Microsoft Buys Israeli Virtualization Startup Kidaro: VMware, Look Out

Following the sweet exit of YaData, Microsoft (MSFT) goes at it again and this time it’s Kidaro’s turn, an Israeli developer of desktop virtualization software for enterprises. The sum of the acquisition was undisclosed, but Globes says Israeli high tech sources estimate the deal to be in the 90 to 100 million dollar range.

Kidaro was founded in 2004 by three Israeli entrepreneurs:Ran Kohavi (serves as VP of biz dev), Itzik Levy (VP of R&D) and Ran Oelgiesser (VP of marketing). Two out of the three have successfuly sold companies in the past. The company has raised $14 million to date, from backers who are happy to report an exit today: Storm Ventures, Genesis Partners and most recently Opus Capital, who joined the other two in December of 2006. The investors will receieve a 500% return on their initial investment.

In the official press release from IBM, Shanen Boettcher, GM of Windows product management at Microsoft, said:

The acquisition of Kidaro is an important component of our virtualization strategy, and it delivers a powerful new tool to help enterprise customers optimize their desktops. Virtual PCs can help businesses address a number of challenges around application compatibility, mobility and business continuity. Kidaro’s seamless user interface and management capabilities allow enterprises to more easily use and manage Virtual PCs. Incorporating Kidaro’s innovative solutions into the Microsoft Desktop Optimization Pack further enables virtualization across the enterprise, and is another example of how we are helping customers keep up with the changing needs of their business.

Globes also added that Kidaro’s acquisition wasn’t really planned. The company was progressing well, and there were no real plans to sell it. But unlike Yahoo, Microsoft’s offer, which came as a surprise (according to a source close to the company), was one they couldn’t refuse.

VMware Inc. (VMW), which competes with Microsoft on the virtualization front, acquired Thinstall Inc. for an undisclosed amount in January. According to Ryan Floyd, a partner in Storm Ventures, who invested in Kidaro in 2005:

Thinstall is more geared toward application virtualization than providing access to the entire desktop, as Kidaro seeks to do. Rather than providing virtualization on the server side, as Citrix Systems Inc. [CTXS] does, Kidaro hosts its software on the client PC or notebook

This acquisition is yet another endorsement to Israel’s high tech industry. Israeli companies are being bought right and left these days, which is a testiment of the Israel’s ability to produce innovative companies that can make successful mid-size exits, without burining too much capital. In the future, I hope to see large scale exits, such as Thursday’s acquistion of Bebo by AOL (TWX).

Comments

[Yaar]

This is a silly article. Instead of writing about why Microsoft bought the company, it is about how much money VC firms are going to make and how great Israeli tech companies are. If you want to do a comprehensive reporting and want to be credible, research what makes them a great company compared to VMWare and talk about those. Highlight why this is such a great acquisition for Microsoft and how it fits into their roadmap for virtualization. I guess that's a little too much to expect from a pseudo reporter.

[steveballmer]

Great article! Finally a good journalist!

[reader]

I guess the two previous comments are the ying and the yang of it.

[cameronm]

I don't think this acquisition is really about competing with vmware. For MSFT it is a way of helping customers migrate to vista which is obviously super important to MSFT but pretty tangential to their battle with VMware. Virtualization is a horribly abused word and just because something is virtual does not mean it is relevant or competitive with vmware and xensource/citrix.

[VCCafe]

I agree with CameronM - the word virtualization has been abused.

Think about it this way: MSFT presented very aggressive numbers last year and they've publicly stated that they are planning to grow through acquisitions. The purchasing of Kidaro should send a signal to VM Ware that Microsoft wants to enter the space agressively. It might start with migration to Vista, but you can rest assured that it won't end there.

[rustybutt]

Microsoft has a history of failure whenever they've had to actually compete. X-Box is not exactly beating out Playstation or Nintendo. And remember Microsoft Money? People like to talk about how they beat out Netscape, which they did by giving away Explorer, which they could only do because they had the money to do so. Microsoft has made its fortune by being able to leverage their monopoly in MS Office. When they can't leverage MS Office, they actually have to innovate and compete, something they've never done with success.

VMware only has to continue to innovate and improve and they have little to fear from Microsoft.

[sunrises]

Why go through the trouble of competing rather why doesn't MSFT consider M&A with VMWare?

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