Citrix Systems might not be the first company that comes to mind when CIOs think about the most influential business IT vendors of the last 20 years, but even if it doesn’t quite stand alongside Microsoft, it has a solid claim to fame as the firm that reinvented the possibilities of Windows computing.
In the mid-1990s, with its WinFrame and Metaframe software for deploying Windows programs from a server-based console, Citrix made controlling systems simpler and more cost effective. For the last seven years the company has been led by Mark Templeton and has grown revenues to almost $1.4bn (£750m) for its last financial year, moving from the status of single-product company to broader player that spans conferencing, remote -access, network optimisation and security.
Most recently, Citrix has been moving into the rapidly growing virtualisation space with the acquisition of Cambridge-based XenSource. The deal raised eyebrows as Citrix spent about $500m even though Xen had almost no revenues and used open-source technology as the basis for its programs.
Even if XenSource has little in the way of income, the deal is strategic nonetheless as virtualisation provides a very powerful way to manage system resources, provide failover and deploy applications.
Templeton defends the transaction, saying that it provides Citrix with broad virtualisation capabilities.
“I’ve visited [XenSource in the UK] and the scientists are just amazing,” he says. “The hardest part is that the valuation can’t be related in any way to the previous 12 months. [You can only justify the price] by the technology and the people talent. That’s the only way you could get to $500m, [but XenSource] gives us a stake in virtualisation all the way down to the bare metal, and depth all the way from the desktop to the datacentre.”
Templeton also has a good stab at claiming that there is a consistency in ambition between the pioneering days of WinFrame and today’s virtualisation push, saying that, like server-based computing, virtualisation is about “putting information in the right place at the right time with the appropriate security model wrapped around it.”.
Even though VMware has quickly emerged as the 800-pound gorilla of the sector, the speed of change and arrival of large firms such as Microsoft and Citrix in the space mean that nothing can be taken for gran-ted as regards who will emerge as the long-term incumbent suppliers.
“In server virtualisation we see a lot of turmoil in products, players and who will exit the era with the dominant share,” Templeton says. “VMware is the market incumbent. We have technology that is quickly catching up for companies that want a lighter-weight, lower-cost, easier solution to implement. The biggest leverage to desktop total cost of ownership is how you deliver the apps, rather than the apps themselves. It becomes a simpler machine and that means lower costs.”
The XenSource acquisition also all-owed veteran Citrix watchers to revive an old query: won’t this upset the relationship with Microsoft? Having answered questions about Microsoft probably thousands of times since the cross-licensing agreement between the pair in the 1990s that led to the software giant endorsing Citrix’s approach to Windows computing, Templeton has a well-rehearsed answer.
“The way you need to think about it is the way a really good marriage works and that’s through openness, honesty and having a direct relationship,” he says. “My wife and I have been married very happily for 28 years and there are times we don’t agree and tempers can flare, but that’s not going to lead to divorce. The problem comes if you don’t talk and let things fester. A lot of people are at arm’s length [with Microsoft] and there’s a fear factor.”
With virtualisation, Templeton’s cunning plan is to offer Xen as a product that can work with Microsoft Virtual Machine Manager, as well as selling it as a separate offering. In that sense, just as with WinFrame and Microsoft Terminal Server, Citrix can offer both a “bare metal” product or value-add to Microsoft “which is a page out of the Citrix playbook”.
Moving on to a broader outlook, enterprise software is changing quickly as firms seek to build scale through acquisitions and buyers look to reduce supplier rosters. Could Citrix be picked up by one the mega-firms?
“We’re probably just above the line of being a consolidator rather than just -becoming part of someone else,” Templeton suggests. “We’re on the strategic vendor list for thousands of customers and customers don’t want strategic vendors to be consolidated. The tactical ones, absolutely [are up for grabs].”
Another interesting change is coming in pricing with firms like VMware, Oracle and SAP pushing up prices for many customers. Templeton confirmed that it was likely Citrix would follow suit and the move was eventually confirmed in mid-August with a 10 per cent increase. However, he was at pains to deny suggestions that this hike is a way of protecting revenue streams at a time when many expect a recession that could hurt sales of new licences.
“We don’t see pricing as a way of weathering the downturn,” he says. “We price in US dollars and I don’t have to tell you about what’s happened in the last few years. The cost of doing business outside the US has dramatically changed.”
One possible tactic enterprise software suppliers could use to make customers lives happier is adapting licensing models, although Templeton believes Citrix’s model is well suited to buyers’ needs.
“We have the closest thing to a usage-based model that exists, which is a concurrent model. Buy one licence and 10 people can use it, but not simultaneously.”
However, he also points to a small num-ber of customers that have used an interesting alternative model that takes some weight off the administrative burden.
“We’re in the business to sell software but [about] 50 customers use a desktop model where they purchase a licence for every user and do an honour-based ‘true-up’ [to reflect actual usage],” he says.
Another change to look out for at Citrix will involve a push to make services a bigger component of the offering.
“Last year, services revenue was eight per cent of total revenue and I think we’re pretty low when it comes to our peers,” Templeton says. “We can help by having a larger capability. We can probably get that to eight to 12 per cent.”
This will be focused on “strategic architectural design where customers want to talk to Citrix” and will not therefore impinge on resellers, he insists.
And his final message is that Citrix’s vision, of having a more manageable approach to IT than pure client/server, is coming into its own.
“The good news is that we have a good ROI,” he says. “It’s an investment for hard times and when things are better, a service-based model for operating IT.”