Citrix is making an all-out strategic strike on VMware. It’s going to stop selling XenServer 5 – the open source virtual infrastructure that it’s added a bunch of proprietary features to since it acquired XenSource last year – and offer it to all comers for free.

It says VMware sells the equivalent technology for $50,000 for a 10-server environment.

Citrix is obviously trying to rot out VMware’s revenue base; and for maximum effect it unleashed the announcement the day before VMware Europe opened in Cannes; Citrix will be there so it can gauge the impact.

XenServer includes a 64-bit hypervisor, unlimited virtual machines, unlimited memory, support for eight virtual CPUs, multi-server management, Active Directory integration, resource pools, live migration, advanced storage management, native Windows and Linux support and a centralized management console.

The widgetry is supposed to have massive cloud-proven scalability, a point Citrix will probably reiterate a lot given the direction VMware is going.

Citrix will talk about XenServer’s enterprise-class features and say it runs the largest virtualization deployments in the world.

It expects the folks using the free Xen to trade up and then maybe eventually buy whatever upgrades to XenServer’s advanced features it trots out. It promises we’ll see major Linux OS vendors and cloud providers upgrade from Xen to XenSource in the coming weeks.

As for real revenue, however, in place of XenServer Citrix says it’s going to retreat to cross-platform virtualization management that sells for $1,500-$5,000 a server and that this was its strategy all along.

It’s developed Citrix Essentials for XenServer as well as Citrix Essentials for its buddy Microsoft’s Hyper-V.

Microsoft’s tickled pink. Essentials has functionality that Microsoft doesn’t have yet – although it expects to eventually – so it should advance Microsoft’s position against VMware.

Starting in April Microsoft and Citrix will market the stuff together worldwide. It will be handled by both Microsoft and Citrix field sales as well as Citrix channels.

The Hyper-V widgetry, developed under the code name Project Encore, is eventually supposed to extend Hyper-V and Microsoft’s System Center to make virtualized environments more scalable, manageable and agile. Microsoft’s still working on it.

Otherwise it’s advertised as simplifying enterprise storage configuration and operation; reducing VM sprawl and its impact on storage consumption; automating the entire VM development lifecycle; and – here’s the real VMware dig – it eliminates virtualization’s high entry price in a tough economy.

Essentials, which comes in two cuts, includes advanced StorageLink technology, dynamic provisioning services, workflow orchestration, multi-hypervisor interoperability, and in the higher-end Platinum Edition automated lab management.

StorageLink is important. Virtualization can turn pricey storage systems into dumb disks, Citrix says. Its StorageLink technology is supposed to prevent such degradation and let virtual servers leverage the power of the storage.

It includes a gateway to access the features in any array-based system; rapid VM delivery from a centralized image library; links to third-party backup and management frameworks; and control of the storage directly from the virtualization console.