From Computer Business Review, a sister publication.
Ed Iacobucci, chief technical officer and founder of Florida- based Citrix Systems Inc, wears the buoyant expression of a man who has won a last-minute reprieve. We’re ready now to face the future, he says. But just a few short months ago, Citrix’s future was distinctly uncertain and, until a few weeks ago, Iacobucci was holed up in a rented apartment close to Microsoft Corp’s Redmond, Washington campus, while he and his colleagues battled to cut a deal with the software giant that would give Citrix a fighting chance of survival. That was despite the fact that Citrix has enjoyed runaway success in recent times with WinFrame, multiuser application server software which gives terminal users access to Windows applications stored on a Windows NT server. But in February, Microsoft, which had formerly endorsed the WinFrame product, announced plans to include multiuser functionality in future versions of its Windows NT operating system, a move which, it seemed, could render WinFrame redundant. The announcement from Microsoft caused Citrix’s share price to plummet by 60%, and furious shareholders launched class action lawsuits against the company, assuming it knew of Microsoft’s plans. For the 12 weeks that followed, the company’s future hung in the balance as Iacobucci, camped out in Redmond, and Microsoft circled each other. In 12 weeks of negotiations with Microsoft, you cover a lot of ground, says Iacobucci. The solution we arrived at, he boasts, was the solution we were seeking – the one which maximizes shareholder value. Under the terms of the deal, finalised on 13 May, Microsoft will license Citrix technology for use in its own products, while Citrix will continue to produce WinFrame as a separate program that sits on top of the NT operating system. It’s a good deal for us, Microsoft and the industry, said Iacobucci. Microsoft and Citrix have executed a renewal of vows.
By Jessica Twentyman
But despite the outward show of solidarity, analysts are questioning how long the honeymoon will last and how much benefit Citrix actually gets out of the deal. Citrix really had no choice, says Tom Rhinelander of market analyst firm, Forrester Research. It played as hardball as it could, but in the end, Microsoft could have gone ahead on its own, and Citrix knew that. Citrix is, clearly, now more dependent on Microsoft than ever. Under the terms of the deal, the base WinFrame technology will be embedded in future multiuser versions of the NT operating system, and users will then be able to buy extensions from either Citrix or Microsoft. However, analysts have pointed out that there are no price guarantees specified in the deal, and that Microsoft will be better positioned to offer its WinFrame style product at lower prices than Citrix. Mark Templeton, vice president of marketing at Citrix, says, however, that the contract with Microsoft contains a ‘co-marketing exhibit’ which will aid both companies. He also insists that Microsoft will continue to push Citrix’s upcoming version of WinFrame, codenamed Picasso, because as long as our product is delivering Windows NT to users, Microsoft is happy. Citrix also argues that its products will be functionally superior to Microsoft’s as Microsoft will only offer a bare-bones approach to multiuser NT. Picasso, meanwhile, will be a far richer offering with value-add features such as load balancing, single system imaging utilities and support tools. If you really want to do thin client computing effectively, this is the product you’ll choose, says Templeton. The contract also states that Microsoft will develop multiuser technology solely for the Windows environment, while Citrix is also investigating the development of multiuser technology for heterogeneous systems. The reality is, the world is heterogeneous, says Templeton. Given all these variables, the impact that the agreement will have on Citrix’s long-term revenues is hard to predict. However, since the WinFrame product from Citrix will no longer contain an adjusted version of the NT operating system, customers might expect to see a reduction in price. Templeton is evasive on this issue, stating only that pricing and packaging are to be announced at a later date, but adding that it is in both companies interest to maintain the current economic model. Citrix will, at least, make a handsome profit from the Microsoft deal. Microsoft has agreed to pay Citrix $75m for the licensing of the existing multi-user technology and for future development work for NT releases 4.0 and 5.0 over an agreed period of five years. Since Citrix only spent $3.8m on research and development in its 1996 fiscal year, this seems a substantial amount of money. However, analysts point out that Citrix has relinquished its key technology to Microsoft, and that it remains to be seen how much development work will be required for future releases of Windows NT. What is more, a cap of $100m has been set on the royalties Citrix can receive from Microsoft over an unlimited time period. Another danger lurks in the form of French company Prologue SA. The company, which also specializes in multiuser Windows NT technology, has entered a licensing arrangement with Microsoft, and is involved in developing a product called Hydra.
So why is Microsoft talking to Prologue? I don’t know what their involvement is, says Iacobucci. On paper, Prologue is a competitor to us, but their delivery approach is radically different, he says. According to Georges Seban, president of Prologue, the company plans to provide Windows NT-based multiuser administration tools, along with consulting and training services for Windows NT Server multiuser products. There is also the matter of pending lawsuits against the company by shareholders who claim that Citrix withheld information about Microsoft’s intentions to build its own version of multi-user Windows NT. There may be a case to answer to, say analysts. In January, with Citrix’s stock near its high, the company’s chief executive Roger Roberts sold 25,000 shares for $1.3m. Three other executives followed suit a month later, then the stock collapsed. With the case still pending, Iacobucci will not comment on the charges against Citrix, except to say that the company will be aggressively defending itself. So is Citrix now back on course after the Microsoft scare? Some analysts are questioning whether the concept of multiuser NT constitutes a viable long-term proposition, arguing that Microsoft would have bought Citrix or developed the technology itself if it was wholly convinced. Microsoft is fishing around, trying to respond appropriately to an immature market, says Rhinelander. My hunch is that it’s not going to be a big market, and that, ultimately, distributed computing makes more sense. Others say that, if thin client computing does takes off, there is a future for Citrix’s technology. But whether the company will survive as an independent company is another matter. Laurent Lachal of Ovum agrees that Microsoft is testing the water concerning multiuser NT, but believes Microsoft will end up buying Citrix by the end of 1998. The cat-and-mouse game Microsoft is playing with Citrix seems far from over.