So first of all, to me it seems that this does not mean that VMware is giving it away for free, but that Dell is. It will surely only apply to selected high-end servers. Second of all, the ESX3i list price is $495. Deals made at the magnitude of a Dell-VMware deal will slash that price. Let's say that there's something like $150 left? I'm pretty sure that Dell could "integrate" this $150 into the overall cost (increase) for a server easily.

This doesn't really matter for the effect of this decision by Dell though. See, Vmware has also lined up the other server vendors (HP, IBM) to include ESX3i in their servers. There's a good chance that these server vendors might also find themselves forced into the position to offer ESX3i without additional costs as well. On the other hand if you consider my estimated cost of ESX3i cost i mentioned earlier ($150) then just including this as a paid option would put HP or Dell out of business. Besides, even though virtualization is hot, not everyone will use it (obviously you wouldn't have to use ESX3i even though it is embedded in your server).

So who looses? The (SMB) resellers. Whether or not all major server vendors will embed ESX3i for free, resellers will have a hard time making  a buck out of reselling ESX3i. On the other hand, if ESX3i takes off at customers, they will be wanting to upgrade to the more mature versions of ESX anyway. That would of course be a very sweet opportunity for the VMware partners.

So who wins? The customer. And in more ways than you think. Obviously getting a free, high quality, hypervisor is something that probably every customer will appreciate. But there's something that is going to be more important. I am a strong believer that the hypervisor is very much on it's way to become a commodity. I also think this a very good thing. This move by Dell only accelerates this movement (the $28 cost of Hyper-V will also help this along). So hypervisors will be everywhere whether it be on your servers or your desktop. The real challenge of course continues to be in the "management" (in the broadest sense of the word).

Remember, the story reported by the Inquirer is only a rumor but I still found it an interesting opportunity to think about the possible consequences.