Of Cisco, Citrix, VMware and WAAS

Deep relationship with VMware on virtualization is non-exclusive when it comes to selling weak products into hot markets

Cisco's deepened relationship with Citrix for desktop virtualization demonstrates that Cisco will not put all of its eggs into one basket when it comes to market opportunities like virtualization. Yet, no new virtualization partnership may ever be as deep or strategic as the one it's had for years with VMware.

To recap, Cisco and Citrix announced an alliance this week to optimize Cisco desktop virtualization products, like its thin clients and WAAS WAN optimization appliances, for Citrix XenDesktop environments. Specifically, Cisco will make its WAAS appliances "HDX aware," or allow versions running WAAS software release 4.5.1 to deliver a high-definition experience to Citrix virtual desktops.

HDX aware WAAS appliances include those rolled out at Interop New York last week. This augmentation will enable a single WAAS appliance to optimize WAN bandwidth for both physical and virtual desktops, Cisco said.

The expanded collaboration between Cisco and Citrix is aimed at driving desktop virtualization. But for Cisco, it's also an effort to boost sales of its WAAS appliances.

Cisco is a laggard in WAN optimization. It's been losing share in the market, most notably to Riverbed, and analysts like Nikos Theodosopoulos at investment firm UBS describe Cisco's position in the market as "weak."

Yet Cisco hangs on, as WAAS is key in its drive to extend data center virtualization between data centers and out to branch offices. Virtualization is one of Cisco five core market priorities, and WAAS is a way to extend virtualization beyond the windowless confines of a data center.

So while Cisco may never catch Riverbed or gain enough share to move beyond its "weak" position in WAN optimization, WAAS is a vital tool in its virtualization ambitions.

Which brings us back to Citrix and VMware. The Citrix collaboration is focused predominantly on desktop virtualization, where Citrix is a leader. Cisco did not buy an equity stake in Citrix, nor did it disclose (publicly, anyway) any financial terms of the arrangement - such as a commitment to sell a certain number or value of XenDesktop seats.

Cisco did acquire a stake in VMware a few years ago: $150 million for 1.6% of the company. And for the most part, the VMware partnership is focused on data center server and switch virtualization where Cisco has invested much more of its time, energy and R&D budget.

Moreover, VMware has been a development partner of Cisco's for over four years. Indeed, VMware helped Cisco make its earliest advances into data center virtualization.

So despite the deep foundation Cisco's already established with VMware, it does not preclude the company aligning with VMware competitors when looking to tap into market strengths to expand its own market and product appeal - in this case, aligning with Citrix to sell WAAS into desktop virtualization opportunities.

Citrix has its own WAN optimization product - NetScaler Branch Repeater and Application Delivery Controller (ADC) - and analysts like UBS' Theodosopoulos believe Citrix will continue to sell that bundled along with its own virtualization sales. In sales where Cisco brings in Citrix, Citrix will sell WAAS:

Our sense is the alliance marginally improves Cisco WAAS execution, though Citrix remains in the market with ~3-4% shr. It shows Cisco being aggressive with WAAS, similar to other new products announced last week.

But UBS says Cisco will have to do more than lean on Citrix for boosting sales of WAAS:

The alliance has no impact on the ADC market where Cisco and Citrix are competitors. Citrix is intensifying efforts w/ a big push into Service Providers (F5 stronghold). We continue to view Cisco's position as weak. For Cisco to improve, outside of organic development, options are partnerships or acquisitions. Potential partners include Citrix or F5. Possible acquisitions inc. A10 (private) or Radware.

Again, we believe the opportunity for WAAS, and for Cisco with WAAS, is in virtualization, not in WAN optimization. If Cisco wants to continue to position WAAS as a standalone WAN optimization appliance, it will continue to lose; if it wants to position WAAS more as a delivery vehicle for desktop and inter-data center virtualization, it has a better chance of success.

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