BUSINESSWEEK ONLINE : MAY 22, 2000 ISSUE
INFORMATION TECHNOLOGY Citrix: The Biggest Share in Shared Computing It took 10 years, but the software company is finally in Fat City You won't find many companies with a mascot like Citrix Systems Inc. (CTXS) At its headquarters in Fort Lauderdale, Fla., visitors are greeted in the lobby by a blue papier-mache sculpture of Pablo Picasso. The art is there to inspire employees to see themselves as innovators. It's not a hollow gesture. Citrix pioneered software that lets a number of workers tap into one computer program, such as Microsoft Word--making the management of complex networks simpler and cheaper. This is the original anytime, anywhere computing system. ''We take any application, deliver it to any device, over any network through any bandwidth,'' says Edward E. Iacobucci, founder and chairman of Citrix. At first, Iacobucci's idea was snubbed by the computing world--just like Picasso's startling cubist paintings were initially rejected by art critics. But a decade of patience is finally starting to pay off. In 1999, Citrix' revenue soared to $403 million, up 62% from the previous year. At $118 million, net income nearly doubled. And that could just be a taste of things to come. Analysts say Citrix' software will become crucial as companies increasingly rely on outsiders to manage their software applications and deliver them over the Web in exchange for rental fees. That could help make Citrix one of the 10 largest software companies in the world. Chief Executive Mark Templeton boasts Citrix will hit $5 billion in revenue within five years. That sounds reasonable, says A.G. Edwards analyst John J. Puricelli. Citrix provides a key piece of the plumbing for a server software market that's expected to reach $60 billion in sales by 2002. It claimed a 40% share of the $3.5 billion spent on application-management software last year. ''Citrix is positioned to be the biggest player in its market,'' says analyst David Friedlander of Giga Information Group Inc. No wonder the company's stock hit a high of $122 earlier this year. That was before investors' disillusionment with tech stocks in general drove the price back to the $40 range. The fortunes of Citrix, however, have not declined with its stock price. On Apr. 19, it reported that revenues for the first quarter, ended Mar. 31, rose 50%, to $127 million, and net income jumped from $28.2 million to $43 million. The company's customers include such giants as Sears Roebuck (S), Arthur Andersen Consulting, and SBC Communications (SBC). Now Iacobucci is supercharging his software offerings for the Internet and wireless computers. In February, Citrix introduced a product called NFuse that lets employees access their corporate software applications on a Web site. NFuse plugs into current Citrix software, letting the company's many customers choose whether to switch to less-expensive Web networks from their private corporate networks. Next, Citrix is developing software, code-named Vertigo, that will let developers write Web applications with the speed and rich features of Word or Excel. ''Imagine a Web program that runs fast but has all the power of Microsoft Word,'' says Templeton. GIRDING FOR BATTLE. New products like these are essential if Citrix is to remain atop its industry. The company's growing success has attracted a slew of competitors that were quicker to jump on the Web bandwagon. The biggest threat comes from Microsoft Corp. (MSFT) Although the two are partners today, Microsoft has been adding application-management features to its Windows server software. Now Citrix is girding for battle with the software giant. ''If you don't do anything to get out of Microsoft's way, you'll get run over,'' says Templeton. That's why he's ginning up new products as fast as he can. How does the Citrix software work? Thanks to its MetaFrame program, employees using a PC can tap into applications stored on central servers running Sun Microsystem's Solaris or Microsoft's Windows 2000 operating systems. When a user plugs his computer into the network and calls up, say, a spreadsheet, the server ships a shell of the program to his screen. Only changes such as typing a number are rapidly sent back and forth between the computer and the server. The beauty of MetaFrame is that it requires very little network bandwidth, working well with poky 14.4 kbps modems or a high-speed fiber-optic network. ''Our goal is to make accessing information as simple as a telephone call,'' says Templeton. Much of the company's growth in the past two years has come from a new phenomenon in the market called application service providers, or ASPs. Companies, typically small to mid-size ones, hire ASPs to manage their software. A company's workers tap into the software, using Citrix or other network plumbing that's on servers maintained by the ASP. Citrix latched onto the notion of ASPs before anyone else. ''We're riding a wave we created,'' says Templeton. Meredith M. Whalen, a researcher at International Data Corp., agrees: ''Citrix is really the center of the ASP movement. The company is growing the market.'' And, in turn, the ASP market is turning to Citrix. Gartner Group estimates that 80% of the world's 500-plus ASPs will be using Citrix software within five years--up from about 50% today. LONELY VOICE. It wasn't always this easy for Citrix. Founded in 1989 by Iacobucci, a former IBM software engineer, the company unsuccessfully preached the gospel of shared computing. ''There were a lot of times when we were surviving on bridge financing with no revenue coming in and no prospects,'' recalls Templeton. Acceptance of Citrix software began to grow in 1995 when industry figures such as Oracle Corp. (ORCL) Chairman Lawrence J. Ellison championed the idea of running applications on central servers as a simpler and cheaper alternative to PC networks. While Ellison promoted Internet computing, Citrix was delivering similar results on private networks. Staying ahead of the pack is going to get tougher for Citrix. Already some new entrants have poached big customers. Software maker Santa Cruz Operations Inc. (SCOC), for one, persuaded Deutsche Telekom (DT) to switch from MetaFrame to its Web-based Tarantella networking software. Now Citrix has Web technology, too, but Michael Orr, who heads SCO's Tarantella unit, vows: ''We are aggressively trying to win over Citrix' customers and resellers.'' Did Citrix wait too long to release its own Web technology? Not according to Citrix executives or analysts. They say there was little demand for Web-based networking until recently. And, despite some initial success, SCO sales of Tarantella are so small the company won't break them out from its $223.6 million in revenue last year. ''SCO doesn't represent a threat to Citrix,'' says Friedlander. ''The market is big enough for both of them.'' NO SPYGLASS. The real boogie man is Microsoft. The software giant, which declined to discuss its relationship with Citrix, has made no secret of its desire to rule Internet computing. Right now, it's not competing head-to-head with Citrix. In 1998, the company paid $175 million to license key components of Citrix technology in a deal that expires in 2002. But the agreement doesn't prevent Microsoft from developing application-sharing tools on its own. That's what happened to browser company Spyglass Inc. In 1995, Microsoft licensed Spyglass' technology, only to come out with its own later and, ultimately, to rule the market. Spyglass refocused its efforts on supplying browsers for handheld devices and is in the process of merging with OpenTV, a Dutch firm. But Citrix is no Spyglass, its executives say. ''We're not some feudal state of Microsoft. We're a strong and independent company,'' says Iacobucci. The challenge for Citrix is to develop software so powerful and so far ahead of Microsoft that the company chooses to continue the alliance rather than fight. ''To maintain the balance of power, we always have to innovate, have something Microsoft doesn't,'' says Templeton. If Citrix can do that, then it will live up to the high standards that its statue of Picasso engenders. By Charles H. Haddad in Atlanta _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Citrix: The Biggest Share in Shared Computing TABLE: Late Bloomer INTERACT E-Mail to Business Week Online

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