Citrix Industry Analyst Meeting, 2015

Staying true to its roots, Citrix will maintain its relevance in end-user computing by delivering solutions for the workspace.

With a level of candor not typically found at industry analyst conferences, Citrix outlined a coherent product road map at its Industry Analyst Meeting 2015, detailing how it maintains relevance and dominance in the end-user computing environment. Citrix once enjoyed a leadership position with a single-product value proposition based on XenApp.

However, the vendor’s role and value proposition have become more complex. Citrix is on a crusade to redefine how it engages with customers and partners and delivers a strategic, multifaceted platform — instead of a tactical, point product. The key to Citrix’s success will be elevating its value proposition by evolving its portfolio around the recently released Workspace Cloud platform and refining its partner go-to-market strategy.

In May Citrix unveiled Citrix Workspace Cloud (CWC), which integrates the multifaceted components required to deliver a consumerized, secure workspace environment demanded by users who seek to access any application on any device, at any time.

We believe Citrix’s product strategy will increasingly center on CWC as an enabler of next- generation services for the mobile workspace. CWC has been designed and marketed around the vendor’s core principles of experience, flexibility and security, which Citrix executives echoed throughout the event as the underlying foundation of Citrix’s product design and strategy.

Experience: Citrix created the virtual desktop market and has the experience and knowledge to align with the new world order where “consumerization has won,” according to CEO Mark Templeton.

Flexibility: Consumerization requires flexibility, given the ubiquity of devices involved and customer demand for a seamless, hassle-free experience. The enabler of this reality — flexibility — is at the core of CWC’s value proposition.

Security: Consumer expectations for security must be balanced with IT demands for data protection by securing applications and the space in which they operate rather than the endpoints from which they are accessed. If the balance tips too closely to the end user, IT will seek to adopt a different architecture. Tip too closely to IT security concerns, shadow IT will proliferate a host of consumer-grade SaaS offerings, compounding the complexity of the IT security process.

Citrix generates 90% of its revenue through channel partners and will evolve its go-to-market models to enable collaborative engagements

Citrix Workspace Cloud is notable both for what it will and will not do. Citrix designed CWC to deliver services for applications, mobility, documents and life cycle management. CWC employs a control plane (managed by Citrix) with a user interface (UI) that provides IT administrators access to the platform and enables them to create workspaces containing the applications and services users need.

The platform separates application and service resources from the actual management/UI plane using resource locations accessed by CWC via cloud connectors. This separation allows flexibility for user location, affinity and security. The separation also allows the customer to have control over how individual workloads are managed, which is the core piece of the equation CWC will not do.

Citrix does not force customers to host workloads on Workspace Cloud, leaving that business engagement to be negotiated between the vendor’s partner ecosystem and end customers. This allows flexibility for deployment and integration, enabling customers to compose workloads and resources on their Workspace Cloud.

As the industry pivots from the analog dollars to the digital pennies era, many vendors offer services that increasingly conflict with their partner ecosystem’s infrastructure and managed services capabilities. Citrix brought in Kimberly Martin as vice president of worldwide partner strategy and sales to investigate and adjust the business partner programs to allow for the channel to remain an integral part of Citrix’s and CWC’s go-to-market strategies as Citrix delivers a digital workspace that can integrate with any cloud, hypervisor, application or device.

Additionally, we believe Citrix has the opportunity to expand its presence with service providers and systems integrators seeking to automate base-level support services and focus their resources on building out more vertically oriented solutions and consulting services in the midmarket. The partner-first mentality of CWC will enable Citrix to deliver a solution that is architected by partners, giving them a defined space to add value on top of Citrix IP. We expect this strategy will help Citrix maintain margins in the long term as transaction sales give way to lower-value subscription revenue streams, forcing software vendors to deliver innovative, business-oriented solutions to drive growth.

Citrix jockeys for the pole position in virtualizing and securing the network

The history of IT can be described in a triangular diagram with compute, storage and I/O at each of the three vertices, connected by network pipes. Alleviating and managing choke points in any of these four components and allowing them to communicate drove the rise and fall of IT vendors throughout history. Virtualization commoditized many of these aspects as hardware-encased IP gave way to software-abstracted solutions.

The network remains the last component to be fully virtualized and Citrix intends to compete in this space alongside a growing list of incumbent and nascent competitors such as Cisco, VMware and Red Hat. The rise of virtualization and cloud solutions has also resulted in security shifts to better protect the new computing data fabric. Citrix will address security concerns through a virtual network perimeter as well as an app-centric security focus.

Citrix believes Mobile Device Management does not adequately balance the concerns of the user with the concerns of IT, preferring to address what it calls Mobile Application Management (MAM), providing micro-VPN access for each specific application while containerizing all enterprise applications in one module partitioned within the end-user device, which accesses the application.

Citrix’s MAM strategy presents a balanced enterprise value proposition that provides sufficient isolation, encryption and identity management to secure corporate data without frustrating end users to the point of using rogue applications to work around corporate IT policies.

Containerized microservices architectures are beginning to define a new computing order, which Templeton summarized during the event as the shift from monolithic to granular applications distributed throughout the virtualized cloud computing fabric. As these emerging technologies establish themselves as the de facto computing environment of the future, Citrix will endeavor to have a hand in all the security measures associated with its networking through continued innovation to core products such as NetScaler and CloudBridge.

Experience, security and flexibility will define Citrix’s customer and partner strategies as the vendor pivots to higher-value engagements

As Citrix enables next-generation applications and delivers its vision of digital workspaces, it will continue to engage with customers and partners in new ways to define its value and differentiation. We believe Citrix’s partner-oriented approach will allow the vendor to focus on developing and perfecting emerging products such as CWC and NetScaler while remaining agile and cost-efficient in the short term. We also expect Citrix to convey stronger messages around security and flexibility to differentiate from competitors such as VMware, which takes a more closed, proprietary approach to end-user computing and management. Some of the important impacts to partners, customers and competitors include:

Partners: Partners will remain at the vanguard of Citrix’s pivot. The vendor is working to build more robust, services-led capabilities with the help of partners. Citrix will continue to build its Service Provider Program, focusing on ways to better distinguish partner needs and provide them with the incentives, training and instructions to be successful. During the event Citrix’s partnership with Microsoft took center stage, showcasing how Citrix has added value to the Microsoft OS and cloud ecosystem (specifically Windows and Azure) by providing flexible integration and security with its mobility, networking and management capabilities

Customers: Customers can expect to see new, simple migration paths that enable them to make the shift from virtual desktop to the virtual workspace, with added emphasis on Citrix’s networking and mobility products and services. Customers should also take solace that Citrix is prepared to integrate with almost any application, cloud and device they want to use via the technology underlying CWC.

Citrix has no interest in locking customers into a proprietary, end-to-end model and will increasingly look to engage customers around business solutions, rather than point products such as XenApp, XenDesktop or the GoTo family of solutions.

Competitors: Competitors should expect to contend with a revitalized Citrix over the next several years. Citrix’s legacy experience and success in the application and desktop virtualization markets will provide customers with confidence in their expanded relationships, as Citrix looks to provision more security- and networking-related services.

Citrix’s moves to expand will be targeted at midmarket customers and their pain points. We expect the vendor’s strategy of consumerization to take center stage here, as it seeks to outpace the competition by lessening its focus on more traditional infrastructure services and attracting customers with a renewed approach to the design, experience and delivery of the equation

Despite recent M&A rumors, TBR does not expect Citrix to be wholly acquired, but we anticipate ongoing consolidation efforts

Recent reports have speculated on the potential acquisition of Citrix by Dell. While this move seems plausible, and the vendors possess complementary assets — particularly between networking and mobile device management solutions for the midmarket — TBR remains skeptical this move will come to fruition.

The $11.6 billion valuation of Citrix will be difficult for Dell to afford, according to our financial estimates. An acquisition of this size would wipe out almost all of Dell’s available cash and may be financially untenable for the vendor at this time, given its corporate-driven focus on paying down debt and improving profitability in the short term.

Dell has not made a software acquisition in over a year, and the vendor has made it clear it is focused on asset and IP consolidation across the software group to improve route-to-market, go-to-market and sales capabilities. A blockbuster acquisition such as Citrix would force a significant rearchitecting of strategy and add another layer of complexity to Dell’s partner ecosystem.

Redundancies across Dell’s and Citrix’s portfolios will also have to be overcome. For example, Dell’s acquisition of the Quest and Wyse portfolios gave it many of the VDI tools needed to compete effectively in the desktop virtualization market with XenDesktop or VMware Horizon. If Dell acquired Citrix, it would face tough decisions on how to cost-effectively integrate or jettison previously acquired desktop and application virtualization products such as vWorkspace.

During Industry Analyst Meeting 2015, TBR did not get any impression the vendor was shopping itself for acquisition. TBR believes Citrix is embracing recent interactions with activist investors. Citrix placed a member of Elliot Management on its board and stated it is searching for an additional board member mutually agreeable to Elliot Management and Citrix. Similarly, the company announced it will begin an outside search to replace retiring Templeton, suggesting willingness for organizational transformation over the long term.

We believe Citrix will divest noncore products in the short term to boost cash reserves to invest around its CWC portfolio. Likely candidates for divestiture include the GoTo product suite. On Sept. 22 Citrix announced the end-of-life process for XenClient, further evidence the vendor is shifting focus to higher- value products such as CWC and NetScaler. What was clear during our time with Citrix was the vendor’s desire to remain vendor-agnostic and deliver the enabling layer between clouds and applications with its networking and virtualization capabilities. Acquisition by an entity such as Dell would fundamentally challenge this strategy and Citrix’s value proposition.

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