For Citrix, Target Acquired

Q&A: CEO Mark Templeton says the XenSource acquisition "will prove to be transformational."

Citrix Systems completed its largest acquisition to date—of virtualization provider XenSource—just in time for the start of its iForum user conference. At the October conference held in Las Vegas, Citrix executives gave attendees an in-depth look at how the company plans to leverage virtualization. Citrix CEO Mark Templeton sat down at the conference with Senior Editor Paula Musich to discuss the company's future and how big a role acquisitions will play in it.

How important is the XenSource acquisition in your growth plans for Citrix?

It's very important. The server virtualization market is huge. There's plenty of room for another one or two or more to play a great role in server virtualization. And it's core to being successful in desktop virtualization.

The other piece is the spreading of the Xen "sauce" across the company—giving all the other teams, including online service, appliance, Presentation Server—access to [XenSource's] hypervisor core technology. It will prove to be transformational. We'll build a position in desktop virtualization and enter the server virtualization market, and organically all these other teams are grabbing the technology and running with it.

For iForum, we build registration systems, demo systems, and so on. Before Aug. 12, they were built on VMware. Since then, they were rebuilt on [XenSource's] XenServer. Our test labs completely rebuilt on that, too. Our employees are amazingly creative and innovative with [Citrix's own technology]. When [they] are using our own technology to solve their own problems, it impacts the direction of the company. It happens in a completely organic, bottom-up way.

VMware is the de facto standard for most enterprises moving to server virtualization. How will XenSource and Citrix compete with VMware?


With a different approach that gives customers choices. To me, those are the fundamentals in a free market economy. It's what allows great companies to coexist in large-scale markets. It allows Coke and Pepsi to coexist in a very large-scale market.

We're not going to compete head-to-head. It's about a hypervisor being built by a community where everyone has self-interests in making it successful. [Citrix will be a] company that makes commercial products on top of [the hypervisor]—that leverage it up the stack as well as left and right [of the stack] with an ecosystem of partners and integrators.


XenSource says it's ready to take on VMware. Click here to read more.

And [Citrix will be a] company that looks at partnering with those who can resell and those who can influence customers and who have something to gain themselves in helping customers be more flexible as a core strategy. VMware doesn't have to lose for us to win. I think there will be multiple winners in this nascent market.

The Citrix definition of virtualization is much broader than what most people think of when they think about virtualization. And different types of virtualization are aimed at solving different technology problems. Isn't there a danger that you'll confuse the market?

I don't think the market can be any more confused than it is.

I've been through all these hype cycles. I am a huge technology cynic. I was around when IBM stepped up and said Office­Vision [an IBM office support application] is where we're all going. Where is it?

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Being a cynic, I want to get a personal experience with the technology and make my own decision. You have to focus on where reality is and where you can turn smoke into fire. Wherever you separate physical from logical, you can declare it to be virtualization. But that can be confusing and can be a [disservice] for customers.

We can virtualize servers and desktops in multiple ways. We can virtualize applications, networks, even our IDs [single sign-ons] could be called virtualization. The market is confused. We'll keep focused on three classes of virtualization: server, application and desktop. And with great execution will come more clarity for customers.

Microsoft is thought to be a very demanding partner, and Citrix has been more successful than most other Microsoft partners. How do you account for that success?

Two things: by being accretive to their tactical goals—typically expressed in financial terms—and accretive to their strategic goals, usually couched in technical terms. It's that simple.

In my opinion, Microsoft gets a bad rap for this. I think well over 50 percent of the fatalities are self-inflicted by companies that blame Microsoft for their failure instead of themselves. It's convenient to do.

Microsoft is a giant aircraft carrier. They move at very deliberate and predictable speed in enterprise computing. You know where they will be two or three years from now. So the onus is on you as a company to listen to those signals and steer with that, instead of getting in front of the aircraft carrier or getting swamped in the wake of it.

Others just aren't paying attention. That's how we've done this. And we do all the things you need to get it done. And [Microsoft has] a long heritage with us. They were an investor in the second round (of startup funding), along with Intel. So our roots go way, way back.

Your stated goal last year was to become a $1 billion software company. You achieved that and then some. What is your goal now?

Forget the financials. The way to create a sustaining brand is by providing customers with leadership. Then you are awarded the revenue. You don't get the keys to the car that way. That is our agenda for the next 10 years.

We had regrets on how that $1 billion goal got communicated. It didn't help the team. That whole goal was about [a McKinsey & Company study] about what happens to software companies in the $500 million to $1 billion range. Many don't survive it. They have a lot of issues around [retaining] talent [and other problems].

Surpassing $1 billion would be the sign that you broke the code on all those things that break those companies. So that was the manifestation of a set of goals around transforming the company that included establishing ourselves in a new and larger category of adjacent markets.

Our goal is about the three quests you heard in [my iForum keynote]. The first is to see that every application is delivered as a service. The second is a holy grail of data centers—to make every data center dynamic. The third is to deliver desktops as a service—[to provide] a dynamic infrastructure to deliver services to end users.

If we're successful, we'll be able to say we have established a category of infrastructure software called "application delivery infrastructure," and we'll be a leader in that category.

How much of your future growth will depend on additional acquisitions compared with organic growth?

If you look back five years, our compound growth rate is just over 24 percent. Eighteen percent of that is organic. Most of the acquisitions we've done don't bring in a ton of revenue. Expert City, which became our Citrix Online Services Division, had trailing 12-month revenues of $35 million. NetScaler was not a big revenue impact.

Our pattern is early-stage markets—very high growth [areas] that are adjacent and accretive to this idea we have. Going forward is the same.

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XenSource was not a big acquisition from a people point of view. I think they had 80 people. From a valuation point of view, it is the largest [acquisition]. We need domains of expertise in lots of technology spaces that wouldn't be inside of a team in a silo. All the SSL stuff we did—to get the domain expertise, we had to do an acquisition. We did research and development in the area of application performance monitoring, but we needed core domain expertise in building agents and distributing data over the network for data collection. With the XenSource team, it's the same thing. The domain expertise is just different. That is why they play an important role. If we're successful in pulling together into an end-to-end system, the rewards will be enormous.

You said earlier this year that Citrix is an "admirer" of Microsoft for its innovation, Adobe for its strong brand and Apple for its easy-to-use products. After watching your swift acquisition pace and the kind of companies you target for acquisition, I would argue Citrix is patterned more after Cisco Systems. Do you think that's a reasonable argument?

You are thinking of the acquisition point of view instead of the comments I made. Those were about role models. Cisco has not been a role model for our acquisitions. They are a fabulous company. We love Cisco. When I talk about Microsoft, Adobe and Apple, they are role models for the things I cited.

I happen to be a huge believer in role models. It's pragmatic: If someone does something really well, study it and translate that into your own business. I think it applies to companies and people. The way you better yourself is to find someone you want to be like and try to be like them. That impacts the way we work at Citrix.

You've been at the helm of Citrix for at least eight or nine years now. Do you have any plans or desires to try something different?

No, I don't. I get reminded that I have one of the long­er tenures of a CEO in a technology company of any size. I've been very blessed with experience beyond my dreams, but I have a huge obligation. [There are] 4,300 people and families that connect with thousands of families that depend on us. Then there are partners and customers. If we don't do the right thing, it will hurt them. I look at that in an inspired sort of sense.

It's also my obligation to build the organization from a company and talent point of view so we have leaders to hand off to. We're doing that. It is part of what the board measures me on. Succession is a big deal for us as we grow.

It's been a lot of fun. Right now it feels like we're at that point where you get enough critical mass of technologies, products and ideas that wrap around them and at the same time where customers are getting to a place in their ability to articulate their needs and see the value [of that combination]. That's where you get detonation. When you have less than 50 percent control, it means you have to be better at the smaller part that you have control of.


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