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Oracle Kills Virtual Iron 189

Posted by kdawson
from the all-your-VMs-are-belong-to-us dept.
rhathar writes in with news that Oracle is killing off the products of Virtual Iron, a month after purchasing the company. Reports say that all but 10 to 15 staff were let go. The Reg article speculates that Oracle bought VI for its technology and considers its customers and partners expendable. When the Sun purchase finalizes, Oracle will be in possession of three separate virtualization technologies all based on Xen. "In a letter to Virtual Iron's sales partners, Oracle says it 'will suspend development of existing Virtual Iron products and will suspend delivery of orders to new customers.' One partner said, 'So basically, anyone that built their hosting infrastructure on VI... is now totally in the s–.'"
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Oracle Kills Virtual Iron

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  • I would so love to be Virtual Iron, or anyone who got bought out like that. Geez, they buy me out, then tell me, that, I really am not allowed to work on it any more and can just take off for a few years, here's your millions of dollars.

    Yeah... SWEET!

    • by Anonymous Coward on Saturday June 20, 2009 @04:09PM (#28403959)

      Yeah yeah. Great for the 2 or 3 guys on the top. Everyone else gets fucked though.

      Even if you have a small equity stake in a company that gets bought, the guys at the top will always cheat you out your share. Saw it happen many times during the first dot com bubble.

      What usually happens is the original owners have a handful of class A shares, and everyone else has class B shares. When the buyout comes around, the owners create and issue a billion (or so) class B shares, and dilute everyone else's interest. OR they simply vote with their (super voting power) class A shares and force everyone to sell the class B shares back at a reduced rate. Or they just sell the assets of the company, and not the company itself... then give themselves huge "bonuses" for making the sale.

      • by tjstork (137384)

        That sucks. I would like to think that if I made a millions selling a company with 50 people in it, the I would hook up the guys that got whacked who helped make it possible.

        • by dissy (172727)

          That sucks. I would like to think that if I made a millions selling a company with 50 people in it, the I would hook up the guys that got whacked who helped make it possible.

          If slashdot has learned anything from copyright law, it's that a) the people that make it possible aren't important, and b) not only do you not owe the people that made it possible anything, but they owe you!

          /bitter

        • Some very few people actually do show their appreciation for employees loyalty. I'm not googling for the story, sorry, but there was that bank president in Florida, I think it was. His bank was bought out, he got one HELLUVA whopping bonus as his parting gift, and he split it between his bank officers. One super great boss. So, yeah, there are a few people out there who qualify as "human". Most people are just greedy bastards.

          • by dimeglio (456244)

            Wish it was all so. Unfortunately, it's often not the case. Having been laid off before, it's has usually been as a result of a merger or being bought off. Not that the company did badly where we were, the entire operation shut down (us included), about a year after the purchase.

            Loyalty to the company hasn't helped anyone I know. If share holders are near sighted idiots and management unable to lead, it's game over.

      • Yeah yeah. Great for the 2 or 3 guys on the top. Everyone else gets fucked though.

        Since VI customers are being screwed too, maybe the sacked staff can work for their ex customers?

      • by selven (1556643)

        create and issue a billion (or so) class B shares, and dilute everyone else's interest

        How is this even legal? If you own 5% of the company, you own 5% of the company, and "diluting" that would be theft.

        • Re: (Score:3, Insightful)

          by michaelhood (667393)

          create and issue a billion (or so) class B shares, and dilute everyone else's interest

          How is this even legal? If you own 5% of the company, you own 5% of the company, and "diluting" that would be theft.

          It's never, ever that simple.

          There are virtually always multiple classes of shares issued. Also, they might only hold warrants or options rather than actual stock.

          There could be anti-dilution or redemption rights attached, but if they (the employees) don't know to look for these things, there won't be.

    • by mzito (5482) on Saturday June 20, 2009 @04:27PM (#28404089) Homepage

      Heh. Well, so, that's not exactly how it works. They had raised something around $60-70m in three or four rounds, including one round that involved firing/departures of most of the original founders, a new management team, and a totally new business focus.

      So first of all, every time you do a round of fundraising, you create new shares of stock. Let's say my company has 100 shares of stock, and you're a 10% owner of stock - that means you own 10 shares of stock. When we want to raise money, we go convince an investor that our company is worth $100,000, or $1000 per share, making your shares worth $10k. We then have the investor give us $100,000, we create 100 new shares of stock, making the company worth $200k "post-money" - but now you only own 5%, and your investors own 50%. On top of that, the investors might say, "hey, we want liquidation preference, or participating preferred" - complex subjects that can't be delved into here, but suffice it to say that gives them more power.

      Ok, time goes by - you spend that $100k you've raised, and while business is not terrible, it's not as good as your investors had hoped. You go back to get more money, and they say, "Sure, we'll give you another $100k, but we really don't think the company has progressed like we'd hoped, so the total company is worth $150k pre-money" - whoops, now your shares are worth $7,500. And after another 133 shares are created, you now own around 3% of the company.

      See how fast individual ownership can drop? Now, let's extend this factor to someone like VirtualIron who was raising $10-25m *every time* they raised money, and changed business models once. You can bet that by the time they went through four rounds of funding, the VCs owned almost all of that company. (By the way, I realize that this is only the most simplistic model of how companies fund operations through VCs, so don't yell at me - I don't have the space to talk about every option).

      According to some papers that had been leaked to the nytimes, in 2008 they did $3.4m in revenue and lost something like $17m on that $3.4m. How much can that company be worth? Typical rule of thumb in tech stock transactions is 5x-12x revenue, depending on a variety of factors. Given that it cost them $17m to make $3.4m - one could see how the multiplier is not gonna be so favorable. Let's make it 6x - that's $20m.

      So, you have a company where investors have sunk and lost $60m, fired management at least once, changed business models once, changed products at least once, and in the end, they're getting bought for between $16-32m. Do you think that anyone got more than a "thanks for selling this dog of a company" bonus?

      It's a shame, and I feel bad for the employees, but this is not a tech success story.

      • by Allicorn (175921)

        You're already at +5 Insightful so: fascinating insight, thanks!

      • by Nursie (632944)

        The bit I don't get is how it's legal for me, the 10% owner, to suddenly find myself only a 5% owner. Do I have to give my consent for this to go ahead?

        • by CBravo (35450)

          You have a contract, called a share. In this contract, you have certain agreements. One of the agreements is that you agree to not have any influence over the amount of shares (basically: you have little or no say in operational decisions). People with other shares decide that.

      • by edittard (805475)

        Typical rule of thumb in tech stock transactions is 5x-12x revenue, depending on a variety of factors.

        Revenue or profit?

        Given that it cost them $17m to make $3.4m - one could see how the multiplier is not gonna be so favorable. Let's make it 6x - that's $20m.

        That's a loss of 13.6 million. Surely they'd have to pay someone around 80 million to take it?

        • by mzito (5482)

          Revenue! Profit is not irrelevant, of course, but if a company is profitable, it simply means the multiplier increases. And many small tech companies get acquired when they're intentionally not profitable, because they're working towards growth rather than profitability.

          I'm not quite sure what you mean by your second comment, but to be clear, they *lost* $17M net of their $3.4M - so their gross expenses were $20m. As far as paying someone to take it, if there's really no takers for buying the company, and

    • by Jurily (900488)

      I would so love to be Virtual Iron, or anyone who got bought out like that. Geez, they buy me out, then tell me, that, I really am not allowed to work on it any more and can just take off for a few years, here's your millions of dollars.

      Here's your millions of dollars, we'll keep the hundreds of millions you could've made in the next years if you weren't so damn short-sighted. Now go home.

      • by tftp (111690) on Saturday June 20, 2009 @05:33PM (#28404503) Homepage

        Here's your millions of dollars, we'll keep the hundreds of millions you could've made in the next years if you weren't so damn short-sighted.

        The seller knows about this. You don't get to sell a company for $Nm by being stupid. However there are many reasons why people sell stuff and why other people buy stuff. For example:

        • The owners want to retire.
        • The owners burned out.
        • The owners need money, now.
        • The company has problems and unless sold it will close its doors soon
        • The owners foresee difficulties ahead (financial crisis, for example)
        • The owners know that they reached the end of their road, technologically speaking
        • The owners know that they are no good as marketeers and will never be able to increase revenue
        • The owners know that without a big cash infusion they can't develop new product, and they can't get that financing on any reasonable terms
        • The owners know that once smoke clears their company won't be worth as much (or anything)
        • by mzito (5482)

          tftp is totally correct, and if I had to guess, in this case it was:

          - no more water to draw from the well - i.e. with $70m raised and $3.5m in revenue, who's gonna put in more money?

          - they knew that there was still a little mojo left in the virtualization market - but the reality is that once the dust settles, you're gonna have a small number of players - VMWare for sure, maybe MSFT, maybe citrix, maybe Oracle - anyone else who's making a virtualization platform has already been bought or isn't going to be,

          • by Nursie (632944)

            You're forgetting the people who've been doing virtualisation for 30 years - IBM.

            • You're forgetting the people who've been doing virtualisation for 30 years - IBM.

              Well, the OP is presumably talking about the x86 market. IBM's virtualization offerings for non-x86 platforms are inseparable from their hardware. For the x86 market, they're reselling VMware.

              Sun and HP still have virtualization offerings of various sorts for Solaris and HP-UX (also tied to the hardware, but frankly not as good as what IBM has).

        • The owners know that the buyers can put them out of business through changing policies, now that they're interested in the market, by expanding their existing product line slightly, for only slightly more than the cost of buying them out. This has happened repeatedly.
    • I guess you were not around for the DOT COM daze, it was all the craze.

  • by Anonymous Coward on Saturday June 20, 2009 @04:01PM (#28403905)

    But commercial software is oh so much better as it has guaranteed support and you can rely on in and they have roadmaps and shit.

    • Well, when Oracle buys Virtual Iron, they also buy all their commitments. That means they still have to fulfill all support contracts.

      • by rbanffy (584143)

        Yeah, right.

        Just remember the product roadmap just vanished in the air and you will have to plan a platform migration for as soon as your support contract ends, if Oracle doesn't decide to end it prematurely.

        In any case, you lose.

        • They can't. At least not, without you agreeing. I mean what's the point of a support contract, that can be canceled, as soon as you need support? That would be fraud, and thereby illegal.

          • by JAlexoi (1085785)
            I believe that every contract has a cancellation clause. And it usually states what can be and what cannot be done. Canceling a contract is one of the basics of contract law in all legal systems. And those support contracts either are one sided, the support provides does not guarantee anything, or they have ramifications to the supplier, usualy financial ones. I believe Oracle can just pay those cancellation fees and be done with it.
      • by sjames (1099)

        Except the part about expanding. That's where customers are at now. If they need more licenses to expand their operations, they are SOL.

        That's exactly the situation Free Software never puts you in. You can always install another copy. If Virtual Iron had been Free Software with a support contract, then the existing customers would still receive that support for their existing installations but would also have the ability to expand if necessary and even find someone else to support them.

        I'm also guessing tha

    • by oldhack (1037484) on Saturday June 20, 2009 @06:00PM (#28404695)
      Hey, if the shit's got shit, it's got shit.
    • Re: (Score:3, Funny)

      by jd (1658)

      I thought it was "Emacs, Emacs, Emacs!" or "Developers, developers, developers!"

  • I don't understand how this is an issue for existing VI customers. In the immediate future, I can see the concern, but I'd be shocked if Oracle didn't have a transition plan for existing customers in the long term to their combined virtualization platform. Granted, that plan may be "install this new version", but there's a plan I'm sure.
    • by Senjutsu (614542) on Saturday June 20, 2009 @04:33PM (#28404121)
      Any transition offer that involves subjecting oneself to Oracle's pricing plans can accurately be described as being up shit creek.
      • Right... good point right up until you look at what they charge for their linux and virtualization offerings right now. Significantly cheaper than most of the competition...
      • Re: (Score:3, Insightful)

        by ckaminski (82854)
        This is going to drive Oracles VI customers right into Citrix's hands, who also have a VERY compelling Xen based product, and I think the original Xen guys themselves.

        Citrix should be ALL over this.
    • by sjames (1099)

      Well, if they need a few new licenses this month, they're SOL. Sure, in a year or so (according to TFA) they might have an offer to completely rebuild everything on Oracle's new offering, but that doesn't help now and won't likely be pretty then.

  • only commercial solution if you want long term support. Can't depend on MS (Virtual PC anyone? Now MS VS?), can't depend on Oracle. These and RedHat/Novell have other product lines to distract. At least VMWare continues to support their products (patches, migration paths) and is single-minded in their focus.
    • by saleenS281 (859657) on Saturday June 20, 2009 @04:26PM (#28404079) Homepage
      ...VirtualPC is still around. But it was NEVER aimed as an enterprise virtualization solution, so I'm not sure why you would even bother to bring that up. I can only question your knowledge of the subject. Citrix Xenserver and Microsoft's Hyper-V are here to stay, and are VERY viable long-term solutions. In fact, more viable than VMware because they aren't a one-trick pony. Both company's can and will continue to make money if virtualization technology becomes a commodity, and with the ground MS is gaining with Hyper-V, that is a VERY real possibility.
      • Re: (Score:2, Insightful)

        by Anonymous Coward

        Come talk to me in 5 years when your viable long term solution providers have decided that their product line is not profitable enough and kill it off. That is what happens when a company's products are not a one-trick pony.

      • LOL. Citrix XenServer was so not viable, they had to give it away. Sarcastic remarks aside, I run a virtual data center with over 800 virtual machines. I would not replace my VMWare with Citrix, even with Citrix being "free". The "free" Citrix would hurt my opex so much, it would cost me money. Do you know how much money it means to add a percentage to our system admin load on 800 virtual machines? The Citrix guys aren't even to the point of "getting it," yet. When they have a product with a centralized man

      • by ckaminski (82854)
        VMware's only differentiators in the market now are X86 emulation on non-VT platforms, the ancillary products like Lab Manager/Lifecycle manager/etc. and mature tools. That's not an advantage that is going to last very long.
    • by afidel (530433)
      Windows Server 2008 with Hyper-V will be supported until 2018 at least, do you think VMWare will be supporting ESX3.5 then?
  • by Anonymous Coward on Saturday June 20, 2009 @04:17PM (#28404007)

    VI customers could just switch to emacs.

  • Oracle is not IBM. (Score:5, Interesting)

    by reporter (666905) on Saturday June 20, 2009 @04:19PM (#28404029) Homepage
    After Oracle agreed to buy Sun Microsystems, many analysts claimed that Oracle intended to become another IBM by selling all components in the typical server room and by supporting those components with the same kind of high-value customer service.

    Well, the analysts were wrong. Without warning, Oracle just abruptly terminated a product line on which its customers may have built their entire information-technology infrastructure. This kind of approach to customer service is not how IBM treats its customers.

    Look at how IBM handled the sunsetting of OS/2 [ibm.com]. IBM issued a warning long in advance of ceasing sales and distribution of the product. Then, after the termination date, IBM continues to sell service contracts to support the product if a customer continues to need support.

    Hmmm. Maybe the time has come to short my Oracle stock.

    • by (H)elix1 (231155) * <slashdot.helix@nOSPaM.gmail.com> on Saturday June 20, 2009 @05:00PM (#28404275) Homepage Journal

      This is not a fair product comparison: OS2 vs VI's end of life. Both companies buy product, in some cases to integrate, others to remove competition, and others yet again to just own the customer base. Expect the same careful moves when the database gets put down someday.

      I'm willing to bet it will play out more along these lines... For existing customer who already own the product, Oracle will support them for as long as they are willing to pay for support. For those who did not buy yet - sorry, no product can be bought anymore. For previous partners, a tough break. Continue to sell services to existing customers, but don't plan for any new customers. Now would be a very good time to rethink product - any of the other VM products - and see if there might be a reasonable match to what they were doing.

       

    • by jonbryce (703250)

      And you can still get OS/2 even now.
      http://www.ecomstation.com/ [ecomstation.com]

    • by davecb (6526) *

      Actually they have three product lines which overlap, and this is the one that's closest to being a startup.. I assume they wanted the technology to put into one of the others, and they'll happily sell the resulting composite to the Virtual Iron customers.

      This neither proves nor disproves that Oracle would like to sell all the components that you need in your server room. I suspect they do, in part because it's now to be a merger, not a buy-and-close like Virtual Iron.

      I also suspect that IBM is cursing

  • by somenickname (1270442) on Saturday June 20, 2009 @04:21PM (#28404041)

    Though probably not for data center use, VirtualBox would add a fourth virtualization technology to their list. I'm more interested to see what they do with VirtualBox than what they do with all their overlapping Xen offerings.

    • by erroneus (253617) on Saturday June 20, 2009 @04:41PM (#28404159) Homepage

      VirtualBox is really for the desktop... or developing VMs for the enterprise, which is where I hope they go with it. I really like VirtualBox. It's free, does everything I need it to do and has replaced my use of VMWare Workstation nicely. If VMWare Workstation were free, I'd switch back.

  • by noidentity (188756) on Saturday June 20, 2009 @05:12PM (#28404347)

    In a letter to Virtual Iron's sales partners, Oracle says it 'will suspend development of existing Virtual Iron products and will suspend delivery of orders to new customers.' One partner said, 'So basically, anyone that built their hosting infrastructure on VI... is now totally in the s--.

    This is a good example of the purpose for requiring that you have access to and can compile the source code to the software you're using. If the current developer decides to close shop or has it closed for them as in this case, you can just take ths code to another developer or set up a new shop, rather than be totally screwed like this.

    • by jd (1658) <imipak@@@yahoo...com> on Saturday June 20, 2009 @05:31PM (#28404489) Homepage Journal

      It's also a good example of why being a company "likely to be around for a while" isn't worth a damn. Mergers and buy-outs happen, to small companies and large, and it renders all those nice platitudes as to why commercial products are so much "safer" to go with into meaningless drivel.

  • What if they phase out MySQL in order to promote the Oracle database?

    I guess Oracle considered it didn't make sense to have three different virtual machine technologies and wanted to combine them all into one product and got rid of Virtual Iron but kept their IP and source code and technology. But then the VI customers and employees get shafted. Nice public relations there Oracle, you are channeling Microsoft through you on that one.

    I guess they didn't learn their lesson from the Dotcom bubble bursting, and

    • by davecb (6526) *

      They bought the relational engine that MySQL uses over a year ago, and then instead of shutting it down, invested money in improving its performance.

      Larry reputedly says he wants more people to learn SQL, because in the long run it will bring Oracle customers.

      It looks like the cases may be different.

      --dave

  • by Tokerat (150341)

    Real datacenters use Emacs.

  • The current customers are not really screwed like the article claims. I think their life will get better, as they are now dealing with a steady established company.
    FTFA: ""When the integrated product becomes generally available, Virtual Iron customers will be able to move to the new, integrated product and benefit from a more feature rich-solution than is available today." But Oracle has not said when the combined product will arrive, and Virtual Iron's partners and customers may feel that Oracle has l
  • Anyone who uses Netbeans needs to start leaning how to use Eclipse or JDeveloper. Never mind all those who use Open Office.
  • 'So basically, anyone that built their hosting infrastructure on VI... is now totally in the sâ".'"

    Emacs wins!

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