26.5.09

With Virtual Iron, Oracle Bought a Big Loss

Did Oracle recently buy Virtual Iron, a maker of virtualization software, for its talent? Perhaps so, because the company certainly hasn’t been selling a lot of software, according to financial documents obtained by The Times.

The documents indicate that Virtual Iron had just $3.4 million in revenue last year. That’s a big rise over $1.5 million in 2007. But Virtual Iron sure spent a lot of money to get that revenue.

Its sales, marketing, research, development and administrative costs were $17.7 million last year, up from $13.6 million in 2007. So, in 2008, Virtual Iron posted a loss of $15.3 million.

Last January, Virtual Iron raised $20 million, hiking its total funding up to $65 million. Highland Capital Partners, Matrix Partners, Goldman Sachs, Intel Capital and SAP Ventures all funded the company.

Oracle has declined to reveal how much it paid for Virtual Iron, but with the revenue in 2008 sitting so low, it seems pretty clear that the investors lost out on this start-up — that is, unless Oracle was willing to pay many, many times Virtual Iron’s revenue. (The company did report $17 million in cash and equivalents in 2008.)

With the addition of Virtual Iron, Oracle has a crowded stable of virtualization products. Virtual Iron’s software will join Oracle’s own virtualization software, and soon enough Oracle will inherit even more virtualization software when it completes the purchase of Sun Microsystems.

The funny thing about these various software products is that they’re all based on the open source Xen project. So Oracle will own three products with the same guts.

Each company has made its own tweaks to Xen, leading to some differences among the products. Wim Coekaerts, Oracle’s vice president of Linux and virtualization engineering, said last week that the addition of Virtual Iron would let Oracle’s customers “more dynamically manage their server capacity and optimize their power consumption.”

Even with three sets of virtualization software on its side, Oracle has a long way to go to catch up with the market leader, VMware. Last year, VMware posted revenue of $1.9 billion.

Author: Ashlee Vance @ bits.blogs.nytimes.com


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