How To Grow A Cloud Computing Company

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1 Citrix touts new software-defined strategy, hyperconverged hardware and Workspace Cloud Analyst: Scott Ottaway John Abbott 23 Jan, 2015 At its annual partner conference, with 4,000 in attendance, Citrix announced new converged hardware, infrastructure software, application-delivery and cloud-based products, as well as a software-defined strategy across datacenter and end-user devices. Specifically, Citrix introduced the WorkspacePod converged hardware, and announced an updated Xen Hypervisor with improved performance for VDI scenarios. It also delivered a preview version of WorkSpace Cloud, which is SaaS-based orchestration software designed to reduce infrastructure, application and storage deployments while providing a single console for IT admins leveraging the Citrix Platform. Additionally, Citrix announced new and expanded partnerships with HP, DataON, Cisco, Microsoft, Google and Dell, along with revised channel incentive programs designed to compete against VMware and enable cross-selling of Citrix's portfolio to XenApp/Desktop customers. The 451 Take Citrix is facing pressure from the slow growth of enterprise PC and Windows deployments, coupled with intense competition from VMware as it pushes aggressively into end-user computing. And there's further pressure from service providers such as AWS and Microsoft offering desktop and application hosting in the cloud. Citrix is reacting on multiple fronts: through organic product innovation (taking security and user experience as key design points); through deep partnerships (Cisco, Google, Microsoft, HP, Dell and others); through significant channel and direct sales-force expansion; and finally, through a willingness to move into new markets (such as cloud-based management services, native mobile apps and software-defined storage and networking). Citrix has a track record of strong execution and course-correction that makes it likely its diverse strategy will succeed. We expect to see more software-defined investments, especially around storage and networking capabilities. We also Copyright The 451 Group 1

2 believe that Citrix will need to take more of a lead role in integrating its datacenter and end-user technologies across Microsoft and open source platforms, as well as into the converged hardware infrastructure of its systems partners. Context and market trends Citrix's main cash flow comes from its application-delivery products, XenApp and XenDesktop (which have now been unified into a single product), as well as its associated networking products NetScaler and Cloudbridge, and its rapidly growing business with XenMobile. These offerings form the basis for Citrix's focus on 'mobile workspaces' data, applications and services delivered over any network, or from any cloud, to any end-user device. It is important to note that Citrix's roots and the majority of its existing revenue is directly related to the Windows installed base and the large Windows application ecosystem. From a datacenter platform perspective, Citrix also has a large footprint at enterprise and telecom customers with its CloudStack platform, a rapidly growing business with XenMobile MDM offerings and native mobile applications, as well as a portfolio of storage and communication cloud services, including ShareFile, GoToMeeting, GoToWebinar, etc. Four key trends have required Citrix to move away from a Windows-centric product portfolio over the last several years: 1) rapid proliferation of non-windows devices; 2) growth of cloud services, especially around infrastructure, storage services and unified communications; 3) market growth of mobile devices and related management complexity; and 4) most recently, VMware's aggressive investment in end-user technologies that directly target Citrix's large installed base. Citrix has recognized that it needs to fortify its product lead in Windows-based application delivery (Citrix and Microsoft convincingly argue that Windows in enterprises will not be going away anytime soon). However, the decline of Windows desktops could actually be of benefit to Citrix, since running Windows apps in Presentation Server/session mode or as a VDI-based workspace is a very attractive alternative to continuing to upgrade PC hardware and software. Strategy Citrix's product portfolio, market engagement and competitive pressures are complex. A successful response to this complexity is of course unlikely to consist simply of 'better engineering' or 'improved sales execution.' As would be expected of a company with over $9bn in market capitalization, Citrix has developed a multifaceted strategy to maintain dominance in application delivery at enterprises while growing is platform share and revenue by directly addressing the critical IT pain points of BYOD, mobile security and datacenter IT complexity. Additionally, each part Copyright The 451 Group 2

3 of its strategy is focused on attaching its entire technology stack to multiple client and server platforms beyond Windows, especially ios, Android, Linux and Chrome. As outlined at its partner conference, the five critical components of Citrix's business strategy are: 1) software-defined platform unification, 2) product innovation, 3) support for any platform, 4) deep hardware, ISV and cloud SP partnerships, and 5) channel development and execution. The newest aspect of Citrix's strategy that was just announced is a companywide focus on delivering an integrated software-defined platform that addresses both the datacenter (back-end compute, networking and storage) and end-user applications and devices (the ability to deliver any application on any device, with a rich user experience). Citrix CEO Mark Templeton acknowledged that the Windows-based PC era is over, and physical workspaces will now be software-defined workspaces. On the datacenter side, software-defined datacenters enable the mobile workspace, while changing the economics and TCO of datacenter operations. Because Citrix is heavily invested in both datacenter infrastructure and end-user application delivery, this new software-defined platform unification strategy rationalizes for Citrix the trends of software-defined datacenters with its prior focus on addressing the IT pain points of BYOD, mobile applications, data security and employee demand for consumer-like experience. From a Citrix product portfolio perspective, the software-defined datacenter is enabled by XenServer, CloudStack, NetScaler, CloudBridge, ScaleExtreme and now Sanbolic, while the software-defined workspace is enabled by XenApp/Desktop, XenMobile, ShareFile and the various SaaS offerings for unified communications such as GoToMeeting. Importantly, Citrix's portfolio and aggressive pursuit of a software-defined strategy uniquely positions the company to unify datacenter and end-user technologies across multiple platforms from Microsoft, VMware, Red Hat, Google and Apple. As an example, Citrix is in the position to ensure that Linux or Windows apps work seamlessly on Google tablets or ipads, while providing centralized management of users, applications, data, devices and security. As another example, Citrix's new WorkSpace Cloud management 'control plane' can enable XenApp/Desktop/Mobile to be rapidly deployed on VMware's IaaS offering, at AWS, or on a private cloud running any of the major hypervisors. Products and platforms Citrix believes that product innovation in the areas of user experience (both end-user and IT admin) and security are key differentiators, especially against larger companies such as VMware and Microsoft. Citrix wants its products to run on as many platforms as possible, and it views this 'any platform' support as another important differentiator. CloudStack and XenServer are not the lead platform for the Citrix sales force, since many customers want and frequently use VMware, Copyright The 451 Group 3

4 Microsoft and open-source technologies such as OpenStack and Linux. Unlike Google and Microsoft, whose sales focus is to drive adoption of their own proprietary clouds, Citrix also enables its storage, mobile and application-delivery services to run on many cloud platforms. As an example of its any-platform approach, the newly announced WorkspacePod leverages Sanbolic's software-defined storage (based on a unique file system separate from Windows Storage Spaces or VMware's vsan) while also leveraging Microsoft's Hyper-V hypervisor and System Center management system. It is reasonable to expect that future versions of WorkspacePod will support XenServer and CloudStack, and even HP's Helion, given that HP Moonshot is one of the proof-of-concept hardware partners. Citrix WorkspacePod is the company's entry into the hyperconverged infrastructure market. It consists of prepackaged Citrix-defined VDI and mobile infrastructure software that will be delivered by hardware partners such as HP and DataON, with additional hardware partners to be announced. Initial proof-of-concept hardware will become available in the first half of this year based on HP Moonshot servers. Citrix claims the product will change the economics of VDI due to its preconfigured optimization of the XenApp/Desktop/Mobile products, the newly acquired Sanbolic software-defined storage layer to reduce storage costs, the integration of CPUs and GPUs, and the use of high-speed (up to 40GB) interconnects. The company claims the Pods will reduce energy use to 1W per user and allow up to 2,250 remote user sessions per pod unit, running on commodity storage. Sanbolic's file-system-based software-defined storage provides non-blocking read and writes, is workload-focused storage with geo-clustered architecture, and is hypervisor-agnostic. Storage is the number one cost driver for most enterprises and service providers, and Citrix argues that Sanbolic's technology will help customers reduce cost and complexity, especially in a multi-cloud world. Also introduced at the recent partner event was the Workspace Cloud Preview, a cloud-based orchestration and management tool for Citrix XenApp, XenDesktop and XenMobile for private clouds or cloud service providers. The ScaleExtreme technology acquired last year will be integrated with this as a product lifecycle management capability. XenServer 6.5 was also released, adding 64-bit support, improvements to network and boot performance, and support for higher-density VDI deployments via its vgpu partnership with Nvidia. The new product includes further refinements of its carrier-grade capabilities, with carriers being a strong market for XenServer. Finally, XenMobile 10, available this quarter, has enhanced workflows for Citrix's mobile-native Worx Apps, FIPS encryption and support for RSA Adaptive Authentication to improve Copyright The 451 Group 4

5 mobile security. There's also improved integration with ShareFile, and unified server infrastructure to manage apps and devices with a single framework, rather than multiple control planes and consoles. Partnerships A key component of Citrix's strategy is to grow through strategic partnerships with major platform, ISV, hardware and cloud providers. Citrix has been a premier Microsoft partner for over a decade, because it is often the case that when Citrix gets paid a software license fee, Microsoft also gets a Windows license fee. Citrix continues to partner closely with Microsoft, and many of its new cloud products run natively on Microsoft Azure. In order to pursue new markets or adjacent existing markets, Citrix is now also embracing Google tablets and Android phones, and is partnering with Red Hat and SUSE to enable its platform to deliver Linux applications to non-linux devices. Similarly, Citrix has recently expanded its hardware partners beyond Dell, HP and IBM to include Cisco switches and servers. These partnerships include joint sales motions and GTM campaigns such as the Azure reseller program and Cisco partner program. Citrix will leverage its direct sales force to help jointly sell a complete 'solution stack' that includes Citrix products. Citrix cannot be successful without its strategic partnerships, and it will be a bellwether for the future health of the company to track the success and expansion of such partnerships. Citrix currently has over 16,000 partners and 440 alliances. The majority of Citrix's enterprise customers are also customers of Microsoft and VMware. Similarly, a majority of Citrix's channel partners also partner with Microsoft and VMware, given their large installed base and the extensive end-user demand for their products. Moreover, Citrix's channel (and customers) are being actively pursued by Google and AWS, especially for net new mobile applications, cloud storage, and productivity and hosted desktop infrastructure. Citrix's response to these pressures is to aggressively cultivate its channel by offering large margins, helping to reduce sales cycles via alignment with the Citrix sales force, and by providing channel partners the opportunity to cross-sell into key new markets such as mobile management, advanced networking, and collaboration and storage services such as ShareFile and GoToMeeting. Citrix has one of the strongest partner programs in the software industry, in particular its channel of over 2,000 hosting/cloud partners delivering workspace-as-a-service/desktop hosting, including the largest cloud providers of AWS and Azure. Copyright The 451 Group 5

6 Citrix continues to invest heavily in its channel as part of its core strategy. Its new channel program focuses on improved partner competency, with Citrix offering larger revenue rewards for demonstrated competency and sales execution. It has announced incremental Citrix Advisor Award incentives (CAR Plus and CAR Bonus) that the company claims can increase partner profit opportunities by up to 50%. These new incentives are based on specialization, certification and validation of competencies, and they build on the existing Advisor Rewards and Opportunity Registration incentives. Citrix compensates its partners if they invest in pre-sales efforts, even if the end customer chooses to procure Citrix software from another partner so any partner that invests up-front and maintains a close sales pipeline with Citrix still obtains incentive rewards. Competition As noted above, Citrix has competition on multiple fronts, including from its closest partner, Microsoft, which has its own VDI offerings, including RemoteApp, a hosted application-delivery offering based on Azure launched at the end of last year. By comparison, Citrix claims to offer a broader end-to-end platform, support spanning both Windows and non-windows platforms, plus deeper integration with mobile and networking technologies. AWS has its cloud-based Workspace offering, which delivers desktops and applications, directly competing with Citrix's large cloud service provider ecosystem of over 2,000 WaaS/DaaS cloud providers and outsourcers, as well as Citrix's enterprise sales force. Over time, AWS could potentially reduce Citrix's growth and margins given AWS's aggressive pricing strategy. However, Citrix has also partnered closely with AWS to make it easier for customers to deploy XenApp/Desktops with NetScaler on AWS infrastructure, and ShareFile cloud service runs on AWS infrastructure. VMware is the most significant competitor for Citrix. VMware has invested heavily in product capabilities, sales force, and both cloud-focused and on-premises DaaS/VDI offerings. Additionally, VMware is aggressively attaching its AirWatch mobile management products to its existing installed base. However, Citrix still enjoys a significant market-share advantage in the end-user computing sector, and can also leverage its partnerships with AWS, Microsoft and Google, which all see VMware as a competitive threat, especially in terms of winning the hearts and minds of enterprise IT. SWOT Analysis Strengths Weaknesses Copyright The 451 Group 6

7 Citrix is still the market leader in application delivery via VDI and session-based technologies, and it supports a broad range of platforms with a strong focus on mobility, security and non-windows devices. Citrix is highly dependent on delivering Windows applications, and as more non-windows applications gain traction at enterprises, its value proposition could decrease. Opportunities Threats Citrix is focused on mobility, management and 'any platform on any device' support, especially for data, identity and applications. Its new emphasis is on providing a unified management framework, security and consistent user experience across Apple, Microsoft, Android and Linux devices. VMware, AWS and even Microsoft aim to grow market share by delivering new capabilities that can replace Citrix functionality, especially via their cloud offerings. Google will likely also deliver DaaS/WaaS from the cloud eventually, to tap into strong DaaS market growth. The key issue is whether the growth of these competitors' revenue from application delivery and mobility will cannibalize Citrix's installed base or is capturing net-new opportunity in this rapidly expanding market. Copyright The 451 Group 7

8 Reproduced by permission of The 451 Group; This report was originally published within 451 Research's Market Insight Service. For additional information on 451 Research or to apply for trial access, go to: Copyright The 451 Group 8