I was quite busy at work today so I’m only catching up on blog reading now. My arch nemesis has been busy :-) BTW, when do you do your day job? Can I get a job at Alfresco???? :-)

Kidding aside….Matt says:

“$500 million is a hefty premium given XenSource’s revenues, which were still pretty modest (less than $10 million in 2007 and almost $0 in 2006). Citrix, in other words, paid a massive premium (50-500X (!!!)) for the brand and position that XenSource presumably has with the Xen hypervisor.”

Couldn’t agree with him more. Citrix overpaid. It happens. But this is 100% because XenSource is a virtualization vendor. If, we were talking about the CRM marketplace, I’ll wager a dinner that the multiple would have been an order of magnitude less. With VMware worth over $21B, I’m sure I could sell my in-law’s dog for several thousands by renaming him Virtualization Beagle.

By the way, how many of you have heard or thought about Citrix in the past 5 years? Did anyone know they have revenues over one billion dollars? Exactly. This acquisition is as much a reason for Citrix to get back in the public/customer/investor eye as it is about a technology acquisition. Don’t be surprised if Citrix gets acquired by a larger vendor down the road. Using this deal to assigning a high multiple to OSS is, if you ask me, wishful thinking.

In another post Matt quotes a friend of his who said the following about what the Citrix deal means:

“It is about having new technology in the arsenal to go after older competitors that have not revamped their technology. The lack of investment in technology by both start-ups and the established players in the early part of the decade is now catching up with them by making them exposed to new, open source entrants that were able to survive in the shadows of the dinosaurs.”

This comment just didn’t fell right. Is it really true that open source entrants have new whiz bang technology that larger software vendors couldn’t replicate because the larger vendors hadn’t spend enough on R&D in 2000-2003?. Here’s what the financial numbers show:

Yes, R&D spending was lower in 2000 & 2001, but investments picked up quite quickly thereafter, so I doubt this has a material impact on competitive positions in 2007 vs. OSS.

Correct me if I’m wrong but wouldn’t it take a lot less than $500M to develop competing technology to Xen. Alternatively, it’s open source, so Citrix could have forked Xen and had the technology for next to free. However, building a competitive offering or forking Xen would not deliver the user base of Xen, the linkage with RHEL/SUSE or the Linux kernel in the future. Tell me that this deal had to do with acquiring a brand and a user base / widely distributed technology. Don’t tell me this is about innovation that can’t be matched by larger Traditional vendors.

To be fair, in a previous post Matt did suggest that the deal was driven by brand & ‘ownership position’ of Xen. I’m not sure why he leapt to the conclusion the deal had anything to do with technology innovation.