The Tuck School of Business at Dartmouth
Virtual Desktop Infrastructure
An Ecosystem Analysis
Richa Bansal, Ross Guida, and Sara Russo
Entrepreneurship and Innovation Strategy
Fall 2010
Virtual Desktop Infrastructure
Bansal, Guida, & Russo – EIS – Fall 2010
I. Introduction
For years now the promises and future of the virtual desktop infrastructure (VDI) industry have received
a close eye from analysts in the tech space. A quick Google search of “virtual desktops,” “VDI,” or
“desktop virtualization” will expose you to an industry that has been promised huge and rapid growth.
Despite the hype, another year (2010) is about to pass that was yet again not the year of virtual
desktops. So what is in store for the future of VDI? What are the hold-ups to this industry’s growth
potential? Who are the key players? And will the complex interworking of the industry allow for 2011
to be the year VDI really takes off.
II. Overview
The industry offers a great potential for high returns both from the companies who offer solutions
within the VDI industry and to the customers who are looking for an ever more efficient way to provide
desktop computing to their respective users/employees. Mark A. Margevicius, an industry analyst from
Gartner provides a concise summary to the value proposition for the industry:
“Hosted virtual desktops provide end-user flexibility, efficiency, possible energy savings and
other benefits, enabling administrators to manage desktops from a centralized location and end
users to access their desktops from machines in any location1.”
This flexibility, single point of management, and end user delight are the key value propositions for the
customer. Once VDI has developed into a more robust and mature industry, the desire is to have these
features be the reality for the customers. To accomplish a full VDI solution, packages must cost far less
and be more easily implemented than the current competition, traditional networked desktops.
Essentially the challenges of the industry are to make VDI the computing solution of choice when a
company is faced with the option of buying several hundred or even several thousand new desktops and
the supporting infrastructure to network them, versus implementing a VDI solution with virtual desktops
supported by servers, connection brokers, thin clients, and software management platforms. This
alternative VDI solution is starting to become an economically beneficial option2, but the switching costs
are still high, holding back new customers from considering and making the switch. Even though VDI is
still expensive, confusing, and difficult to implement, it has a strong potential upside. Thus industry
analysts are all closely watching and writing about both the barriers to wider acceptance of the industry
1
2
Gartner, Mark A. Margevicius, Get Ready for Hosted Virtual Desktops, 15 June 2010
Gartner, William Maurer & Richard T. Matlus , MarketScope for Hosted Virtual Desktop Services, 8 June 2010
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and how quickly these barriers can be overcome3. However, there are many customers who recognize
that these costs are quickly being driven down. They realize that if they can overcome the IT manpower
switching cost in the short term to become knowledgeable and experienced with VDI implementation,
they will be at the forefront of being able to leverage VDI and its increasing advantages in the next year
or two.
III. Key Players & Ecosystem
There are many reasons for holdups within VDI4; large technical barriers are still being brought down to
produce a final integrated product that is accepted by both the end user and IT management. However
the industry itself is still fractured and immature, with many large and small players both competing and
working together to advance the VDI industry. A key hold-up to all this is that how VDI players will
structure the industry is not yet established. These companies are all fighting for a larger piece of the
pie, instead of working together to grow the pie. This competition is natural, but with the great
complexity of how these industry players must work together, it is also holding back VDI from competing
with a traditional desktop solution. This is the great dilemma that each player within the industry is
facing. In addition, as naturally expected, the larger players have more influence; in this case those
players are VMware, and Cirtix. Both are battling with each other for industry dominance, and right
now VMware is the bigger of the two, but there are also indications
To dive further into the analysis, a segmentation of the industry must be explored and the interactions
among key players must be defined. For this analysis a high level view of the six major players segments
is discussed.
1. Virtual Machines
The actual virtual machines are created on servers through the combination of the bare metal
servers and setting those servers up with desktop virtualization platform. This actually takes the
server, its storage, and computing power, and makes it possible to divide these resources up to form
individual virtual desktops.
Major Players: VMWare ESX Server, XenServer (Citrix)
3
4
Gartner, Mark A. Margevicius, Top 10 Issues With Hosted Virtual Desktops, 10 June 2010
ZDNet, Dan Kusnetzky, What happened to virtual desktops? 28 December 2009
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2. Connection Broker
Above we described how the virtual machines are basically formed. Now there is the job of
connecting and interfacing these virtual machines to the end users. To accomplish this, a
connection broker software package must be installed into the VDI solution project.
Major Players: VMWare View, XenDesktop (Citrix)
3. Thin Client
Thin client devices are the physical connection point at the desk location of the end user. A thin
client is a small device that simply accepts an Ethernet communication cable for I/O communication
and connections for the end user’s monitor, keyboard, mouse, and USB devices. Unlike the
traditional desktop infrastructure where the operating system is physically located on the local
machine, a thin client relies on a network desktop image hosted remotely.
Major Players: Hewlett Packard, Pano Logic, Wyse
4. VDI Management Platforms
Once the main infrastructure is in place, a software management tool used by the IT staff of VDI
customers provides the interface for each customer to manage the virtual desktops.
Major Players: VMWare View Premier, XenServer 5 Management Tool (Citrix), Unidesk v1.1,
Wanova
5. Customers
VDI customers are the companies who implement VDI solutions to provide their employees, or end
users, with virtual desktops instead of traditional desktops. In this case the purchase decision is
usually made through a collaborative effort between the IT departments and management teams of
the purchasing customer. Overall, once implemented it is the IT staff and virtual desktop users who
make up each customer.
Major Players: Early adopters and IT thought leaders, who are relied upon to advance the industry
before mass adoption take place.
6. Operating system
Although there are many options for which operating system can be run on a VDI platform, by and
large the solution is a Microsoft operating system (OS), the OS most companies currently run for
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their desktops. The difficulty this raises is Microsoft has a policy for what is known as VECD,
Microsoft’s licensing policy, that is both complicated to understand and implement correctly, and is
expensive5. This policy is regarded as unfair by many as a way Microsoft can overcharge for its OS.
Figure 1: Virtual Desktop Infrastructure Ecosystem
This complicated and fractured environment has become difficult to operate in for the player categories
summarized above, but also offers huge rewards for those players that establish themselves for the
likely event that VDI takes off and starts to steal significant market share from traditional desktops.
Another complication is that the unknown future structure of the industry will likely block out players
who seem to be a strong value-add at present; however, without a crystal ball investors and large
players are having a hard time determining which areas to focus on.
5
Gartner, Michael A. Silver, It Pays to Understand the VECD License, 21 September 2009
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A classic example of this is the relationship a small player like Unidesk, who provides a desirable option
for the management platform6 has with the larger players it is trying to both compliment and compete
with. These same larger players who provide options for the virtual machine server and broker, such as
VMware & Citrix, could have their value increased with a supporting product like Unidesk. Instead, they
are trying to downplay the effectiveness and possible superiority of the Unidesk product. This is
because they both also play in the management platform space. For the overall advancement of the
industry and the increased revenue of the best players (virtual machine servers and brokers from
VMware and Citrix, and a management platform from Unidesk), this competition to dominate multiple
industry segments is not helping VDI adoption; it confuses customers and holds the industry back.
Overall this one example is a small representation of the fractured, evolving, and competitive nature of
the VDI industry. Instead players should attempt to work in closer collaboration, to grow the VDI pie, as
stated before, even if it means taking a slightly smaller fraction of the pie. This policy would help
advance all players in VDI’s goal of gaining desktop market share.
V. Risks
Desktop virtualization reduces cost of infrastructure for companies by reducing the need for each
employee or user to have a high level of hardware processing power associated with each desktop. It
also it creates a central source for keeping data from where all information could be accessed. Though
VDI has many benefits, it still faces several challenges due to incentives and barriers by several players in
the VDI ecosystem. In discussing the risks faced by each of the players in the ecosystem, we focus on
the platforms (virtual machines and connection brokers), hardware vendors (thin clients), peripheral
service providers (management platforms), customers, and operating systems. The adoption of
technology hinges on how all the players in ecosystem meet the requirements of an ever adopting
technology cycle.
Each of the players in the ecosystem has a critical role in making this technology successful. For the
purposes of this report, we will not be focusing on initiative risk, but rather the adoption and coinnovation risk as seen from the perspective of each of the key players:
A. Customers
The customers in this equation are the companies that deploy virtualization and the end users who
actually use these services on a day-to-day basis. It is important for organization to focus on the
6
Gartner, Terrence Cosgrove & Ronni J. Colville, New Approaches to Client Management, 25 February 2010
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barriers for the usage of this technology as any downtime in their network could mean significant
loss in business.
Adoption Risk: Usability limitations and security are one of the several problems that can arise from
an improperly managed VDI7. In order to get the ROI on the VDI, right VDI management tools are
required. Customers need peripheral and other services in order to mitigate the risk which physical
machines may exhibit due to transformation to Virtual Desktops. Inability of their end user’s own
system to integrate seamlessly with the entire package reduces their effectiveness in making most
of the virtual desktop platform. In order for the easy adoption of the technology, these
organizations require that the VDI provides reliability, security, ease of use and other backup
programs in order to make this an effective platform. They also possess significant challenges also to
keep IT infrastructure in the organization seamless, especially for large organizations with offices
and personnel spread across geographies.
Co-Innovation risk: The end user should be able to easily switch between different desktops while
working. The users inability to use his/her own desktop or any downtime could reduce the
effectiveness of the virtual desktop system. VDI also requires the adoption of a compatible
operating system which meets the technical requirements of the brokers. This can pose a challenge
for other software services which the end user needs to deploy on his/her system and a potential
conflict of configurations and requirements of that software with the operating system. Thus there
is significant risk to get these customers to innovate or adapt this technology and make the provider
aware of challenges they face in order to make the technology more robust. Despite several risks,
VDI technology provides significant benefits to the companies. Therefore, customers should have an
interest in being part of the innovation and development of the VD.
B. Operating Systems
Adoption Risk: Operating system developers also present significant adoption chain risk. They are
the final interface for the user where these VD platforms are deployed and thus need to adopt the
VD technology and integrate in their OS. There is also a competitive element to the platform as OS
owners try to create their own applications that emulate or complement the services offered by VD
providers. Most operating systems, such as Microsoft Windows, do not implement virtual desktops
7
http://www.tricerat.com/topics/desktopmanagement
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at installation time. Microsoft provides a Virtual Desktop PowerToy8 - for its Windows XP OS- a
software-based virtual desktop manager, which simulates many desktops. However, the
functionality provided is less comprehensive than that of many other virtual desktop solutions.
Co-innovation Risk: - Application compatibility problems are common, because application
developers do not expect virtual desktops to be in use on the Windows platform. The brokers such
as Citrix obtain the source code license to Microsoft's Windows in order to address the compatibility
issues. Although VMware virtual machines run in user-mode, VMware Workstation itself requires
the installation of various drivers in the host operating-system, notably to dynamically switch
the Global Descriptor Table (GDT) and the Interrupt Descriptor Table (IDT). If Microsoft refuses to
give access to its operating system then they possess an ultimate barrier without which this service
cannot be developed and deployed. For example, in 1995, Citrix shipped a multiuser version of
Windows NT with remote access, known as WinFrame. During the development of WinFrame for
Windows NT 4, Microsoft decided that it did not want to license Windows NT 4 source code to Citrix.
Not only that, Microsoft threatened to build its version of WinFrame. Citrix and Microsoft entered
negotiations about how best to resolve this dilemma. After negotiations, Microsoft agreed to license
Citrix technology for Windows NT Server 4.0, resulting in Windows Terminal Server Edition. This is
only one of the several instances where the incentives of OS developers and VD brokers clash and
stalled the development of VD platforms.
The technology also involves several protocols which should be agreed to by both the integrating
technologies. The core technology that Microsoft did not buy was the ICA protocol. This has been
one of the reasons why the technology has had several limitations. In January 2008, Citrix
announced an expanded alliance with Microsoft to deliver a set of virtualization solutions to address
the desktop and server virtualization markets to ensure broad interoperability between their
technologies. To reduce the risk of collaboration Citrix indulged in joint marketing, training and
channel activities were conducted with Microsoft.
There is also threat to Microsoft as VMware product line can run different operating systems on a
dual-boot system simultaneously by booting one partition natively while using the other as a guest
within VMware Workstation.
8
http://en.wikipedia.org/wiki/Citrix
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C. Peripheral Services (Management Platforms) – Peripheral services are management tools and
enhancement systems that make the adoption of the VD easier.
Adoption Risk: These services exist to provide support to adoption of VD and thus have incentive in
making the system integrate and successful.
Co-innovation risk: - These are very essential and critical for the adoption of these as they provide
proper separation and security needs of the IT infrastructure. They provide uniform, secure and
customized desktop space which is essential for system administrators to deploy customized
environments with limited user interaction to system tools and resources. Their inability to separate
and segregate could possess security breaches9. VD platforms prefer working with them to help
deploy and finance such tools. Citrix and VMware provide several of their own tools for managing
this complexity.
D. Hardware Providers (Thin Clients) – The hardware manufacturers such as Dell and HP have to again
be a participant and integrate the VD system well in order to make it work effectively.
Adoption Risk: – The hardware manufacturers have to adopt the technology and provide support for
integration. Since the main application of thin clients is for use in VD environments they have
incentive to direct resources for the development of hardware.
Co-Innovation Risk: Thin clients present significant co-innovation risk. They have to be customized or
supported for appropriate HVD deployment as they are customized for different business
application. They have to also co-innovate with all the key participants of the ecosystem in order to
provide low priced components. Their ability to innovate and provide valuable products decreases
the chances of adoption and deployment. For example, innovations such as OS and application
streaming10 has made the VD technology more usable.
VDI technology adoption is catching on and thus presents opportunities and incentives for these players
to co-exist and co-innovate with each other. While some have more incentives than others, the
increasing consumer demand for these services has driven and will drive more innovation in future for
VDI.
9
http://www.virtual-strategy.com/Insights/tricerat-20090805.html
10
http://itmanagement.earthweb.com/datbus/article.php/11068_3877221_2/Top-Five-Thin-Client-HardwareVendors.htm
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VI. Conclusion
Virtual Desktop Infrastructure has yet to take off as an overwhelming success. Though variants of this
technology platform have been available for a number of years, the key players in this industry continue
to try to figure out how to get customers to embrace VDI as a cost-effective and well-performing
solution. Since the VDI market has been developing for a number of years, we have seen many of the
players change strategies. For example the operating system creators held out for many years, requiring
users to pay a licensing fee for every machine on which they accessed their virtual desktop. Rather than
saving companies costs by allowing them to give employees thin clients at work and access to the same
desktop through a desktop machine at home, each employee would cost the company many times the
operating system licensing fee. That changed in 2010 when Microsoft11 agreed to accommodate virtual
desktops through a more affordable licensing program that no longer tied the OS to a single, physical
machine. Because VDI has evolved to the point of being a serious cost-saving consideration for large
corporations, Microsoft could no longer be a licensing roadblock and risk losing market share in
operating systems. This change in cost structure is a big breakthrough for allowing the VDI ecosystem to
become more of a reality.
Looking at the evolution of VDI compared to what the initial expectations were a few years ago, the
results have been disappointing. The players in the ecosystem have yet to prove that VDI is both costsaving and well-performing to the point that it is a viable option for large organizations. We have seen
some success with Desktop-As-A-Service (DaaS) for smaller organizations, where the cost to rent
desktop services from a third-party provider has proven very cost-effective. Companies like ThinkGrid12
have begun to offer small business VDI at an affordable price. While it is not the full VDI
implementations predicted when it was first introduced, the popularity of cloud computing has made it
possible for hosted desktop services, or DaaS, to take off.
Clearly the largest hurdles in the VDI market were not technology—they were in the collaboration of
ecosystem members. Microsoft kept their licensing tied to physical machines, virtual machine/broker
makers held the management platforms at arm’s length, and customers resisted adopting virtualization
because of perceived loss of user control. As we begin to see these co-innovation hurdles overcome, it
is clear that desktop virtualization could be a great solution for some organizations. It offers centralized
11
http://download.microsoft.com/download/C/6/7/C673E444-6DDD-40B8-B29F625354F2A8F7/Licensing_Windows_for_Virtual_Desktops_Whitepaper.pdf
12
http://www.thinkgrid.co.uk/
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management of employee desktops, secured data that used to reside on individual machines, and a
great potential for cost-savings.
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