Citrix Connects

When sales and earnings fall, some vendors take more deals direct and grab additional margin, squeezing their partners' profits in order to boost their own. Other vendors sharpen their partnership efforts because they believe solution providers help evangelize their products, generate business and provide top-level customer service, improving financial results for both sides.

Citrix Systems made the second choice, and its channel partners are applauding.

Amid declining profits and revenue, Citrix has turned to solution providers to help extend the use of its MetaFrame application delivery software beyond the departmental level and into a pervasive platform used throughout enterprise accounts. The Fort Lauderdale, Fla.-based software vendor also has tapped the channel to help promote its NFuse Elite portal server, which has seen disappointing sales since being launched in June.

For the third quarter ended Sept. 30, Citrix reported earnings of $16.8 million on revenue of $118.9 million, down from earnings of $27.8 million on revenue of $153.5 million a year earlier. During the same quarter, Citrix President and CEO Mark Templeton unveiled a three-pronged plan to stem the decline, and the strategy focused squarely on helping solution providers drive sales.

Already lauded by many of its solution providers as one of the industry's most channel-friendly vendors, Citrix has taken steps to reinvigorate its partnerships by revamping its channel-incentive program in North America, trimming unproductive partners from its Citrix Solutions Network (CSN) and introducing flexible licensing options.

"The message from the changes we made in [the third quarter should be really clear: No. 1, that we continue to be a channel-centric company, and No. 2, that we are going to evolve the way we do business with the channel around making doing business with Citrix easier and more profitable," Templeton said in an interview at the recent Citrix iForum conference in Orlando, Fla.

To that end, at iForum Citrix unveiled an updated Customer XPansion incentive program and previewed MetaFrame and NFuse Elite upgrades as well as a new collaboration tool code-named Project Pearl. All the new products are slated to ship in the first half of 2003.

"Citrix is as good as you're going to get. They give you the best you could expect as a VAR," said Jim Gildea, president of Aegis Associates, a Watertown, Mass.-based solution provider.

But no vendor is perfect, Gildea and other Citrix solution providers said. Over the past year, Citrix solution providers have expressed concern about eroding margins stemming from price competition among VARs as well as between VARs and volume software licensers.

To squelch price wars and encourage partners to expand Citrix sales within customer accounts, Citrix in August launched Customer XPansion. The program offers partners up to 5 percent cash back for increasing the number of distinct sales transactions by up to 40 percent quarter over quarter. Customer XPansion replaced a previous incentive program that gave partners about $4,000 worth of free products for every $65,000 of products sold.

Some partners passed the free products along to customers at steep discounts instead of selling them at normal prices and keeping the extra margins, said Ross Brown, vice president of business planning at Citrix. But by eliminating the volume reward completely, Citrix ended up penalizing top-level partners that already had saturated clients with Citrix products, Brown said, adding it was unrealistic to expect those partners to grow their transaction rates as much as 40 percent per quarter.

So at iForum, Citrix added a volume component to Customer XPansion that gives qualified partners cash back for growing their sales volumes based on their sales averages over the three previous quarters, Brown said. "For the volume component, we're really looking at a subset of partners who are capable of driving consistent volume in a value-oriented model," he said.

A less predictable, quota-style volume reward should deter partners from building the incentives into customer pricing, Brown said, adding that about 100 CSN partners likely would meet the baseline sales-volume requirement of $75,000 per quarter. Citrix has roughly 6,000 partners worldwide, of which 2,400 are located in North America.

"That was the piece that was missing," said Chris Richner, executive vice president of Integration Technologies, a Newport Beach, Calif.-based solution provider. "Our biggest issue was that we were being penalized for [large deals."

Citrix also recently changed partnership agreements with its three Citrix Enterprise Licensing Providers: Software House International, ASAP Software and Software Spectrum. The vendor now bans CELPs from selling its shrink-wrapped products, which offer bigger discounts than some of the vendor's electronic licenses.

In addition, Citrix pulled six partners,including CDW Computer Centers and Insight Enterprises,out of the CSN program and formed a separate

volume-partner program for them, said Brown.

"I think Citrix has renewed its interest in the channel. They realized that the CELPs were hurting the channel somewhat, so they revisited that [issue," said Paul Kunze, director of sales at IntraSystems, a Randolph, Mass., solution provider.

To help make the most of its channel investment, Citrix also sifted through its partner base to ferret out members that weren't actively selling products. The vendor's current roster of 2,400 North American partners is down from 3,000 in August. In the process, Citrix discovered that a fair number of consultants were "hiding out" in the CSN program, so by January the vendor plans to launch a program catering to influencer partners, Brown said.

"It's not about cash. It's not about an agent program or paying them for driving demand. It's about giving them access to our engineers, to our road map and to our vision of where we're going, helping them navigate our systems better so they can get their questions answered," Brown said.

Last month, Citrix launched Easy Licensing, a program that enables customers to purchase electronic licenses without volume commitments. Many customers prefer electronic licensing to buying boxed products, said Lesley Taufer, president and CEO of Boulder Corp., a Boulder, Colo.-based solution provider.

"It allows us to manage their licenses and allows them to have an easy archive of what they've got," Taufer said. "Plus, they don't have to worry about someone walking off with their boxed license."

Another worry that has haunted some partners,competition from Citrix Consulting Services (CCS), the vendor's professional services arm,is abating, Templeton said. With only about 100 consultants worldwide, the mission of CCS is to develop white papers and other intellectual property to be passed on to Citrix channel partners, he said.

"There's nothing that we could do with a hundred people to fundamentally impact the revenue and have conflict with [our channel partners' 20,000 feet on the street," Templeton said. "What we can do is be synergistic by doing that work and then getting leverage from it by turning that information out to them."

DeVA Systems Group, for one, successfully worked with CCS when a client requested a third-party infrastructure assessment, said Bill Fistori, president of the Maynard, Mass.-based solution provider. "It was a win for us, a win for the client and a win for CCS," Fistori said. "We use some of their best practices now."

Citrix's strong channel ties, however, weren't enough to counteract the impact that the faltering economy has had on NFuse Elite's early sales.

"It's definitely a little behind where we would like to have been by now," said Bob Kruger, CTO and senior vice president of products at Citrix. "IT organizations are looking for things to say no to, and the easiest thing to say no to is something new," he said.

Citrix also underestimated the average sales cycle for the product, Kruger said. Citrix signed 50 NFuse Elite customers in the third quarter and has added another 25 so far in the current quarter, company executives said. About 300 pilots and evaluations of the product also are in the pipeline.

"With NFuse Elite, there has to be some [customer pain to solve. People just aren't in the mood to talk about a product unless it fixes a problem," Aegis' Gildea said.

Although the portal server represents a new market opportunity for Citrix and its partners, the company has yet to produce a product that's truly independent from MetaFrame, said David Friedlander, an analyst at research firm Giga Information Group.

"The issue for Citrix is that they are still confined to their existing customer base. They're not really targeted at users who don't have MetaFrame," Friedlander said.

NFuse Elite can be sold as a stand-alone product but is tightly integrated with the MetaFrame platform. Project Pearl, Citrix's upcoming collaboration tool, is an add-on to the platform.

Solution providers said that because Citrix lacks an entry-level version of MetaFrame, its commitment to the low end of the market remains in question, especially as Microsoft adds functionality to its Terminal Services offering, which is targeted at thin-client environments.

"There's less distinction between Citrix and Terminal Services today than there was a year ago," said Pete Busam, vice president and COO of Decisive Business Systems, a solution provider based in Pennsauken, N.J.

But as Microsoft has added features to Terminal Services, Citrix has bolstered MetaFrame's functionality, maintaining the gap between the products' capabilities, Citrix executives said. Still, Citrix is considering the addition of an entry-level version of the platform, said Russ Naples, Citrix vice president of product development. "We have our ear to the ground on that. There's no doubt about it," Naples said. "Putting a smaller, cut-down version of MetaFrame out there might be the ticket."

For now, however, Citrix has a huge opportunity to expand MetaFrame's reach through its enterprise accounts, Friedlander said. Citrix counts nearly all of the Fortune 500 companies as customers but has only a 5 percent to 10 percent share of seats within those clients, he said.

On both the high and low ends, though, Citrix will have to wait and see whether its channel improvements translate into increased sales, Templeton said.

"All we can point to, at this point, is the reaction we've had to those changes, which has been very positive and very successful," he said. "The proof will be in future quarters.

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