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Why Server Virtualization Reached Market Saturation

Every enterprise IT best practice eventually reaches obsolescence as new methods disrupt the legacy status-quo -- virtualization has reached that turning point. The worldwide x86 server virtualization market is expected to reach $5.6 billion in 2016 -- that's an increase of 5.7 percent from 2015, but demand has shifted, according to the latest worldwide market study by Gartner.

Despite the overall market increase, new software licenses have declined for the first time since the virtualization market became mainstream more than a decade ago. Growth is now being driven by software maintenance revenue, which indicates a rapidly maturing market segment.

"The market has matured rapidly over the last few years, with many organizations having server virtualization rates that exceed 75 percent, illustrating the high level of penetration," said Michael Warrilow, research director at Gartner.

Virtualization Market Development Challenges

The server virtualization market is still dominated by VMware. However, Microsoft has worked its way in as a mainstream contender for enterprise use. There are also several small niche vendors including Citrix, Oracle and Red Hat, in addition to an explosion of local vendors in the domestic China market.

While server virtualization remains the most common infrastructure platform for x86 server OS workloads in on-premises data centers, Gartner analysts believe that the impact of new approaches to server optimization will be increasingly significant. This includes OS container-based virtualization and open source hybrid cloud computing.

According to the Gartner assessment, usage of server virtualization among organizations with larger IT budgets remained stable during 2015. It continues to be an important and heavily used legacy technology for these businesses, but this market segment has apparently reached saturation.

In contrast, organizations with smaller IT budgets expect a further decline in usage through to at least 2017. This is causing an overall decline in new spending for on-premises server virtualization.

New Options Disrupt the Virtualization Market

Gartner believes that organizations are increasing their usage of "physicalization" -- choosing to run servers without virtualization software. More than 20 percent of these organizations expect to have less than one-third of their x86 server OSs virtualized by 2017, and that's twice the amount reported for 2015.

Why the shift in demand? The rise of software-defined infrastructure (SDI) and hyperconverged integrated systems (HCIS) are providing new options. Gartner believes that it has put pressure on virtualization vendors to add more out-of-the-box functionality and provide a better ROI.

"What was considered as the best approach to greater infrastructure agility only a few years ago, is becoming challenged by an array of newer infrastructure choices," said Mr. Warrilow.

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