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Microsoft, please don’t buy Citrix!

Microsoft, please don’t buy Citrix!

| On 10, Apr 2017




For almost a decade, rumors have circled around our favorite iconic company—but it seems to be happening for real this time, as Bloomberg is reporting Citrix is in talks with Goldman Sachs to find a buyer for the organization.

The hedge fund Elliott Management—which has owned about 7% of Citrix since 2015—has been a vocal critic of how the company was managed before it joined the board, and has since been pushing to boost margins. The investment from Elliott was considered by most as a sign of an upcoming sale of the company.

To attract buyers, Citrix needed to bring the focus back on its cores products (XenDesktop, XenApp and NetScaler) and to increase its profitability. That has led to the acquisition of Unidesk, the spin-off and merger of the GoTo businesses with LogMeIn in Oct 2015, and a much needed reorganization. Elliott was also linked with the VMware/EMC acquisition from Dell, a massive $65bn deal in 2015.

The hedge fund has invested in Citrix to make money on the short-term and does not care much about innovation. I would not be surprised if the leak of a possible sale was a stunt from the firm to have a quick boost of the shares and maximize the profits.

Microsoft has always been rumored to be interested in buying Citrix, and this time is no exception, but I think it would be a terrible idea. First, let’s review why the company based in Seattle, WA is an obvious candidate to buy out Citrix.

Kirill  Microsoft, please don't buy Citrix! kirill

Kirill Tatarinov

In early Jan 2016, Citrix appointed an expensive Kirill Tatarinov as new CEO following the retirement of the beloved and longtime CEO Mark B. Templeton. Kirill is a former Microsoft executive who served as Executive Vice President of the Microsoft Business Solutions Division. He was pushed out by the newly appointed Microsoft CEO Satya Nadella.

This reminds me of Stephen Elop, who worked at Microsoft and was later appointed CEO of Nokia in 2010. Elop then sunk the mobile company and worked on a deal with Microsoft to buy it and we all know what happened next (do you see a lot of Windows phones out there?). The irony is that Elop re-joined Microsoft as part of the Nokia deal, but was then fired less than 2 years later. Buying Citrix would not be without any risks for Microsoft as many previous deals have failed.  The Microsoft/Nokia deal has been proven to be one of the worst tech deals ever—not to mention Microsoft’s other failures (aQuantive, Tellme Networks and Yammer, to name a few).  They’ve really only had one successful major acquisition lately with Skype in 2011. 

Microsoft and Citrix have been tech besties for 20 years, and this partnership has been stronger than ever with Kirill. A stronger and deeper alliance between the two companies was announced at Synergy last year in an effort to take on common enemies VMware and Amazon—particularly with Windows 10 virtual desktops in Azure and the collaboration to replace Microsoft RemoteApp with the newly released Citrix Essentials services (allowing customers to purchase Citrix services directly on Azure Marketplace). 

The Cloud battle  Microsoft, please don't buy Citrix! cloudbattle

The Cloud battle

 

Clearly, Microsoft sees in Citrix a path to expand its market share in the public cloud for Fortune 500 companies and to offer a complete end-to-end enterprise solution to its customers via Azure. Microsoft is focused on the Cloud battle right now and hopes to catch up with AWS.

Understandably, Microsoft may have interests in XenDesktop, XenApp and Citrix Cloud because it would strengthen Azure with better product integrations and exclusivities.  However, some products like XenServer and XenMobile are not successful, and Microsoft already has “good enough” equivalents (Hyper-V and InTune) in its portfolio. Thus, these products would be terminated (not a big deal for XenServer if you ask me). Regarding the highly successful NetScaler, the ADC market is too small for Microsoft and not aligned with their strategy. Paul Stansel, Principal Consultant at Presidio and CTP, expects them to divest the network line (NetScalers and SD-WAN) quickly and expressed doubts about the future of Octoblu. I agree with him, It would make more sense for Microsoft to sell the business to a company like Cisco, and that would be a disaster because Citrix has worked hard to integrate all of its products together. For Octoblu, I have yet to see Citrix making something profitable from this acquisition. 

Microsoft has based its success on having a refined ecosystem, because if their partners make money, they make money and everybody is happy! Partnerships make Microsoft stronger, and buying their best salesperson (a product partner) would make them weaker.  They have never bought one of their majors partners, no point in starting today.

Citrix HQ in Florida  Microsoft, please don't buy Citrix! Citrix HQ

Citrix HQ in Florida

Speaking about money, Citrix has, as of today, a market cap of $13bn with a revenue of $3.42bn. The tumultuous years are over, as the company has recovered and profits surged under Elliott advisory. On the other hand, Microsoft is rolling in the dough ($85bn revenue in 2016) and would not be afraid to dole out the cash to purchase Citrix (don’t forget, they just closed a $26 bn deal to buy professional networking site LinkedIn in 2016). However, Microsoft is still in process of absorbing LinkedIn and another major purchase would be complicated.

Being a target acquisition in good financial health is good news for Citrix, but potential buyers could see red flags due to its lack in growth. That is the weak spot for Citrix with only a growth of approximately 4% since last year; way lower than its competitors and the average desktop virtualization market growth rate. Microsoft is usually interested in fast-growth acquisitions and that clearly is not the case here with Citrix.

Microsoft buying Citrix would also have a huge impact on our community and CTPs are divided on the perspective of an acquisition. For Sacha Thomet, “Microsoft will buy Citrix there would be a huge change for the market. I see definitively many negative side effects which would come with such a deal, competition on the market is a good thing and with such a deal some competition will disappear. But the medal would have two sides, I remember multiple support cases where Citrix and Microsoft were finger-pointing each others, and that will be over. A change is always a challenge and many involved would fear that it will be worsen. But a change is also always a chance, so I personally would wait and see what happens.” Paul Stansel believes that this acquisition would spell “the end of the Citrix” he has loved for 20 years. Jarian Gibson, independent consultant/solutions Architect hopes that Microsoft would not integrate Citrix because for him it makes “more sense to keep them separate” entities. If Microsoft decides to integrate Citrix, I would fear for the CTP program as Microsoft has the much bigger Most Valuable Professional (MVP) program with around 4,000 members all over the world. I don’t see how both programs could coexist within the same entity. The close relationship with Citrix Product Managers would also be in danger and could be condemned as you jump from a human-sized to a massive program. It could also mean the end of dedicated Citrix events (Synergy, Summit, CUGC, etc.) in favor of Microsoft events especially if Citrix products are integrated within Microsoft software and bundled in the current licensing. A lot of uncertainty around this purchase.

So if not Microsoft, who else would buy Citrix? There are many companies that could see benefits in making an acquisition, like AWS, Cisco, IBM, or HPE but a deal would have to be approved by Microsoft as the main partner of Citrix. Keep in mind that without Microsoft, there is no Citrix.  For Jarian Gibson, expert Citrix and CTP, “Microsoft would buy Citrix to keep them out of someone else’s hands“. As Jarian mentionned, Microsoft will never let AWS buy Citrix and put its cloud business in jeopardy, so I don’t really see that happening, but HPE would be a good fit. This would maintain the third-party partnership that Microsoft loves so much and keep the cash flowing without upsetting the current strategic alliances.

Something that needs to be mentioned is that Citrix could also just decide to go private, which would be the best option for the community in order to refocus on innovation. This last option remains unlikely due to the challenges of going private, but Dell did it in 2013.

To wrap up, there is definitely something coming soon for Citrix. I would rather have Microsoft and Citrix taking time to fully benefit from their newly extensive partnership and then taking it to the next level later on. If a sale cannot be avoided, HPE would be the best fit as it would not change much.  We’ll have to wait and see.   

Let’s just end this article with a quote from Kirill when he was appointed:

Citrix is an iconic company with a world-class brand, innovative products, and a large installed base, including 99% of the Global 500. Citrix is a key enabler of digital business. Across every industry and region, the secure delivery of apps and data is a strategic imperative for organizations of all sizes. I look forward to working alongside Citrix’s leaders, talented employees, and dedicated partners around the world to push the boundaries of innovation and create greater value together.



Nicolas ignoto
Nicolas ignoto
Nicolas ignoto

Comments

  1. Tobias K

    I disagree with XenServer being an unsuccessful and/or “no great loss if discontinued” product. Over 50% of all XenDesktop/XenApp platforms run on XenServer. AWS is based on the same Xen platform. Moreover, XenServer is the underlying foundation for Citrix’ highly succesful NetScaler products.

    Not being involved with or liking a particular product line within a company is not grounds for forming a clearly biased opinion against its value and worth.

    • Hi Tobias, Thanks for sharing your thoughts. I knew that my statement on XenServer would raise some eyebrows. I have hard time to believe that 50% of XenDesktop/XenApp infra are running on XenServer. Almost all Fortune 500 companies are using VMware or AWS/Azure. I’d be curious to have numbers based on licensing. You can have 50 small companies running XenServer for small to medium virtual desktop infrastructures but if you have 5 companies running VMware with 20000 virtual desktops or more, it would not make the hypervisor successful. The big bucks are within the big accounts, the ones that matter because buying licenses and making Citrix money. I remember reading an article stating that XenServer had an 8% market share but It was few years ago, not sure it has evolved in favor of Citrix. That made me think that XenServer is used only to deliver Citrix apps where VMware managed to be used for everything. You’re right AWS is based on Xen but I am not sure to follow you. It is 2 different products. AWS is not running XenServer. In this article, I was referring to the product XenServer owned by Citrix. Amazon using Xen for its Cloud does not make XenServer successful and is not a valid reason for Citrix (or Microsoft if acquired) to keep offering the product XenServer. XenServer is a niche product that never took off. Anyway I think you are missing the point of this article, I am not trying to bash or hate on XenServer (it is actually a small part of the article). I think that in the perspective of a deal with Microsoft, this product would not survive.

  2. I don’t think this will be a bad thing if Microsoft was buying Citrix, HPe buying Citrix is a far worse case scenario in the short term (for partners and customers).
    Anyway, in the long term, Citrix won’t survive without being part of a bigger group and use for what Citrix does best, deliver desktops and applications.
    More than ten years ago, these rumours were already alive… Different times, same rumours

    • Hi Stephane, Can you explain why you think that HPE would be a bad scenario in the short term? What do you think about Citrix going private ?

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