMware has released a range of tools that allows complex server configurations running across multiple pieces of hardware to manage themselves. This means that, for example, when utilisation approaches saturation point, the system recognises this and can move virtual machines to a less heavily utilised piece of hardware.

VMware has also trumpeted a wide range of support for its products from third parties, raising the barriers to entry for newcomers -- a standard manoeuvre for established market players. In fact, this was key to its achieving its pre-eminence, as its existence has meant that major server vendors such as IBM and HP did not need to develop their own virtualisation systems -- even though they had already developed such systems for their Unix boxes.

But with hardware support from AMD and Intel just around the corner, the demand for virtualisation tools is likely to suck in even more vendors and the market will fragment -- the demand for management tools seems especially likely to explode -- so VMware will have to work hard to stay at the top.

The upstarts
Parallels is one whose competition stems not so much from deeply differentiated products but more from their price. According to marketing manager Benjamin Rudolph, Parallels' product, Parallels Workstation, is half the price of the VMware equivalent, offers better legacy OS support and majors on ease of use -- all good ploys to occupy a market niche for those starting along the virtualisation path, especially since VMware's focus is primarily higher up the food chain.

Xen, an open source competitor, already supports Linux and it already supports Intel's virtualisation technology (VT) and will support similar extensions from AMD, codenamed Pacifica, early in 2006. According to developer XenSource, it also boasts support from most major vendors -- Microsoft aside of course -- and will be producing and selling XenOptimizer SE, a VM management package later this year. XenSource has also demonstrated a hypervisor with embedded security capabilities, while the upcoming Xen version 3.0 will support 64-bit processors, and SMP guest operating systems. However, the developer has yet to announce a single large customer. In contrast, VMware has thousands -- and Xen still struggles to support Windows, although XenSource claims that this problem is being addressed.

The threat from Redmond
Meanwhile, Microsoft lurks in the wings and is VMware's greatest threat. The current version of Microsoft Virtual Server, based on the technology Microsoft acquired when it bought Connectix in 2003, will run only on Windows and, although it'll run pretty much any x86-based system as a guest OS, Microsoft will only offer support for its own products. Microsoft has promised though that its Virtual PC that will support OSes other than Windows, and we can expect that version by the end of 2005.

In the longer term, Virtual Server is likely to disappear as the server version of Microsoft's upcoming OS Vista will include hypervisor capabilities, replacing the OS itself. "In the future, we're going to build the hypervisor and the virtualization stack into Windows," confirmed Microsoft's server product manager Bob Muglia.

Microsoft shouldn't be written off in the service and management space either, as Muglia points out, when talking about future developments: "There are some new features that are very important from the management perspective, like moving virtualized sessions from one machine to another. We don't have a product that does that today. And so we do think that's the potential opportunity to build a new product in that space... System Center something. Maybe it's [called] Virtualization Management. I don't know."

While Microsoft doesn't have the depth of OEM agreements with hardware vendors in the virtualisation space, it does have contracts relating to its other products that could act as levers, using bundling and other incentives, to persuade the likes of HP, IBM and especially Dell to prefer its virtualisation products over VMware's. It doesn't, however, yet have the depth of product offering to make that stick.

For the moment then, VMware is the clear leader -- and needs to use this opportunity to widen the gap as far as possible. Given the announcements VMware has made recently, this clearly is its strategy -- which also implies that the others are likely to remain also-rans or niche players as the market coalesces around two main players.