Will Citrix and Microsoft Tie the Knot?

As the business relationship between Citrix and Microsoft continues to flourish, it raises the question of whether the two will eventually tie the knot. Rumors of an acquisition have circulated on and off througout Citrix’s entire history, but could 2017 be the year that it finally happens?

If we consider the current tightly knit relationship as a climactic point between Citrix and Microsoft, we can certainly see that there have also been numerous anticlimactic points throughout Citrix’s history. For example, in 1998, Citrix was prepared to release WinFrame 2.0, which was the multi-user system integrated directly with Windows NT 4.0. Microsoft mandated that the completed product be scrapped on the eve of release, even after Citrix had invested significantly in development and packaging. Instead, a Terminal Services add-on functionality named MetaFrame (a former version of XenApp) was later released. No doubt, Microsoft clearly held the upper hand. Especially at that juncture, Citrix was a small company with a few hundred employees, and losing that significant investment in its flagship product threatened its viability.

Citrix and Microsoft gritted teeth commonly over the years with regard to XenServer vs. Hyper-V and XenApp/XenDesktop vs. Remote Desktop Services. Then, due to XenApp/XenDesktop, Citrix became one of Microsoft’s best salespeople, because Microsoft licensing is fundamentally required as the basis for the Citrix infrastructure. As a result, Citrix was viewed favorably again.

And Then Came the Common Enemy: VMware

VMware challenged both Citrix and Microsoft in ways that neither company had anticipated. This small Silicon Valley startup developed products and grew exponentially, gnawing at the technology and market leadership of Citrix and Microsoft in the virtualization arena. Tackling this competitor alone wasn’t sufficient; Citrix and Microsoft realized that they needed to align and join forces.

Now that Dell’s acquisition of EMC and VMware is complete and VMware has responded to the Citrix/Microsoft union by aligning itself with Amazon Web Services, the sphere of us vs. them has taken on new definition. Perhaps it’s time for Microsoft do a little acquisition of its own.

Could It Happen?

One of the most common reasons acquisitions fail is lack of cultural assimilation. Citrix and Microsoft are quite well aligned culturally from top to bottom, so this is a non-issue for a potential acquisition.

Over the past year, Citrix and Microsoft have made numerous announcements regarding their alignment of Azure with Citrix infrastructure. The marketing mantra has been “Why host Citrix yourself when you can have Azure do it for you?” The union of the two companies has extended well beyond marketing announcements; the synergy and cultural alignment between Citrix and Microsoft is evident, and at times, the lines between companies has blurred. Of course, the influx of former Microsoft executives into the high-profile ranks at Citrix, along with their contacts and culture, bodes well for the strategic alignment of Citrix with Microsoft. Further, most Citrix field reps already work with their Microsoft counterparts.

Citrix has refined its focus to the point where an acquirer would find it attractive. Looking back a year ago, Citrix was a bit scattered and its employees were not fully engaged. Citrix has discontinued features and functionality that don’t align with its new core values, and acquisitions like Melio have been allowed to fade into the sunset. Within the company, technical and business talent is on the rise, both from internal development and new hires. Citrix employees are genuinely excited about the company.

Given Kirill Tatarinov’s abrupt departure from Microsoft in 2015, it’s questionable whether he will agree to work for the Microsoft CEO again. Although we’ll never know the full peripheral scope of Satya Nadella’s all-employee restructuring letter dated June 17, 2015, wherein he stated that “Kirill Tatarinov is going to explore what’s next for him,” it obviously meant that Kirill didn’t work for Microsoft anymore. Was Kirill truly ready to move on, or was he encouraged to do so?

From a legal standpoint, is it possible for Microsoft acquire Citrix? It’s quite possible that an acquisition could be blocked based on antitrust reasons, because the number of competitors in this already finite market would be further reduced. The two companies can work together extensively, but an acquisition would change everything.

So, will Microsoft acquire Citrix? In the next year or so, likely not. It’s been less than a year since the Citrix rebound started, and Citrix needs more time to nurture it. Likewise, the close relationship between the companies is less than a year old, and longevity is needed in order to formulate next steps. Also, a major dependency will be external factors, such as any additional Dell acquisitions and the near-term performance of VMware and mid-tier players such as Ericom. As such, if we reassess this question in another year, the answer may be very different.

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