Citrix buys XenSource for $500M

Citrix announced today that they were buying virtualization vendor XenSource for $500M. I wrote a detailed analysis of what this means when I first reported this news last Thursday in my article "Should Citrix buy a hypervisor?" In this article, I'll share a few more thoughts that have emerged since then.

Citrix announced today that they were buying virtualization vendor XenSource for $500M. I wrote a detailed analysis of what this means when I first reported this news last Thursday in my article "Should Citrix buy a hypervisor?" In this article, I'll share a few more thoughts that have emerged since then.

First, $500M is a VERY expensive price to pay for XenSource. XenSource was a private company, but the general belief is that they had less than $5M in revenue (with some people saying less than $1M).

The Citrix press release says that with this acquisition, Citrix will jump head-on into the server and desktop virtualization markets, and that they expect to grow to a nearly $5B company in the next four years!

The press release also reiterates a lot of what I wrote about last week with regards to strengthening the relationship with Microsoft, but everything that I've heard is that Microsoft is not happy about this. Again, now Citrix is going head-to-head with Microsoft in this market.

The whole XenSource thing is a little strange because XenSource's technology is based on the open-source Xen hypervisor. So Citrix will not own the IP of the core hypervisor. (What exactly did they just pay $500M for?)

XenSource hosted an Analysts Day meeting a while back, and Citrix presented this presentation about how Citrix + XenSource fit together. Most of it was the typical Citrix marketing stuff, but there are a few slides about how "virtualization technologies enable the dynamic coupling of components for best delivery." Specifically, they write that Citrix Desktop Server can deliver Windows desktops via XenEnterprise VMs, and that XenSource is working on a XenEnterprise VM utility for Desktop Server. They mention that they're also exploring how Ardence OS streaming fits into all of this.

So what happens next? Will people love this or hate this? Can Citrix hit $5B in four years? What will VMware and Microsoft think? What stupid name will Citrix give these new products? What will the open source community think?

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Just FYI, I just deleted a comment that was posted. The title was something about how this must be a good move, because CRN had a good review of XenSource. Unfortunately the poster cut-and-pasted the entire CRN review into the body of the comment, which is copyright infringement and not fair to CRN, so I had to remove the comment.

If the original poster wants to post a link to the article, that's cool. Just don't post the entire article. 

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Hi Brian,

We distribute both Citrix and XenSource (at the moment) so are extremely interested in the fate of XenSource. With that sort of price tag, which, I think?, is Citrix's most expensive acquisition yet, I can't see them "just" integrating the technology into Desktop Server, they must surely have some more tricks up their sleeve. Any murmurs of big OEM deals with the likes of HP, IBM or Dell in the pipeline for example? Your ear is probably closer to the ground than mine.

 Rupert (COMPUTERLINKS UK)

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Yes.  Sequoia was $185million.  This is $500 million.  Which makes it a little over 2.5 times the disaster factor.  Seriously, I hope Citrix proves me wrong here, but 500 mil for a company that's expected to add $50 mil of revenue with $60-70 mil of operating expenses just doesn't sound good for shareholders.  This is either the greatest technology play ever, or a disaster waiting to happen.

http://www.shawnbass.com

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I think NetScaler had been the highest so far hadn't it? Approx $350 million I think...
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Haha... "2.5 times the disaster factor." That's a funny quote.
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I believe the Netscaler acquisition was for $303mil.  The difference here is they at least had $10mil in revenue with an opportunity for a large scale up in profits.  It will remain to be seen if the same can be said for XenSource.
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Citrix stock is currently ~3% up. Analysts seem to like the idea of Citrix owning the whole stack.

It  will be very interesting to see

a) what is going to happen to the MS-Citrix relationship and

b) whether the huge investment pays off.

==================
Please visit my blog:
http://it-from-inside.blogspot.com

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Maybe Citrix will call the prdouct "BriForum"?  That's a pretty stupid name!  :)
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Do you really think Citrix would buy a major hypervisor player in a fast growing market without talking to their biggest partner (Microsoft) first? My guess is that Microsoft has known about this for quite some time and given their blessing at the highest levels. If Microsoft told Citrix this was a mistake, Citrix would be insane to make this deal. Sequoia was a monumentally stupid deal, but that was before Citrix hired a M&A expert. I can't recall his name now, but he came from an analyst firm and specialized in technology mergers. Several Wall Street analyst have credited him with the recent successful aquisitions like Expert City and NetScaler.

What is really exciting about this is the combination of Xensource and Ardence. My bet is Citrix puts out a tightly integrated product that includes Xen and Ardence. This could be very interesting on both the server and desktop side.

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It was either "BriForum" or "RonForum," but I won the arm-wrestling match.
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Sure investors like this. They see that Citrix is doing something spectacular with their money, which creates more visibility, which opens new markets, and which creates sales opportunities. I think it doesn's matter if the XenSource investment directly pays off, as long as the Citrix business as a whole is still growing. Nobody asked Microsoft if their Softricity acquisition will pay off directly. Investors typically only ask for the total revenue and profit at the end of the quarter.

But I agree that the really interesting question is about the MS-Citrix relationship, I personally see two options:

1.) Microsoft knew about the Citrix plans to acquire XenSource and even encouraged Citrix to do it. In this case an important virtualization technology is kept within the eco system of friends. VMware would not be very happy about this situation, the MS-Citrix relationship would even be stronger than before.

2.) Microsoft planned some move Citrix didn't like. So Citrix decided to do the first move in fighting back - by acquiring XenSource. If this is the case we will not have this eco system of friends anymore, even if Microsoft knew about the Citrix plans. VMware and all the Citrix competitors would love this new situation because of the changes in the market landscape it could generate.

No matter which of the two option is true, not only we as the TS/Virtualization Community but also the Open Source Community is pretty confused about the new situation. I'm really looking forward to see the next move.

Benny

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One thing is for sure, when Citrix gets involved, you can kiss Xen's open source initiatives goobye. And that is a very sad result.

They'll see only $$ signs now, and if history holds true, open source can't play in their sandbox, cause Citrix will keep stealing their shovels.

-Mike

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I think we'll find Citrix initiate a price hike in the XENSource product as well to recoup some funds and level it with Citrix's own price offerings. I guess this will probably hobble them for a while until Citrix's channel grasp some of the value adds and put product solutions together.  The funny thing is that Citrix doesnt work well in VM technologies (like XEN and VMware) as they are slow - maybe they bought the wrong company? :)
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XenSource themselves have introduced a price hike with the release of version 4.0. That's just between you, me and the gatepost though.
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Microsoft is definetly pleased with the aquisition.... So here is you riddle of the day.

what does a Xensource vm and a microsoft VM have in common? Find the answer to that riddle and you will understand more about what could happen in the future.

 

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...that they both are not VMWare WM's?

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same virtual disk format?  streaming of OS to virtual systems?

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> I won the arm-wrestling match

Yeah right. Was Ron handicapped to use his pinkie?

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...interoperability with Viridian?
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... they both work horribly with Citrix PS?
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Both Xensource and Microsoft are 9 letters in length... if you add 9+9, you get 18... if you add the 1 to the 8, you get 9 again.  Conspiracy, or coincidence... hmmm...hmmm...?
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I don't think Muglia would be quoted in the Citrix press release if Microsoft was "not happy about this".
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Don't be so sure.. It think it's possible to put on a happy face publicly while privately being unhappy. I mean doesn't this 100% compete with Viridian, or am I missing something here?
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Brian, just wondering if you could expand on your comment in the post "but everything that I've heard is that Microsoft is not happy about this." ??  Not sure if the sources are at all publically viewable at all, or have these just be conversations outside of public view?

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Viridian is at least a year away, and won't include features that XenSource started shipping this week.  XenSource runs on Viridian, so Microsoft will use XenSource to provide these features until they can get their own oversion of these features out the door.  Then XenSource will need to keep ahead of Microsoft in order to keep charging for their products (sound familiar?).  But XenSource can also run on top of Linux.
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Stupidity. Now I know how you managed to pass your CCA exam.
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Is this a possibility?  That would really stick it to Microsoft.
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Citrix and MS are butting heads with PS/TS, Streaming Applications, and now Hypervisor.

The market share turf battles have just begun.

Lets imagine that Citrix is secretly working on Presentation Server for Linux. Brian once wrote an article on this.

You optomize XEN to work well with PS for Linux. You use free application software such as star office and others.

Citrix starts promoting/advertising that all you need is Citrix user licenses.

No MS Office, No MS OS, No annual fee to MS....etc.  You install Free Linux on all your client computers or use an inexpensive thin client. 

You have just saved your company 75%+ of its annual Software expenses.

Oh - you can run PS 5 for Windows 2008 to support legacy Windows Applications in the same farm as PS for Linux. All servers point to the same Data Store.

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This would utterly rock my world for one.  I've been trying to move us away from MS for a while but there's just no good reliable TS type option for linux.  Why they haven't ported PS over to linux yet has always puzzled me.  This really could change the entire landscape if they were to do this.
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The press release actually comments that the market itself should become $5B in the next 4 years.  It does not state that Citrix itself will become $5B (although that would be stellar)
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Ah that makes more sense. You know, I thought I'd read that a few times through to make sure I had it right, but reading it again now I see you're right. I'll update the article.
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Funny how a number like $5B is so important for Citrix....first it was $1B (which lasted for 2 years or so...damn Solutions Summits).  Later I heard $2B, and now $5.  Funny how VMware is probably going to raise about $0.75B with only 10% of their stake up for sale...and revenues are already set to exceed Citrix's quarterlys by the end of the year.  

As for why Citrix paid so much...simple, supply and demand combined with the fact that they had about $950M in cash.  As a shareholder, why should they pay me when they can buy a company barely turning a profit instead!  MS had a good excuse with their reasons in the past - some decent internal projects in the pipeline.  Citrix, however, is not an innovation company is it....

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3% is what, like a $1 jump in Citrixs current price.  Maybe it was caused by a sheikh who finally passed his kidney stone, and decided to dump some oil in the market.  Or maybe because silly investors like myself, who dont have enough time to constantly look at the market everyday, dumped my lunch money into Citrix at Scottrade.  How can you say "investors" liked this...?

Im pretty damn sure that the analysts and fund managers ARE looking closely at this, if nothing more to see how it will affect VMware, and have looked at the Softricity aquisition as well, and how MS is positioned in this space.  But also from the value side.  I dont see much value here, only immediate value lost for shareholders...and the big shareholders live for today, not for 4 years from now.

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I do not think it is any coincidence that Citrix would announce this purchase as VMWare offers it's IPO.

It didn't effect the after hours trading of VMWare. VMWare is up $1.28 after hours.

I can't help but to think that Citrix is too late to market with this purchase.

Do not miss your chance to get some VMWare stock - it will have a meteor ride similar to Google. symbal-VMW

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Since many are focusing on the Citrix-Microsoft relationship, I thought it would be fun to dissect Muglia's quote:

"Although the market is still in the earliest phase, virtualization already offers significant opportunities for cost savings and innovation,"
- i.e. server virtualization has only affected 5% of x86 servers according to IDC.  It's still early days.  Citrix can do what it wants for the next 12 months.  Viridian comes out and only Microsoft and VMware will matter.

"Citrix and XenSource have long been strong partners for Microsoft"
- i.e. Citrix and XS are both MS ecosystem partners.  They can waste their money, kill each other, try to slow the adoption of VMware until we come out with Viridian.  If you are fighting against VMware, you're on my team - until Viridian comes out.

"and it is exciting to see them team up to help move the market forward."
- i.e.  It's a thriller / horror / blood bath movie made in Bollywood.  It will be a flop in the theaters, but at least it's not my money.  So you have my blessings.  Go right ahead, but get the F out of the way when Viridian comes out.

WHAT A ROYAL WASTE OF MONEY!

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It's amazing to me how blind some people are. VMWare has no protocol hat works well over a WAN. A real business does not use RDP over a WAN. That's the leverage Citrix has with ICA. Citrix has so many other technolgies that enable managment of the CDS product line. The others lack all of this, and I am sure we will see some pick ups by VMWare with there fresh cash. This is a smart pick up to boost CDS as a new market product. VMWare will be around, and eventually MS will play their card. This is all good for US consumers. Choices are great. We don't want VMWare to drag their heels and be the only game in town like the Windows Desktop. Innovate, innovate, innovate and may the best solution win to make OUR lifes easier.
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"A real business doesn't use RDP over a WAN".

I guess it's true what they say: perception is reality, especially among the brain-washed like you.  Have you ever benchmarked RDP, or are you simply echoing second-hand information?

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Sure, read the Tolly Group report that just came out.  With 4.5 benchmarked against RDP, it's amazing how much better ICA is now! 

 Ever try to run Google Maps over RDP and then ICA?  It is an awesome demo to see the advances that have been made in ICA.

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It possible that MSFT was having even more difficulty than originally anticipated with Viridan and is going to miss the "180 days after WS 2008" launch.  In order to not let VMware capitalize on the opportunity, they encourage Citrix to buy into this high-growth market, by assuring Citrix that it has 24 months to sell the existing product and innovate well behind this to continue to have a value proposition in excess of what Viridian has (after all, isn't this what CTXS has done for years with TS?).  CTXS has had high growth ambitions since it started its acquisition strategy several years ago.  This helps drive this growth and helps the Microsoft relationship.  Long-term, Viridian will rule, by then, XenSource needs to have moved on to greater things.

 Make sense to anyone?

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http://www.eweek.com/article2/0,1895,2171434,00.asp

I can see how that makes sence, but I guess the rumour mill is churning now...

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Hee hee.  Yes, the Tolly report, thats the ticket.  Im sure many system architects base their decisions upon that.  How much money does Citrix shove down Tollys throat for the "Correct Results" to appear.  And if you dont think that that the same happens with Gardner and the rest, then pinch yourself - twice. 

I agree that the protocol probably has improvements since 4.0, but at what point do you simply agree that for 95% of the used apps out there, RDP does a wonderful job.  How many users need Google maps over ICA ...and how many supervisors want their employees trolling through Google maps during working hours.

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They're both written by the same people
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And what makes you think Citrix hasn't ported PS over to LINUX?  Maybe it's been sitting on a shelf.  ;)
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simply put, Citrix has been out there touting desktop virtualization and in effect sending revenue to other compaines in the process. By owning XENSOURCE they can sell that layer to customers. I doubt they intend to go directly after VMWare, I think they are simply rounding out their portfolio so that you will be able to publish the entire "stack", OS and Apps via PS or virtualization. It could be a very cool integration, i.e. push out whatever the end user needs at that moment choosing from the whole range of virtualization and hosting and streaming options!

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Perhaps a wee bit too early to be calling NetScaler a success.  Certainly no Sequoia, but last time I checked. a lot of partners are having a difficult time cross-selling it.  Let's wait til they've had it fully implemented for two years before we crown it a success.
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What stupid name will Citrix give these new products?

Xitrix or Xetrix

;)

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No, no..... "Presentation Server Xenprise".... or probably a name that has absolutely nothing to do with the functionailty of the product. Classic Citrix marketing = idiots.
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Yeah, and I base all of my major IT decisions on what Tolly, Gardner, and Forrester are paid to say... are you kidding me? Reality Check time.
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This game is getting bigger and bigger. Think of other players who might get involved ... 10 years ago a certain Larry Ellison was a significant evangelist for the non-Microsoft, network computing, on-demand, thin-client model. I think that's a big slice of what we now call Virtualization, ain't it? Will he make a re-appearance at some point perhaps?

465424 

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It's clear now the mind set of who buys into the MS hype and allows them to kill progress with every step. Just look at how much progress they have made since buying Softricity. Just like RDP, it's good enough for the masses but MS will never serve real complex businesses, who have many more diverse needs. Take a look at the latest 10.1 client and see if you can figure anything out? Obvisouly you don't work at a real company, so keep on enjoying inferior slow progress RDP.
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The only problem with this anaology is the latest ICA Client 10.1 is buggy as hell.  10.0 is better.

Softricity has come along in more ways that one since Microsoft purchased them... You really should your homework.

 

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PreXENtation Server?  :)

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Citrix have had this "get out of jail card"of keeping linux versions of it's tools and presentation server for an emergency situation for years I believe. $500m is far from get out of jail free but maybe it's a similar scenario. After all the office suite is still the most important set of apps. If you could deliver a centrally managed set of openoffice virtual desktops on linux that would work for 80% of users - that would be a good card to hold  in any microsoft negotiations would it not ?
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What if Microsoft were to leverage Citrix's acquisition of XenSource and provide Vista at a discounted price, assuming the customer were to implement VDI (DDI?) with Citrix/XenSource/Ardence?  Make a deal with Citrix and allow the OS to be purchased at a discounted price (i.e., cheaper than the cost of the OS via VDI with VMware) and pretty soon, VMware's market cap starts the inevitable downward slope.  Couldn't this be the VMware killer (at least as it relates to VDI/DDI)?
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Haven't you guys heard of LTSP? Linux Terminal Server Project, which is open source.

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I think you're onto something here.  If VDI/DDI were to takeoff and Microsoft were to either acquire Citrix or make an OEM version of Vista for Citrix, the costs between VDI (via VMware) could be far greater than DDI (via Citrix). 

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Yeah Same Story Different decade
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