Daily Archives: August 24, 2006

What’s Venture 2.0? Does It Exist?

I’m looking forward to the series of posts that Peter Rip, managing director at Leapfrog Ventures, has begun writing on his blog.

I’m simplifying for the sake of brevity, so please visit Rip’s site for the complete picture, but Rip’s basic thesis is that the technology-related venture-capital industry is broken and needs desperately to be fixed.

The assumptions, methodologies, and practices that worked well in the past, Rip posts, are not working now. The cycle on which they all were predicated has been shattered, and that has left the VC business in a strange new world, without the benefit of a reliable map or a functioning compass.

Here’s an excerpt of Rip’s first post that ought to whet your appetite, as it has done mine, for what will follow:

. . . . The thesis of these essays is that the venture cycle has fundamentally changed for Information Technology and that formulae that worked over the past 20-30 years no longer broadly apply.

  • Globalization is both a risk and an opportunity with venture branding.
  • Capital is no longer scarce, nor is access to venture capitalists.
  • Information technology is no longer rarified and, in many cases, it is inexpensive.
  • Global 2000 Enterprises, once the ‘go to’ customer for any fledgling IT startups, no longer have the risk profile they once had for IT innovation.

As I said, these observations are not new, nor are they particularly insightful.  And some firms are already responding.  The move to Cleantech is a move to exit IT (or diversify) to find alternative industries.  The move to build Indian and Chinese outposts are brand extensions.

So, what does it all mean — for venture capitalists, for entrepreneurs, for the industry at large? Is there a Venture Capital 2.0? If so, what will it look like, and how will it differ from its predecessor?

Let’s see whether Rip can sketch an outline for us.

Pondering the Implications of Expanded Citrix-Microsoft Alliance

News broke yesterday that Citrix and Microsoft are expanding the existing relationship between the two companies. They will work together to deliver a line of Citrix-branded branch-office appliances that will fuse the capabilities of Microsoft’s Internet Security and Acceleration (ISA) Server with Citrix’s WANScaler WAN-optimization technology.

WAN optimization is a hot market, forecast by Gartner Group to be worth $1.5 billion in 2008. Among the vendors with horses in the race are Cisco, Juniper Networks, F5 Networks, Packeteer, Riverbed Technology, and Silverpeak.

Cisco, Juniper, F5, and Citrix bought their way into the market through acquisitions. Citrix just closed its $50-million acquisition of WAN-optimization specialist Orbital Data Corp., whose products and technology have been relabeled Citrix WANScaler and will form the technological foundation for the partnership with Microsoft.

It’s interesting that the announcement was made now, because the resulting line of multifunction Citrix branch-office appliances won’t reach market until the second half of 2007, with some skeptics suggesting products won’t ship commercially until early 2008.

Microsoft and Citrix say the new branch-office-box appliances will be unique, marrying WAN-optimization techniques and technologies with consolidated branch-office services in a single, easily managed multifunction appliance. An estimated 55 percent of enterprise employees today access mission-critical business applications from a remote office location, according to Citrix’s research.

Before these applications reach the intended user, Citrix explains, they must travel long distances over wide-area networks (WANs), a process that can significantly degrade performance, impact the user experience and force expensive bandwidth upgrades. Support for workers in locations beyond headquarters is a major challenge for corporate IT departments.

Bill Snyder at TheStreet.com points out that Microsoft’s motivation for this move is to thwart Cisco’s ambitions to dominate application delivery and optimization between corporate headquarters and branch offices. That’s an area on which Microsoft has its own ambitious designs, and it would prefer not to see Cisco roll to unchallenged dominance.

However, if you look closely at this relationship, the resulting line of boxes will be Citrix products running on Microsoft’s iSA and Windows Server platforms. So, Microsoft’s motivation perhaps is not as as interesting as Citrix’s motivation.

If Citrix should fall in this endeavor, Microsoft won’t miss a beat; for Citrix, the results would be more dire.

In fact, since this not an exclusive relationship for Microsoft, it might entice another WAN-optimization vendor to port its code to the Windows-based ISA server. Stranger things have happened, especially now, when the growing confluence of networking, applications, servers, and clients blurs increasingly with each passing day. It used to be easy to sort out where Microsoft’s commercial and technological jurisdictions ended and where Cisco’s began.

Now, as Cisco moves up the OSI protocol stack and Microsoft looks at how networking networking technologies can help it form service-oriented architectures to deliver its next generation of applications, the boundaries between the two vendors’ territories are more ambiguous.

All things considered, then, Citrix probably made a good move in choosing Microsoft as its partner in this space.

The company was destined to have a hard time distinguishing its Orbital technology in a competitive field of WAN optimization and branch-networking products and technologies. It needed a hook, a wrinkle, that could give it some credibility in a realm where WAN-optimization specialists and larger networking players would implicitly (and perhaps explicitly) question Citrix’s credentials and qualifications in the space. So, rather than attempt to fight the battle purely on WAN-optimization and networking turf, Citrix attempted to shift the field of battle by embracing the olive branch extended to it by Microsoft.

You can hear echoes of that thinking in the following remark by Wes Wasson, VP of product strategy with Citrix’s application networking group:

Microsoft gives Citrix tremendous credibility, technology, and market reach in the branch office market. . . . By joining forces with Microsoft, Citrix will be able to provide a much more compelling solution than either standalone WAN optimization players who have only a small part of the branch solution) or traditional networking vendors who have had little success in providing true application-layer services to enterprise customers.

In making this move, putting its WAN-optimization and application-traffic management technology atop Microsoft ISA Server, Citrix is taking a calculated risk. It is betting that it will derive more advantage from working with Microsoft — and from its fabled marketing muscle and channel partners — than it will be disadvantaged by selling a Windows-based network appliance, a type of beast that often is not viewed as favorably by paying punters as competing boxes that run on hardened Linux or FreeBSD derivatives.

It’s probably the best bet Citrix could make, though. On its own, it would lose the battle for the hearts and minds of network managers against competitors such as Cisco, F5, and Juniper. Now, with Microsoft as its partner, it has a fighting chance, either with a direct appeal to those same network managers or by attempting to sell around them, taking their pitch to the Microsoft IT faithful and to the enterprise CxOs.

It might not work — and a lot depends on Microsoft’s level of commitment to the relationship — but it isn’t a bad play.

Now, will this development in any way affect the relationship between Microsoft and LAN application-traffic management leader F5 Networks? Microsoft works closely with F5 on a few fronts, including on providing a resilient and highly available infrastructure for Microsoft’s Live Communications Server (LCS), which clearly is of strategic importance to Microsoft.

If the relationship with Citrix warms further, I suppose there is a chance that Microsoft might swap F5’s BIG-IP application-traffic management switch for Citrix’s NetScaler products as a key strategic puzzle piece in large-scale rollouts of Microsoft application environments.

That might be an ulterior motive for Citrix in its pursuit of this ISA-based WAN optimization initiative. To take additional business from F5, and to displace it in a key relationship with Microsoft, would Citrix consider reengineering its NetScaler product line, which is based on FreeBSD, so that it, too, could run on Windows?

F5, as far as I know, has shown little interest in porting its Linux-based Traffic Management Operating System (TMOS), which forms the basis for its application-traffic optimization products, over to Windows. It’s the market leader, battling head to head against Cisco to retain the top spot, so it is unlikely to deliberate such a radical engineering overhaul unless the move was deemed absolutely necessary. We have heard in the past that Microsoft would like to get a lot closer to F5, but we don’t know how close F5 is willing to get to Microsoft.

As for Citrix, having gone down the Windows road with Microsoft once, who is to say it won’t do so again, especially if the result is competitive advantage and legitimacy in a market where it currently ranks as an underdog against established, strong players?

Stay tuned. The market for WAN optimization, and for application delivery in general, is a hotbed of vendor gamesmanship and intrigue.