Parallels is not for sale

Yesterday, there was a not-so-funny April Fool’s day joke about SUN acquiring Parallels for $205 million.

Normally, I would not even comment on something like that, but surprisingly enough (to me at least) we have received some inquiries asking if this is true.

So, to set things straight – no, it is not true.

1) $205 million price is WAAAAAY TOOOOO LOOOOOW for Parallels. This amount is far off based on our annual revenue, profitability and growth and it would be very strange to expect a company with leading positions in two hottest industry segments – virtualization and automation – to be sold at that price.

2) SUN is a really strange acquirer. Our products are for Windows, Mac and Linux, and SUN is not that focused on the first two. Also, SUN is really not that much into automation, so again, not a good fit. If Microsoft or VMware or even HP or IBM was mentioned – it would make some sense, but not SUN.

3) All of the above is actually irrelevant anyway because we are just not planning to sell right now. We do receive offers, but we feel strongly that being independent is a better choice for us and more fun, too.

The rest of the rumor – I mean the part about Parallels being a fast-growing company with a strong product portfolio in the two hottest segments – is true. It’s just we are not selling out, definitely not to SUN and certainly not for $205 million.

Is there a room for both Microsoft Online Services and service providers?

Short answer: YES.

Microsoft has just opened access to a beta of Microsoft Online Services. Now businesses of all sizes – not just with 5,000 employees or more as it was previously – can buy hosted Exchange and Sharepoint directly from Microsoft. This announcement is hardly surprising and clearly indicates that Microsoft is moving to online services and SaaS. In general, most of the big ISVs – we are talking about $1 billion companies like Google, SAP, Adobe, Salesforce – are going to self-host their software.

How does it affect the hosting industry?

Upside: some of our customers already reported a spike in requests for hosted Exchange and Sharepoint because apparently there were a lot of people who simply didn’t know that Exchange or Sharepoint can be purchased hosted.

Downside: service providers that offer plain vanilla hosted Exchange or Sharepoint are in direct competition with Microsoft – on price – and this is not an enviable position to be in.

In this situation, I believe that the right strategy is to ride the proverbial long tail and differentiate with hosted offerings that offer a wide variety of applications from independent vendors as well as well-integrated solutions that provide additional value for the products offered by the industry giants.

Take Java and PDF as an example. The Java ecosystem is thriving alongside with .NET exactly because it was built as an ecosystem supported by many independent vendors, not a single-company product. And PDF provides such an indispensable value that Microsoft provides PDF converters for its Office products.

As I wrote before, I believe that hosters need to

• partner with smaller ISVs that have neither resources nor expertise to host their software
• create an ecosystem where even small ISVs can easily make their software visible and available via hosting providers.

The two key components of this ecosystem will be:

• Common technology platform – the first one is Parallels SaaS platform that started as an open specification of the application packaging format and is adding services like licensing, catalog/update, single sign-on and so on. The APS platform streamlines the technical aspect of delivering applications from ISVs to users via hosting providers.
• Common business platform – the second one is APS marketplace, currently in development. APS marketplace is intended to streamline the business aspect of delivering applications – finding applications, making reseller agreements, license accounting and so on.

This is going to be part of our talk about company’s SaaS vision and goals for 2008 at our annual summit, which I strongly recommend attending.

Virtualization Vocabulary

In a recent Tier 1 Research article, Dan Golding presents us with some good ideas for virtualization nomenclature. He describes two types of machines that are created by a hypervisor approach to virtualization - a "managed virtualized server" and "virtual utility hosting." He also advocates the term "virtual machine."

As described by Dan Golding:
Managed Virtualized Server = "A managed server with a virtualized hypervisor and one or more virtual machines, all managed by a service provider. The server is dedicated to a single customer and is not a shared resource."

Virtual Utility Hosting = "A shared hardware platform, with individual virtual machines being dedicated to customers. These virtual machines may be managed, just as with a converntional managed server, or they may be provided 'bare bones' to the customer, like a conventional dedicated server."

Virtual Machine = "An instance of a virtualized server plus operating system and application software, all running on a hypervisor."

Commentary:
Great start. But there are other types of virtualization products - specifically container-based products such as Parallels Virtuozzo Containers. To include these important solutions we have two options.

Option 1: Expand the definitions to include container-based as well as hypervisor-based technologies.

Option 2: Create new terms such as Virtual Container, Managed Virtualized Server Container, and Virtual Container Hosting.

Personally, I like option 1 because it reduces the number of names I have to remember, but I like option 2 because it helps me distinquish the technology I am purchasing. However, technology is probably most important to the service provider than the end customer. (using containers, service providers can get more virtual environments on a single server and give customers a lower price).

Which option do you like?

SaaS Job Opportunity

SWsoft (soon to be Parallels) is looking for talented marketing people who want to write about, blog about, and talk about SaaS. Learn more about the open position for SaaS marketing at the SWsoft website.

Using Virtualization for Migrations Reduces Risks

A recent eWeek article, "Hosting without Borders", discusses data migration and new capabilities of Microsoft Windows Server 2008. While no decision yet exists by Microsoft to include SWsoft’s virtualization tools inside of WS2008 as implied, the story gets it right when addressing the value of virtualization technologies to service providers who need to perform migrations.

The major virtualization vendors all provide migration tools in some form or another and it's a standard line item on the de rigueur Virtualization Software Evaluation Matrix that all consultants, customers, and IT project managers/business analysts now carry.

To get back to the eWeek article though, Virtuozzo Management Tools do offer service providers the most economical way to perform migrations on the market. The toolset in 4.0 includes both P2V and V2V tools for both Windows and Linux and allows service providers to perform migrations cheaply by running data across the network on inexpensive servers without the need to invest in expensive shared storage or upgrade to new vendor virtualization-embedded or proprietary hardware. With the upcoming release of Virtuozzo 4.0, you can buy the Management Tools separately from Virtuozzo and use them to perform backups and migrations on both your physical and virtual servers.

Adding virtualization to your migration procedures is a real risk-reducer. First, you can clone the server before moving it so that there is always more than one copy if you are new to live migration and distrust it. Second, before a virtual server is moved, all incoming transactions are captured and stored in a database so that once the virtual server is moved to its new target, all transactions that occurred in the interim are then moved over to ensure that you maintain service availability. Third, you can perform migrations in batch mode to make it quick and easy to move off and back on the hundreds of VPSs that you can get on a box when you use Virtuozzo. The migration tools are very popular with our service provider base and we've gotten rave reviews from our just-completed Beta 4.0 program. However, I know service providers are DIYers at heart, so if you don't believe eWeek or myself, download Virtuozzo and try it out for yourself.

Is Amazon’s strategy a winner?

Amazon's EC2 and S3 services have received a lot of attention and have been hyped as a winning strategy and innovative business model. Let's take a look at the
two most discussed technologies – EC2 (Elastic Computing Cloud) and S3 (Simple Storage Service).

EC2

Essentially, EC2 partitions the server – using Xen's hypervisor – into as many partitions as there are CPU cores, each given a fixed (not elastic) amount of memory and local storage.

Let's compare EC2 with offerings from lots of service providers available for a long time called VPS (Virtual Private Server) or VDS (Virtual Dedicated Server). VPS/VDS offerings use our server virtualization technology SWsoft Virtuozzo that actually created this whole market. The ability to oversubscribe memory and disk resources, as well as sophisticated resource management capabilities (including boost limits), result in a really "elastic" service that consumes no resources while idle but can utilize everything available when needed.

The major difference between a regular VPS/VDS service and EC2 is the ability of the latter to create new instances via API calls, which is also provided by some of our hosting partners. As for the price, I looked at the web sites of several of our service provider partners, and compared to the numbers I get from AWS Simple Monthly Calculator, Virtuozzo-based VPSes are an order of magnitude cheaper.

S3

S3 is a redundant reliable storage, optimized for working with BLOB objects. Many Bubble 2.0 startups hailed it as a great tool in building their mega-scale web sites. S3, indeed, seems to be a great storage-in-the-cloud service, with a few caveats:

• An application needs to be re-written to use S3 as primary storage – S3 does not support regular file system APIs
• Re-writing an application is not straightforward. S3 has a very different programming model with radically different performance assumptions.
• Most applications use relational databases, and neither MySql nor SQL Server work on top of S3 – application storage layer has to be completely rewritten.

Overall, S3 will only work well for new applications written by highly-skilled developers who understand the tradeoffs of using local disks versus stream-oriented high-latency network storage. Existing applications cannot take advantage of S3 without major effort. S3 makes a great storage technology for disk-to-disk backups, though. Albeit, a little expensive, at $0.15/GB/month – not including the traffic. Hard disks cost $0.20/GB in retail, double that for redundancy, appreciate over 3 years and you get a little over $0.01/GB/month.

Hardware-as-a-Service is exactly what our partners - hosting providers – have
been offering for more than a decade. And unless I'm missing something here, Amazon is charging a very high premium for the services long available from majority of the hosting providers that just didn't happen to market them in quite the same way. Can Amazon's market reach and brand spin an old idea into a winning strategy? I don't know. What I know is that in most cases it is cheaper and less risky to rely on the hosting providers for storage and computational needs.

Shameless plug – check out my Server Virtualization Blog.

Transition to SaaS: Multi-tenant architecture vs. Virtualization

For software developers, SaaS is typically associated with "multi-tenant architecture", which many believe is a prerequisite for a SaaS application.

Traditionally, there would be only one instance of an application running on a server, and this instance would only serve one customer a.k.a. tenant. In the SaaS world, giving each tenant a dedicated server is a huge waste of resources and service providers want to put as many customers on the same server as possible. However, many applications (on Windows – most applications), by design, cannot have multiple instances on the same server.

To solve this problem, software developers came up with "multi-tenant architecture". The application is redesigned in such a way that a single physical copy of an application provides multiple "virtual" instances – each tenant gets an instance. Compared to several independent instances, using the same physical instance allows extensive sharing of data and metadata between instances/tenants

Multi-tenant design is considered to be more efficient than multi-instancing, but in reality, as always, your mileage will vary. And to make the estimation process easier, I'd like to shed some light – from the ISV's point of view – on the "dark side" of the multi-tenant approach:

• Cost of transition – There are no good recipes for converting a traditional single-tenant application to multi-tenant design. Empirical data shows that typically the process takes 12+ months and requires resources of nearly the entire development organization. The existing feature development is essentially frozen.
  
• Ongoing costs – Current generation of software – development tools, middleware, management tools – do not natively support multi-tenant paradigm. For traditional applications, mundane development tasks were taken care of by frameworks and tools, and mundane management tasks were taken care of by management solutions. None of this software natively supports multi-tenant paradigm, so an ISV will have to develop a lot of plumbing-ware from scratch.
  
• Skills mismatch – The ISV must deliver complex services outside their area of expertise – hosting, SLA enforcement, monitoring, data protection, security, etc. The expertise associated with running a large-scale datacenter is not something that can be acquired overnight.
  
• Limited customization – It's very hard to efficiently implement per-tenant database schema customization in a single database, and it's not possible to use standard DBMS tools – like built-in indexing. Plus, the multi-tenant application cannot use script-based customization of the internal logic – what if a buggy script loops infinitely?
  

  SmoothSpan Bob Warfield and Unreasonable Men argued that customization capabilities are often excessive and there is little harm in removing much of that flexibility. For newly written applications, it might even be true. But if an ISV has a customer base to migrate to SaaS model, telling customers that their solutions will be broken because some of the customizations don't work anymore is hardly an option.
  

• Weak isolation – Because all tenants run inside the same application instance, one tenant can bring down everyone else on the same machine – due to a security breach, memory leak, "infinite loop" bug – you name it. It is technically possible to build some resource management capabilities into the application itself, but the existing development tools – languages, frameworks – do not support safe multi-tenancy and hence don't provide resource management capabilities.
  
• Inflexible service levels – Finally, lack of resource management means that you cannot provide and hence monetize service level guarantees.
  

Virtualization – The silver-coated bullet

There is no silver bullet, but in this case, there is a silver-coated one.
Virtualization technology provides a solution to all the problems mentioned – put the application in a virtual environment and ship it – in unchanged state – to the service provider's datacenter. If the front-end is not web-based, use a VPN. This topic has already been discussed by Bob Warfield and Phil Wainewright who cites a real success story. Hardware virtualization, with single-digit real-life consolidation ratio, will probably not be good enough. But a light-weight server virtualization technology that can host 100+ instances on a single server - Virtuozzo – provides very cost-effective solution. Even if you are very determined to pursue multi-tenancy, Virtuozzo will buy you enough time to make the transition smooth and successful. However, in the majority of cases, further transition will not even be necessary because the Virtuozzo-based solution works well for most customers.

Shameless plug – check out my Server Virtualization Blog.

Role of the Ecosystem

In this CNET article, the author makes a point that VMware had created an ecosystem around its technology and theorizes, therefore, that it will win regardless of what the competitors do. Another CNET article, however, points out that Microsoft has by far the largest ecosystem, and discusses its importance and influence in technology.

Successful ecosystems benefit all participants, not just the creator. That is why SWsoft is working with service providers and ISVs to create a SaaS ecosystem where ISVs could use the service providers channel to market and sell their software. SWsoft is building the ecosystem around these principles:

• Open participation – Open standards translate to a low-effort entry for a large number of participants – ISVs, resellers, service providers, VARs, SIs.
  
• Unique value - Light-weight virtualization provides unique benefits to ISVs and service providers
  
• Continuity – Ecosystem designed to complement existing platforms and business models, not replace them.
  

What exactly is the role, or importance, of having an ecosystem around a technology? Let me know what you think.

Comments on Gartner Top 10 technology list

Just before its annual symposium event, Gartner published a list of the Top 10 strategic technologies in 2008. We wanted to add our perspective because SWsoft plays is a significant role in three of those areas. We welcome your comments with your perspective.

Green IT – Higher density means fewer servers and the lowest possible power consumption. Virtuozzo providers several times higher density – number of workloads running on a single server – as compared with VMware or XEN. Take a look at the
customer testimonies here.

Virtualization 2.0 – According to Gartner, 2.0 means supplementing virtualization technology with automation – which is exactly what SWsoft has been delivering since 1999. In fact, back in 1999, Virtuozzo was developed as a part of our automation suite. Many virtualization companies started with solving an interesting engineering problem of virtualizing a non-virtualizeable computer architecture. Now, as they have the hammer, they are looking for the nails. At SWsoft, we first looked at the issues in the large scale data centers and then created a solution, where virtualization and automation work together.

Web Platform and WOA - This is a real 2.0 for us – SWsoft 2.0, if you will. We are trying, with our Open Fusion initiative and a set of SaaS enabling technologies, to help transform the web hosting industry into a SaaS delivery industry. It seems our message of automation and virtualization as equally important pillars of the SaaS infrastructure is finally getting through. However, there is a lot more work ahead to make the transformation a reality.

Partnering is a key to success

For an ISV that wants to jump on SaaS bandwagon, there are two options – host the application itself or use partners.

Self-hosting

• ISV will have to find a datacenter and rent servers
  
• ISV will have to do security, backups, service level management and first-level tech support
  
• ISV will have to implement Internet domain management and payment gateway integration
  
• ISV will have to create a storefront to sell the SaaS products
  
• ISV will have to develop a management automation system to handle all of this
  

Partnering

• The service provider already has a datacenter and servers
  
• The service provider already knows all about security, backups, service levels and tech support
  
• The service provider already has Internet domain management and payment gateway integration
  
• The service provider already has a fully-functional e-commerce system
  
• The service provider already has a management automation system
  

So, the only difference is that in the former case, an ISV has to acquire all the expertise required to run a data center, while in the latter the ISV can concentrate on the core competency – delivering software – and delegate the task of running SaaS infrastructure to those who have that core competency.

But, the main benefit of partnering with service providers is access to their customers. Service providers have enormous reach – most small- and medium-size businesses host their web sites with them – and can easily market and sell software to their customer base.

SWsoft is working hard to make such partnering easy:

• We developed the APS standard plus, we have standard licensing, Single Sign-On and software update technologies in our short-term roadmap.
  
• Our virtualization technology provides super-smooth transition to SaaS for an ISV
  
• We are actively recruiting both ISVs and service providers to support our effort
  

Partnering is what makes the ecosystem scalable with regard to customer requirements, service levels and business models. Microsoft recognizes the value of partnering and offers Exchange and CRM thorough partners to all but the largest businesses. You can see that IDC believes in partnering, too.

I personally believe that long-term self-hosting will work well only for either very simple, low-functionality, high-commodity applications such as Google apps or for Salesforce.com itself, which managed to secure its position so well that for the next few years will probably be immune to external forces. I also convinced that large ISVs just coming to SaaS market – like Adobe – will soon recognize the value of partnering and offer their SaaS products through service providers.

As usual, comments are welcome.