Citrix Vendor Update: The Time to Negotiate is Now

Dealing with Citrix used to straight forward: the vendor provided a matrix for discounting based on deal size. However, as the company moves its licensing model to the cloud, we have seen Citrix deals become complex and confusing, lacking in both transparency on pricing and flexibility on terms. This is putting clients at risk of getting locked into deals with high rates and no price protection on future purchases.

Citrix is one of ClearEdge’s top 30 vendors – this year alone our Citrix case count grew by 27%. On average, our clients spend $3M per deal with Citrix. Citrix’s main products are the Virtual Apps and Desktops (VAD) subscriptions, which provide remote and secure access to Windows and Linux apps and desktops, and Application Delivery Controllers (ADC), which assist with load balancing on delivery networks. Citrix is a leader in the VAD space, with a 64% market share.

How It Used to Be

Historically, Citrix sold licenses through a perpetual licensing model and offered two purchase program options. The first was the Easy License Program; we saw less than 10% of customers purchasing through this program, as it was typically reserved for transactional, as-needed purchases totaling less than $150K at list. Under this program, all customers paid list price for their purchase. The second program was the Enterprise License (ELA) Program, which most clients utilized. This required an upfront commitment of at least $150K at list and locked in a discount for a 3-year term. For example, if a customer purchased product valued at $1.5M at list, they would be designated an ELA 6 program customer, meaning they would receive a 45% discount on their initial purchase and any additional purchases made during the 3-year period. To maintain an ELA discount, a qualified renewal order (which does not include a support renewal) had to be placed during the final year of the term. This locked in the discount for an additional 2-year term.

Citrix Enterprise License Agreement

Licensing Model Change

On June 8th, 2020, Citrix began offering their solutions as a cloud subscription. The vendor continues to use their ELA program as a naming convention, but it has not released a cloud ELA program discount matrix. While it is clear that deal size continues to impact the discounts customers receive, there is no transparency on how discounts are formulated. On top of this, we discovered that list pricing is dependent on whether a client is an existing perpetual customer or a new Citrix customer. For example, we have seen the same VAD license list for $660/year in a net new deal, and list at $340/year where a client was converting their perpetual licenses to the cloud.

After September 30th, 2020, perpetual licenses were no longer available from Citrix. Customers can continue to renew their perpetual support deals, but if any more VAD licenses are needed, they must be purchased in the cloud. This means the last perpetual ELA program deals will expire in September 2023, because most ELA program deals are 3-years in length. While customers are able to continue renewing support for their perpetual ELA purchases, due to the way the ELA program deals are set up, clients typically do not have renewal pricing protections after the ELA ends. This means we are seeing perpetual support run rates skyrocket. For example, one ClearEdge client who is a long-term customer of Citrix with no pricing protections in their deal was proposed a run rate 233% higher than last year’s spend.

The “Gotchas!” of Citrix Cloud Deals

We have taken note of many “gotchas!” in Citrix’s new cloud deals. As discussed, there is no transparency on discounts. Quotes often features multiple layers of discounts; we have seen discounts labeled as a "tiered discount”, an “additional discount”, a “term discount”, and a “promotional discount”. There is no consistency between quotes on these various discounts or how a client can achieve them, indicating to us that they can be negotiable depending on a client’s leverage. The only consistent discount we have seen is a multi-year discount – for committing to a 2-year deal, Citrix awards a 10% discount, and a 3-year deal achieves a 20% discount. Further, list pricing is almost never provided by the vendor, making it difficult to calculate overall discounts in purchases. A single Citrix solution can have a wide range of list prices depending on the edition, metric, and path the solution is being purchased through. VAD licenses have 252 difference versions, and therefore, 252 different prices!

In addition, Citrix does not use the standard commercial terms we typically see in cloud deals. The vendor will try to avoid renewal caps at all costs. When we do see our clients pressure Citrix for a cap, the vendor agrees to uplifts between 9% and 15%, which is high in this market. Price holds are almost never addressed by sales reps and when clients push for them, they are provided at premiums that average 160% over initial rates. For example, one client was able to negotiate their VAD licenses to a rate of $90/concurrent user, but after being forced to provide a price hold, Citrix stipulated that any additional licenses would be priced at a rate of $230/concurrent user.

Citrix also offers hybrid rights, which allow customers to use cloud licenses on-premise during migrations. Often, we see these rights as an additional cost that gets added at the very end of negotiations. Sometimes, the rights are provided at no cost to the client, sometimes they are waived for the first 6-months, but it is inconsistent what the vendor will provide and when. This shows us that these rights and associated fees are negotiable.

Finally, Select Support for VAD solutions is included at no cost with the cloud license, but sales reps have been heavily pushing Priority Support on clients, to inflate deal costs. Just like the VAD licenses, discounts on the additional support vary from quote to quote, even when Priority should be only a 5% uplift on the base license cost.

Citrix is Struggling

Even with its recent licensing changes and aggressive sales behavior, Citrix has been exhibiting signs of trouble. Revenue expectations were missed in both Q1 and Q2 of this year – with Citrix falling about $30M short of their Q2 target. Citrix just announced their Q3 earnings on November 4th: after reducing their guidance for the quarter in Q2, Citrix met their predictions in Q3, with a revenue of $778M.

In addition, the Citrix stock value is on the downswing: it fell 30% in the last six months and hit a two-year low this October. The company’s 20-year CEO, David Henshall, unexpectedly quit during the same month. In September, rumors surfaced about Citrix talking to potential buyers. And finally, after missing the Q2 revenue target, Citrix shuffled the entire sales organization, including leadership. The company claimed the reorganization was done to address its weak direct sales, and lack of internal alignment surrounding new products and SaaS focus.

How Customers Can Take Advantage

Citrix’s fiscal year end is coming up at the end of the December. Typically, we have observed the vendor behaving in an aggressive way around this time or year, and because of the current state of Citrix’s business and the recent concessions we have seen, we believe now is the time to negotiate. If you have a perpetual ELA deal that is expiring in the coming months, or an expiring or incremental cloud purchase, download our blogs titled “Top 10 “Gotchas” in SaaS Agreements and How to Mitigate Them”, and “Leverage: The Key to Every Deal”, or contact your ClearEdge representative to discuss a strategic plan for dealing with Citrix.

- Olivia Picarillo is a ClearEdge Analyst.