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Cisco takes stake in virtualiser Parallels

If VMware's Nicira is no threat, why does Cisco need another virtual friend?

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Cisco has taken an one per cent equity stake in Parallels, a minor virtualisation software vendor.

Best known for desktop virtualisation wares, especially the Parallels desktop for Mac which offers a way to run Windows on Apple PCs, the company also offers a range of data centre virtualisation tools. Most are aimed at service providers, with an emphasis on those serving the small business market. As it is privately held, the company does not disclose its revenue, but an IDC report on the company (PDF hosted at Parallels.com) guesstimates it brought $US100m through the doors in 2010, and suggests that there's an opportunity to grow that significantly.

Even if the company has doubled its revenue since 2010, it remains a small virtualisation player. VMware, for example, has said it expects to have had at least $4.5bn come through the doors during 2012.

That financial muscle saw VMware last year acquire network virtualisation outfit Nicira for $1.05bn and quickly start talking up “software-defined data centres” in which virtualisation goes well beyond the server to also oversee storage and the network. Nicira's vision for the virtual network that will make up part of that vision imagines “... the physical network is used only for packet forwarding and treated as an IP backplane.” All the brains of the network lives in a server somewhere, which tells network kit which bits to move.

That's obviously a challenging proposition for the likes of Cisco, as networking vendors have for years told the word their tightly integrated hardware and software together deliver the best possible bit-moving outcomes. At nicely high margins, to boot.

VMware, for its part, insists that buying Nicira is in no way a threat to its good buddy Cisco, with which it shares a joint venture in the form of stack-in-a-box outfit VCE. The two are also tied up in alliances with EMC and NetApp, among others, to bundle virtualisation software, servers and storage.

Yet Cisco has, of late, showed signs it feels a need to do some of the things VMware already does. Exhibit A is its acquisition of cloud management software vendor Cloupia. Parallels, for what it is worth, has been hiring top men from the likes of Microsoft to scale its virtualisation software to greater heights.

Cisco's contribution to the press release announcing the deal comes from vice president for corporate business development Hilton Romanski who says the company “... is continuing its commitment to technology development and innovation through strategic investments” and sees the tie-up as bringing “... a more efficient and easier-to-use cloud services delivery model for service providers. We are particularly excited about Parallels global presence — including its operations in Russia — which affords Cisco a continued opportunity to fuel innovation there and around the world.” Parallels' CEO Birger Steen chips in, saying “By strengthening our collaboration with Cisco, Parallels is focused on accelerating its growth and offering an end-to-end solution for cloud service providers.”

Virtualisation's big three - VMware, Citrix and Microsoft – could each have offered the same quote. All three also covet service providers as clients.

Parallels also says Cisco's investment is “... intended to strengthen inter-company collaboration towards accelerating customer adoption of Parallels cloud service delivery products with Cisco cloud and data center infrastructure solutions. As part of the investment, Parallels and Cisco also agreed to expand joint development, marketing and industry initiatives.”

That could be a long-winded way of saying “Cisco slung us some cash because the folks we sell to need routers, and this makes it more likely they'll be Cisco routers.” Or it could be code for “Cisco wants to help us rival the big three, because it's nervous VMware might be about to eat its lunch.”

One per cent of Parallels won't have cost Cisco much more than its accountants beneath a cushion on the corporate sofa. Yet it's still hard to imagine this deal won't spark a terse phone calls between Messrs. Chambers and Gelsinger over the next couple of days. ®

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