Analysts call Oracle's virtualization bluff

Oracle on Monday announced its own server virtualization software and claimed it was three times more efficient than rival products. VMware shares were whacked on the news. What a difference a day makes. On Tuesday, analysts called Oracle's virtualization announcement "virtual FUD" and noted it was reminiscent to the company's Unbreakable Linux announcement a year ago.

As Dan Farber detailed, Oracle's own version of the Xen hypervisor seemed to be targeted at Red Hat, but impacted a bunch of other companies such as VMware and Citrix, which recently bought Xensource. In the big picture, the hypervisor writing is on the wall: It'll be a commodity.Meanwhile, a lot of companies, HP, Microsoft, Oracle, Red Hat and Virtual Iron, are gunning for VMware.

But Oracle's big announcement doesn't point to VMware's demise, say analysts. In fact, the reaction to Oracle's virtualization claims was harsh. Simply put, few observers are buying Oracle's claims. As a result, VMware shares have largely recouped Monday's haircut. A few snippets:

Benchmark analyst Brent Williams in a research note:

The news, and the market's reaction, are more than eerily parallel to last October's announcement of Oracle's Linux product, where the stock of Red Hat dropped 26% on the news that Oracle would offer a clone of Red Hat Enterprise Linux for half the annual subscription fee. Despite the initial announcement last year, and amid widespread predictions of doom for Red Hat owing to Oracle's presumed ability to use its enormous sales and support organization to crush smaller competitors, Red Hat has continued to grow unabated and Oracle's market share in commercial Linux remains immaterial. We believe the same fate awaits Oracle VM. We believe a product likely to add de minimis revenue to Oracle's deal size is unlikely to attract significant attention from Oracle's sales force, and thus is unlikely to be featured in significant numbers of deals. We also believe that Oracle will not invest the time in training field and central support personnel absent measurable support revenue.

Katherine Egbert, an analyst at Jeffries Securities, in a note titled "Virtual FUD":

Oracle VM claims higher efficiency for virtualized Oracle products. According to its press release, Oracle VM is up to 3x more efficient than "existing products from other vendors" specifically for virtualized Oracle applications. We note Oracle declined to comment as to which product and which vendor. First, to clarify, efficiency generally refers to the overhead cost of running a hypervisor on physical hardware. In simple terms you can't virtualize 100% of the physical computing resources because the hypervisor needs resources to operate. Thus, the more efficient the hypervisor, the less computing resources it requires. The Xen hypervisor is more efficient than the traditional VMware ESX Server because it uses a technique called para-virtualization requiring the operating system to be modified and pushing more of the hardware management into the OS layer. ESX Server, in contrast, includes a Linux kernel in addition to the hypervisor to allow full hardware virtualization and requires no operating system modification but carries a footprint of approximately 2GBs because of the kernel. We believe Oracle's claims of 3x efficiency improvements are compared to the traditional ESX Server and would be surprised if there were significant gains beyond what is provided by Xen. We note that VMware's latest product release VI3.5, centralizes the Linux kernel to its centrally managed console, VirtualCenter 2.5, and now runs only a thin hypervisor ESX 3i at the server level, significantly lowering the overhead and already making such a comparison outdated.

Tim Klasell, an analyst at Thomas Weisel:

We note that management, rather than the hypervisor technology, is the most important growth and revenue stream for virtualization vendors and it remains to be seen how Oracle's OEM (Oracle Enterprise Manager) will support its virtual machine offerings. As seen with last year's announcement for support of Red Hat's Enterprise Linux, we think Oracle VM will be most attractive where the Oracle stack is already in place, but is more of an endorsement to the project than a market transformation.

The takeaway: Oracle's unbreakable Linux chatter last year definitely tainted perception this year.

Update: VMware issued a statement on the Oracle virtualization announcements. Here's the full response from Parag Patel, vice president of alliances for VMware:

“Oracle's introduction of yet another variant of Xen is clearly a response to the significant virtualization industry that VMware has established. The offering does not address the capabilities required to achieve the cost savings and IT simplification that customers are realizing everyday from VMware's Virtual Infrastructure.  It is also an unproven offering and lacks features that VMware customers value and view as key to a virtualization deployment, including high availability, integration with third-party backup software and extensive hardware certifications.

“VMware has 10's of thousands of customers using VMware Infrastructure in production environments, with 43 percent of those customers standardizing on a "VMware First" policy. Over 91% of VMware's customers run VMware Infrastructure in production. VMware has also certified almost 2000 different hardware models and 30 guest operating systems, with over 6 years of proven availability and reliability within the most demanding environments.  Today, customers run more Oracle products (applications, databases, middleware) on VMware Infrastructure than any other virtualization platform, from testing to production.

“VMware Infrastructure has well established lead in the market with a full end-to-end product line that includes virtualization platforms, management system, tools and infrastructure services including VMware VMotion, High Availability (HA) and Distributed Resource Scheduling (DRS).  The overwhelming majority of customers seek uniform and powerful functionality for automation and management across all of their applications.

“VMware ESX Server has been tuned extensively to run both databases and other mission critical applications well. Real-world Oracle database performance can run near-native when running on VMware Infrastructure on paravirtualized Linux.

“VMware will continue to work closely with Oracle because we believe the majority of customers want the flexibility and choice offered by an Oracle solution on VMware Infrastructure.”