Peter Christy

Citrix Acquires Cloud.com -- What's the Market?

Today Citrix announced the acquisition of Cloud.com.  Cloud.com is clearly a leader at providing an alternative to VCloud, and one based on Open Source and standards. They aspire to be the "Red Hat" of OpenStack.  From this perspective, they fit will into the Citrix Cloud initiatives. But all that said and done, I think it's worth asking the more difficult question about the market. Who buys Cloud platforms and why?

Some years ago, Microsoft argued that there was only a need for a small number of Cloud fabrics because of the economies and market value of scale. Others argued that there would be tens of thousands of Cloud SP's, each serving some valuable niche based on platform (Iaas, PaaS, SaaS), locality and vertical. The later argument is the basis of the energy in the market. Clearly if Microsoft is literally right then there ultimately isn't much of a market for something like Cloud.com.

To try and understand this interesting question better, we've actually talked to a number of SP's. We found some SP's that hadn't thought about the nuances much but also quite a few that had. The knowledgeable ones didn't think that competing with Amazon for what AWS does well was an interesting business opportunity, viewing it instead as a "race to the bottom." They were pretty uniformly focusing insted on some more specific offering, often based on a higher level platform (e.g., supporting SaaS offerings) rather than offering rented VM's.

Now here is where it gets interesting. Many of these more sophisticated SP's also wondered whether over time it would make more sense to build those offerings on something like AWS or Azure rather than having their own under pining fabric. So it's possible that in an important sense Microsoft might be right. The world may only need a relatively few fabrics, just like we need a relatively few power grids or telephony systems. At the same time, those who argued that 10,000 SP's would bloom might be right too, presuming they build on those massive fabrics.

Citrix didn't disclose the price of the acquisition so it's fair to assume it wasn't literally a big deal since it isn't material to Citrix stockholders. If that's true, the industry also may aslo believe that ultimately the market for Cloud.com was limited.

 

VDI 2010

This part of the VMware strategy seems to have changed a lot in the last 12 months although the VMware spokespeople didn't like it when I said that. One of Paul Maritz's earliest acts was to amp up the VDI investment a lot, believing it would seem that desktop management was ripe for the same kind of revolution that had driven the first wave of data center consolidation, and that VDI could be an important kicker to VMW revenues. I've always been personally skeptical, believing there to be good markets for server-based PC virtualization, but relatively small ones (we even have a two year old report to that effect J ). Citrix's view has been different, benefiting from their longstanding leadership in a broad "application delivery" market, and from that context viewing virtualization as an important new tool to work with but not the second coming. In Mark Templeton's Synergy 2010 keynote he painted a vision based on getting to your "stuff" (my term, not Mark's) from any device anywhere in the world in a fashion that optimized performance while preserving security. The Maritz view is very much in-line now, emphasizing user device support more than the wonders of server virtualization. To be fair to VMware, no one reasonably anticipated the impact of the iPhone and iPad on corporate IT. Templeton and Citrix have promoted the concept of "consumerism" for quite a long while, but Apple moved that from a strategic alternative (something a company might choose to do) to a tactical imperative (in the last quarterly call, Mark made special mention of how the iPad is starting to really disrupt corporate IT). VMware seems to agree that application delivery (your stuff from anywhere on any device) is the right focus (not their words). If that's the mission then Citrix's strengths in the battle are more self-evident now. It's going to be a good (and productive) war that the consumer will ultimately benefit from!

Mile-High Mark

Citrix held its Analyst meeting in Denver recently. It's always a delight to catch up with the Citrix executive team. The big news was the intent to integrate Citrix's "VDI" offering within the broader application delivery offering (XenApp, previously known as Presentation Server). Citrix has done very well with its various bundling strategies over the last few years building off of Citrix's market leadership and market success, and I would bet this will continue the trend. With this move a Citrix XenApp customer can choose to use any of the technologies, including VDI, within the basic seat license. As long as VDI solutions remain a relatively small part of the overall application delivery market (our assumption) this is a smart way of keeping Citrix customers in the fold by making VDI essentially "free."

VDI Shoes Drop Left and Right

As we anticipated last month, Citrix isn't the only one stirring up the VDI pot. In conjunction with VMWorld Europe, VMware and Intel announced a partnership on hypervisors. This is too faceted a topic to discuss without the benefits of good wine, but there are similarities and differences. VMW is promoting their own hypervisor and point to their long history in workstation products and the current MAC hypervisor as evidence of their chops. Intel of course expresses love and support for the idea, and doesn't talk about their long involvement with the Xen project. In contrast to the Citrix guys, VMW didn't really say anything about the specifics of their hypervisor (Citrix says the goals are very different from a server hypervisor — see I warned you this needs wine!). Then of course there is X-factor — where MS stands with a client hypervisor. We're sure that the MS gnomes are working hard on this somewhere in the recesses of Redmond (who knows PC's better than MS?) but the fact of the matter is that there is no client hypervisor in MS's public plan ("yes, we have no bananas!"). This is not to say that Microsoft doesn't have opinions on the subject. MS may not have a client hypervisor but thigh-order bit is that what really counts is user state virtualization and application virtualization, basic usability and TCO issues (I don't think that VMW or Citrix would disagree), not the prehey have a knowledgeable and articulate client hypervisor spokesman in the person of Scott Woodgate and he gave an analyst briefing on the MS perspective. Scott's sence or absence of a Type 1 hypervisor. MS thinks that Type 2 hypervisors (application mode virtualization) suffice. Although this sort of puts words in Scott's mouth, if every PC came with a Type 1 hypervisor factory installed and the standard software load built as a virtual machine on top, things would be different, but MS believes that factory hypervisors won't happen any time soon (certainly if MS doesn't have and bless one). It sounds a little circular and self-serving (yes we have no bananas but that's cause we didn't get any!) but it's not un-sensible from a customer perspective. See I warned you this requires good wine. Everyone seems to agree that this isn't a big 2009 business issue, but what happens the rest of this year should be a harbinger for bigger moves in 2010.

Citrix Drops a Fascinating "VDI" Shoe

In the context of disclosing a partnership with Intel, Citrix pulled the veil back on their plans for desktop virtualization. To date the "VDI" solutions (including Citrix' XenDesktop) offered great potential for PC support cost reduction and security but a high price in hardware cost, performance and even basic functionality. Running PC applications on a server increases the cost and decreases the performance. None of this should be surprising because the basic value proposition of a PC is the tight coupling between the processor and the display, and that's exactly what these solutions give up. In our December Desktop Delivery report we noted all that and pointed out the same benefits could accrue if the user's applications were run in a virtual machine on their PC (not on a server) at lower cost (really using that PC for something other than a thin client), at much higher performance (everything local) and with greater functionality (since it still works if you're not on the network). Much to our pleasure that's exactly what Citrix concluded as well.

Citrix brings strong assets to the effort because of their acquisition of XenSource and close relationship with the OpenSource Xen hypervisor project. Citrix reasonably argues that a PC hypervisor and a server hypervisor aren't the same beast. The Xen hypervisor that Citrix will use here is designed to give direct control of some PC hardware to a virtual machine. In a virtualized data center the primary I/O is to the network and to storage, both of which must be kept secure and controlled, so giving direct access to hardware has limited practical benefit. On a PC the issues are very different. Giving direct access to graphics hardware (especially given interfaces such as Microsoft's DirectX) has very high benefit in terms of graphical and interactive performance, and essentially no risk. Citrix also argues that Xen was designed with much more attention to the secure isolation of the different VM's, something that wasn't as important on the server. In a virtualized data center there are still strong controls on what software will be run because it runs inside the network and with direct access to sensitive data. On a PC, again the situation is very different, since a clear goal is to be able to run riskier software sometimes, and a separate virtual machine is a great way to do that as long as the hypervisor protection is strong (alternatively it's a great way to run sensitive and secure software like business applications with protection). So Citrix' claim that there are a lot of different choices in a PC hypervisor has good support.

To do desktop virtualization directly on the PC requires all the mechanism needed to do it on a server (for example the image synthesis and management tools already in XenDesktop and the competitors) and then some. On the PC you also need to keep all the virtual machine images encrypted and secure, you need a way to update them as soon as possible and you need to put a little more mechanism down on the PC. But the investments and tools needed to do PC virtualization on a server all translate nicely when you run a managed VM directly on the PC.

So where, you might ask, does Intel fit in? The partnership with Intel is how Citrix is building bridges to the PC OEM's so that enterprise customers will be able to buy PC's with the hypervisor preinstalled under the normal software load. Citrix is happy to make that hypervisor broadly and cheaply used for all purposes including ones that might be viewed as competitive with Citrix' own efforts —  the more PC's with bare metal hypervisors the better. It's also worth noting that Intel has been a strong supporter of hypervisor developments and a key contributor to the Xen project from the beginning.

And how does Microsoft fit in you might ask? Although MS has hypervisor technology they have no public plan to ship a client hypervisor. Since the assumption must be that the hypervisor is essentially free to the PC user, having a client hypervisor would be important to MS if not having one diminished their ability to sell Windows licenses, or if a competitive hypervisor threatened their ability to control the O/S stack. But neither seems to apply to Citrix, a long time business partner and a technical partner on MS' own Hyper-V efforts. Microsoft too has been a Xen supporter because it weakens the proprietary control of VMware.

The interesting open question is where and how VMware will weigh in. They have discussed similar plans in a similar late 2009 timeframe. They haven't yet announced a partnership with Intel but that wouldn't come as a surprise. The open questions are what kind of hypervisor they deliver and how open and inexpensive its use is.

Get on the Right Curve!

A treat at the Citrix analyst meeting was talk from Geir Ramleth, the Bechtel CIO and a Citrix customer. Ramleth described the fascinating saga of Bechtel's modernization of their IT infrastructure. As Bechtel was contemplating how to get from where they were to where they wanted to be, they came to the realization that big Internet players bought bandwidth on an entirely different price scale from giant Bechtel, and that Internet storage providers had a cost structure that bore no resemblance to the enterprise storage prices they paid. Geir reasoned that almost all of the VC IT investment was aimed at the consumer side (and presumably the innovation) and that if he wanted to really make progress he needed somehow to get off the enterprise IT curve and onto the consumer Internet curve. The details are pretty interesting but we're sworn to secrecy.

Cavorting on Biscayne Bay

While everyone else was holding user and analyst fetes at Moscone in San Francisco, Citrix hauled us back to the Key Biscayne Ritz-Carlton near their Florida Mother Ship. We've gotten to know the Citrix team reasonably well since they acquired our NetScaler friends. President and CEO Mark Templeton seems to be one of those guys in the same category as John Chambers -- nice person, people like to work with him while at the same time being a relentless driver for evolution and change. XenSource is the latest Citrix acquisition and the XS team was around to talk about that even though the deal hadn't officially closed. Our earlier analysis of the acquisition hasn't really changed much -- there are no shortage of challenges after you spend $500M of your stockholders' hard-earned money on a company without any real revenues (as e-Bay's Meg Whitman seems to be painfully learning with Skype on an even bigger scale). The XenSource acquisition certainly could make good sense for Citrix and in many ways represents business challenges they can't evade. There aren't a lot of details at the blocking and tackling level yet, but the story line holds our attention.

Hold the Presses -- Citrix Antes Up with XenSource

Just as we were going to press with this special VMware IPO issue Citrix strode boldly into the fray with a $500M acquisition of XenSource. XenSource is the commercial aspect of the Xen project, the Open Source hypervisor funded early on by Intel and others. XenSource has received a lot of attention because of the hotness and importance of virtualization and the role XenSource plays in leveling the playing field against VMWare (assuring alternatives to VMware solutions and limiting the impact of proprietary solutions). To date XenSource has had limited commercial success, certainly compared to the $1B run rate achieve by VMW. Given that VMware is moving aggressively into desktop virtualization -- the market strength of Citrix -- and now has a $1B war chest with which to cause problems it may well have been necessary for Citrix to counter thrust into the core VMware market which the XenSource acquisition certainly does. In the acquisition conference call Mark Templeton didn't say much about where this all goes but hinted that they will drive along the wedge of openness and community interest which is certainly the VMware Achilles Heel. This also aligns XenSource even more closely with Microsoft based on Citrix's unique and long standing synergy with Microsoft. If we needed any more evidence that infrastructure can be sexy and valuable we just got it.

Citrix Goes Streaming

Hold the presses! Citrix just announced the acquisition of Ardence, a software company in Waltham Massachusetts...  Ardence “streams” the operating system to a PC which is a fancy way of saying Ardence has designed a flexible means by which PC’s can be booted from the LAN. Network boot isn’t particularly new. What Ardence does goes much further and allows a single boot “image” to serve a diverse population of machines by the ability to fold in configuration specific drivers.  My bold prediction is that this will confuse the crap out of most of the press and other analysts although it actually makes a lot of sense. The value in this offering is in the leverage it provides for configuration management and the fact that every reboot gets an up-to-date and mal-ware cleansed (interestingly this is the problem that start-up mōka5 is solving with quite different technology (virtual images). The offering certainly fits square in the overall Citrix value proposition and should expand the Citrix footprint if Citrix and their customers can differentiate what technology to use when simply.

Citrix Keeps the Summer Exciting

Citrix seems to have a nice program to assure analyst complete employment during what otherwise could be the summer doldrums. First they announced acquisition of Orbital Data.  On the one hand, Orbital Data wasn't one of the brightest stars in the WAN optimization space (too little and too late) but upon closer inspection it seems that the transparency of OD at the network level makes it a great fit for optimizing the software-delivered Citrix Presentation Server offering. And given the importance of Citrix optimization to the existing WAN optimization vendors Citrix could really disrupt the existing WAN optimization market if existing Citrix PS customers decide this new Citrix offering (named WANScaler) is good enough. Then a couple of weeks later Citrix and Microsoft announced a strengthened partnership to create office acceleration technology that runs on a Windows Server.  We hold to the belief that building communications appliances on a Windows platform actually makes a lot of sense, but that would be a rough road to travel for a small vendor given the general antagonism toward Windows in the appliance and network communities. Citrix running point is an entirely different matter, especially since most of their customers buy the product as software and run it on Windows already.  This is going to be fun to watch!