‘Dream Come True’: IGEL Exits Hardware Business

‘A lot of people didn’t see or believe this could happen,’ says IGEL CEO Jed Ayres. ‘That is why I made the tagline of IGEL Believe. Who would have thought a small German thin client company could suddenly be building a secure, edge operating system baked into the devices of leading hardware manufacturers?’

IGEL CEO Jed Ayres

IGEL, a maker of well-engineered thin client hardware devices for two decades, is exiting that business as part of an all-out drive to make its popular Linux secure edge operating system the standard for Windows workspace computing across any device or cloud.

The decision to stop production of hardware thin clients for the No. 3 provider of thin clients in North America and Europe with an installed base of three million devices - opens the door for lGEL to provide its next gen edge OS exclusively through heavyweight hardware partners LG, Lenovo and HP.

For IGEL CEO Jed Ayres – who has spearheaded the company’s transformation into a secure Linux workspace operating system powerhouse- getting out of the hardware business is the culmination of a “dream come true” that he envisioned when he joined the company as CEO of North America six years ago.

“It took a little longer than I thought,” said an emotional Ayres of the final pieces that have been put in place to make IGEL a software only company. “We had this vision when I joined the company. Now we are executing on the final piece of it.”

IGEL is now in the process of running through all of the IGEL-branded hardware inventory. By the end of the first quarter next year, IGEL-branded thin clients – the No. 1 thin client hardware in Germany for 16 years- will be a thing of the past, said Ayres. IGEL will continue to support its five year warranty for new and previous IGEL thin client systems.

“IGEL has had that No. 1 position in Germany right up to this minute,” said Ayres. “It’s a pretty big move to walk away from that. It’s a profitable business, but we are a software company. We have 150 software developers and are investing heavily in building out our two software development centers in Germany and we are opening a new five story world class building in Augsburg in December.”

The hardware exit is set to unleash a new round of software research and development aimed at unlocking the value of the next gen edge IGEL OS working with AWS, Azure, VMware and Citrix in a (SaaS) software as a service and desktop as a service dominated market, said Ayres. “This is about choice: choice on the hardware, choice on the protocol and where it is being delivered,” Ayres said. “The underlying principle is the richest Windows experience with the best security and the easiest and most cost effective management. We take millions and millions of dollars out of operating Windows. We’re providing a Chromebook like experience with our software with a very light operating system and powerful management console in a Windows world.”

The hardware exit has been a long time coming for Ayres, who over the last six years has taken IGEL from a $50 million hardware company competing in a single digit growth market to a $100 million next gen OS software maker playing in a hyper-growth Windows workspace market. “Our addressable market is now an installed base of 500 million PCs and the 150 to 200 million PCs sold each year,” boasts Ayres.

Ayres knew immediately when he joined the company that its crown jewel was the lightweight, finely-engineered Linux operating system. “I knew the real value of IGEL was the operating system hidden inside the well constructed plastic box,” he said. “The IGEL OS is extensible to all kinds of hardware form factors. IGEL is software that can deliver the richest, most secure, easiest to manage and most cost-effective Windows experience.

The move to focus exclusively on the software market puts IGEL into a position to accelerate its next gen secure edge OS march, said Ayres. “To me this feels like we are at the starting line in a lot of ways,” he said. “There is nobody else in the market that has an operating system and management plane at the edge that can unlock the value we can with the IGEL OS.”

Unlocking that value means aggressively moving a big chunk of the 500 million PCs in the enterprise and the hundreds of thousands of new laptops being built each year to the IGEL secure edge OS.

To that end, Ayres says the hardware exit is the spark needed to move the company from $100 million in annual Linux revenue to a $1 billion software company in the next five years.

“We’re just getting started,” he said. “As the first Linux operating system greenlighted by Microsoft for use with Windows Virtual Desktop we see the lighter secure Linux running on millions and millions of devices. IGEL has estimated that 16 percent or 80 million of the 500 million PCs out there will move to Linux.”

A New IGEL OS Managed Services Era For Partners

For partners the IGEL decision to get out of hardware clears the path to develop a wide range of new managed services around the IGEL OS including edge device monitoring and management. “This is a huge opportunity for partners,” said Ayres. “This is going to help partners unlock all kinds of value around the OS. Anytime you have transformation of this magnitude with the Windows operating system moving into Azure there is always money to be made by partners. Microsoft is telling the world to consume Windows out of Azure. This is as big as the move to consume Office from Azure. How many people have Exchange servers anymore? Everyone is on M365. That is the journey we are on with Windows right now. Microsoft is going to make it very attractive and cost effective to have Windows and your Windows applications delivered from Azure. If you are going to do that then you want a light, secure, easy to manage, high performance operating system that is integrated with the leading device manufacturers. That is IGEL!”

CPC, one of only several IGEL elite Velocity partners with a consulting services specialization, expects its IGEL secure edge OS business to double next year in the wake of the hardware business exit, said Bruce Poor, president of business development for the Cincinnati solution provider.

“This turns the IGEL OS into a strategic platform,” said Poor. “Before I was selling a piece of hardware. By decoupling the specialized IGEL OS to run on any hardware device it is now a strategic secure platform that is simple to manage. It enhances and increases security for that end user customer. Now customers are investing in a true strategic platform that you carry with you no matter what hardware you may use in the future. You could be running this secure, easy to manage strategic operating system on a laptop this year or a ruggedized tablet next year.”

Ayres has opened up the explosive cloud desktop market opportunity for partners as more and more customers move to Windows delivered in Azure, said Poor. “Jed has always had a great vision for where to take IGEL,” he said. “Thin clients tied to IGEL was a very limited market. With the IGEL OS software being separate it opens up every Microsoft Windows desktop as an opportunity for partners. Microsoft wants customers to move Windows desktops into the cloud and the best way to do that is to have the secure Linux IGEL OS at the end point. There is going to be a huge wave of people looking to get their Windows desktops from Microsoft in the future like they do with Office 365 today. We are going to be there to help them by providing a secure endpoint that is easy to manage and reduces the risk to ransomware and other cyber attacks. I wanted to be in that market early and ride that wave.”

Poor has seen first hand the value of the secure IGEL edge OS when a ransomware attack took down Windows clients at one of his customers even as the IGEL OS based devices remained secure and up and running. That led the customer to invest more heavily in IGEL OS based devices. “A virtual desktop is a lot more secure, the individual PCs are always more vulnerable to attackers,” he said. “IGEL provides a secure platform that is easy to manage. You can have thousands of devices with a management platform that just works!”

CPC, in fact, has deployed one of the largest-ever IGEL OS deployments for a healthcare organization with 20,000 seats.

The innovation that is going to come from hardware makers teaming with IGEL is going to power the IGEL OS opportunity going forward, said Poor. “You are going to see more and more opportunities for IGEL to work on any hardware. This has opened up the market for IGEL one hundred fold compared to what it was. It was a great strategic plan that Jed put into motion to drive growth. We are going to ride the wave. Jed has been good at building partnerships. I have learned so much from him over the years. Whereever Jed goes he ends up being successful so I like to follow along and learn a thing or two along the way.”

Mike Strohl, CEO of e360, Concord, Calif., an IGEL Velocity Elite partner, said he expects to double his IGEL recurring revenue managed services revenue in wake of the stepped up IGEL software push. “I didn’t even know IGEL was ever in the hardware business,” joked Strohl. “So how can I comment on them getting out of it.”

Strohl said he has always viewed IGEL as a secure edge OS provider rather than a thin client hardware provider. That secure edge OS opportunity has become more pronounced in the post pandemic world where workers are remote, in the office and hybrid. “With the hybrid work environment, you need technology to manage and secure what employees get access to,” he said. “You need technology to do it. That technology is IGEL. It is secure and allows people to access applications natively through VDI or SaaS. It is an endpoint that just works. That is all software.”

The move to get out of the hardware business eliminates a potential conflict with hardware providers like HP, Lenovo and LG, said Strohl.

The IGEL move is also causing partners to double down on building a robust IGEL managed services business, said Strohl. “We are pivoting to IGEL as a service-based business,” he said. “With the evolution of cloud-based desktops like Azure Virtual Desktop or Amazon WorkSpaces IGEL has the potential to touch the majority of desktops not the minority of desktops. That is where the market opportunity is.Cloud based service offerings are the whole enchilada.”

IGEL is ushering in a new era of cloud desktop workspaces with the secure IGEL edge OS, said Christian Korner, vice president of sales for Connection Enterprise Solutions West for solution provider behemoth Connection, No. 26 on the 2022 CRN SP500. “This is a whole new way of looking at compute with the PC in the cloud,” said Korner. “Everything is moving into the cloud with Azure. There is no need for many of our customers to have fat PCs particularly with the security challenges that are out there today. IGEL opens up all kinds of conversations on how to secure devices with a lot of managed services opportunities for us with a full lifecycle support of those devices. There is a huge opportunity for us to move our customers in that direction. I think over the next couple of years the IGEL vision to become the de facto cloud OS standard is going to happen.”

Korner sees millions and millions of dollars in services opportunities with the IGEL edge OS. “We start with small pilots and it expands pretty quickly,” he said.

With an economic downturn potentially impacting IT budgets, Korner also sees IGEL’s next gen edge OS helping customers extending the life of PCs with a more secure and cost effective solution. “With the economic situation we are facing IGEL allows us to have a conversation with customers on a more secure, better managed and more cost effective IT environment,” he said. “IGEL allows customers to leverage existing PC inventory and create a security envelope around them with Linux that is much, much more manageable than anything they can possibly do with these old PCs. Putting an IGEL OS layer on those devices is pretty simple. It is not a heavy lift and support is more cost effective because of the IGEL management console.”

The Road To Exiting Hardware

The road to exiting the hardware business started with a breakthrough partnership with value added distributor Arrow Electronics that took hold in 2021. Ayres credits Arrow Global Enterprise Computing Solutions President Kristin Russell as the “hero” in the IGEL hardware exit story.

It was, in fact, Russell who paved the way for IGEL to exit the hardware business with Arrows’ Intelligent Solutions Group which specializes in helping companies get out of the hardware business. “Kristin cut through the intricacies of doing this,” said Ayres. “It was truly the power of Yes! We fell in love with Arrow’s approach to partnering.”

In March 2021, Arrow became the finance and logistics arm for IGEL’s thin client hardware business. That opened the door for IGEL to close its thin client warehouse in Germany. It also freed up $25 to $30 million in working capital that was tied up in manufacturing hardware and put it back into the software business. “That was the first step in exiting the hardware business,” said Ayres. “They effectively became the bank and owned all that IGEL inventory. I can’t say enough about Arrow. They never flinched in their ability to help us make this transition to a software company. They are an amazing company.”

Russell, for her part, said Arrow’s IT appliance program is powering a transformation for a number of OEMs from hardware providers to ISV (independent Software Vendors). “One of the fastest growing parts of that business is helping customers that are going from that OEM to ISV model,” she said. “We have been doing it for several years. It is definitely a sweet spot for us…It’s a very healthy part of the business and probably the fastest growing part of the business.”

Arrow’s strength comes from its ability to customize its logistics business to each customer’s operations and supply chain as a result of its Intelligent Solutions business expertise and its distribution capabilities through its Enterprise Computing Solutions business, said Russell.

“More and more customers of ours are looking for a partner to help them in this journey,” she said. “It allows our customer to not only scale and grow at a different level than they could do internally. The other thing is it allows them to focus their key resources on what is core and strategic to their mission which is the software side.”

In September, Ayres put the finishing touches on the plan to completely exit the hardware business by eliminating all IGEL-branded hardware. That allows IGEL to develop stronger and more strategic relationships with its hardware partners: LG, HP and Lenovo, said Ayres.

“All three of our hardware partners are aggressively selling and positioning IGEL around the world,” said Ayres. “They are loading our operating system on at their factories and all of them have put IGEL SKUs in their global price books. That happened this summer. It’s not trivial to load an operating system at the factory, certify and support that hardware. It was a very big process to get those three companies to do that. As we saw those relationships flourish and the sales volume increased, we realized IGEL selling against them is not in line with our core value of partnering. How can you be a great partner to Lenovo, LG and HP and also compete with them with your own hardware? You can’t!”

The hardware exodus comes with IGEL’s IGEL Ready ecosystem program of hardware, peripheral and software providers working with the IGEL OS now at 130 providers including HP, Lenovo and LG.

The hardware exit means more R&D muscle sharply focused on Lenovo, LG and HP hardware, says Ayres. “We are innovating with LG, Lenovo and HP about how to deliver experiences the world has never seen around cloud delivered workspaces,” Ayres said. “Any time, money and energy spent on our thin client business was time, money and energy not spent innovating on software. Why would we do that when we have partnerships with the leading device manfacturers in the world?”

Ayres sees LG, Lenovo and HP helping to drive a new era of hybrid devices with innovative form factors help users be more productive in a work anywhere world. “With people moving to this frictionless work anywhere world they want screens and they don’t want devices tethered to a table or a desk,” he said. “IGEL never built devices that had screens. Laptops and all in one are form factors that are increasingly important in this new style of work. If we are going to be the leading OS for the future architecture we can’t be building hardware.”

Hardware Makers See Big Opportunity Ahead

HP sees a “great opportunity” to grow its thin client business in Germany in the wake of IGEL’s decision to exit the hardware business, said Alex Thatcher, director of cloud clients at HP.

“One of the areas we have really wanted to grow geographically is Europe and in Germany in particular,” said Thatcher. “With IGEL focusing and becoming a software company it opens up an opportunity for players like HP to come in and grow our hardware footprint.”

The IGEL decision to exit the hardware business is also a “great opportunity” for partners to team with HP on mobile thin clients, said Thatcher. “We see a huge opportunity for growth with mobile thin clients,” he said. “We have seen a lot of pilots and kicking the tires. Over the last year that has started to change. We have seen an inflection point with customers.”

A number of large HP customers in Asia Pacific who have gone 100 percent to mobile thin clients and have “told us they are not coming back,” said Thatcher. “In healthcare and financial services we are seeing an increasing amount of mobile thin clients.”

That growth is being driven cloud hosted desktops by Azure Virtual Desktop, Windows 365 and Amazon Workspaces, said Thatcher. “Now you can get a subscription and deliver all the benefits of security and remote computing,” he said. “That opens the door for IT managers to save money by moving to solutions like IGEL and Linux on the end point for manageability. For us that is super exciting. We think it’s a huge growth opportunity.”

Thatcher urged partners to step up to the secure thin client virtualization cloud workspace opportunity. “With IGEL making this transition to a software company it is a good time for all channel partners to have a conversation with their customers on what is their mobile thin client strategy and hosted desktop strategy,” he said. “There is goodness up and down the stack in terms of revenue opportunities for partners to talk about selling cloud hosted desktop, IGEL licenses and new classes of hardware. Once you get that foot in the door that’s a relationship that will go for many, many years.”

Phillip Johnson, senior national sales manager IT Cloud for the business solutions division of LG Electronics USA, said he expects to see a “huge uptick” in LG thin client business over the next year as a result of the IGEL decision to exit the hardware business. “That’s huge upside for us across all verticals- healthcare, financial, higher education,”he said..

The LG IGEL partnership was forged by the opportunity to pair breakthrough hardware innovation from LG with the world class IGEL OS, said Johnson. “Our vision was to take the IGEL software and put it in our devices to truly change the game in the way that the enterprise approaches end user computing,” he said. “Securing the edge is a game changer. We are providing an innovative, secure, high performing endpoint computer experience.The IGEL partnership has allowed us to expand our enterprise business not just today but into the future as well. We look at the partnership with IGEL as family.”

LG is in the midst of a “Why Compromise” campaign with IGEL that offers the IGEL next gen edge OS on an LG gram mobile thin client weighing in at just 1,134 grams for a 15.6 inch full HD system powered by the 11th Gen Intel Core i3 with built in webcam and speakers. “We see this as a game changer,” said Johnson. “We hang our hat on innovation, providing the lightest mobile device. Coming out of Covid, customers are working from home and the office and they want a very lightweight device. The (LG) Gram is the product of choice for the hybrid work model.”

The Next Phase of The IGEL Journey- OS 12

Now that it is out of the hardware business, IGEL is ramping up its edge OS innovation offensive with a new wave of innovation coming in its next generation Linux edge OS- OS 12. With that major new release, Ayres said, the ‘on-boarding process’ for cloud workspaces is a major leap forward. “We can now launch people right into their virtual desktop,” he said. “It is not like this emulation that has been so clunky for so many years.”

With the new OS, users can unbox a new device, put in their email address, WiFi address and their language and literally within one minute and 30 seconds they are up and running in Microsoft, VMware or Citrix workspace, said Ayres. “You actually never even see IGEL,” he said. “It’s a much more elegant experience. These are the the types of innovations we are working on.”

The OS 12 product will also “revolutionize” the Linux distribution model, separating the OS from the certified apps that will be updated from an app portal. “This is a revolutionary piece of innovation in the Linux world,” said Ayres. “The OS gets even smaller and you can pull in only what you need for your worklow from the app portal. So if you are using Microsoft Teams or Citrix you can just pull those things on top of the base operating system.”

The new OS 12 innovations will be featured at IGEL’s Disrupt 23 conference in Munich on Feb 14-16 2023 and in Nashville on April 3-5, 2023.

The long journey from thin client hardware provider to secure edge OS software maker has not been easy, said Ayres.“There is a lot of inertia that comes your way when you try to do something as transformative as we did,” he says. “It sounds like fantasy when you say you are going to take a company that sells a plastic dumb terminal, bring it into the US and flip the script and position it as a software maker. It’s only possible if you believe it no matter what obstacles or resistance you run into and keep moving forward at all costs.”

One of the most satisfying parts of the journey for Ayres – who started his career working in the channel for multiple solution providers- has been transforming IGEL into a 100 percent partner sales company. “I spent 20 years in the reseller world,” he said. “It’s a gift to be able to sit here and tell you we are a 100 percent channel company, creating millions and millions of dollars in opportunities for our partners. My grandfather used to say we were just warming up for the dance. That is what it feels like with IGEL. It feels like a gigantic weight has been lifted from our shoulders. Now we can walk into a meeting with a customer and say we are software company with IGEL available from the leading hardware manufacturers. It’s very freeing.”

Ayres gets choked up when he talks about visiting cities around the United States with his kids as he proudly points out the many companies that are now using IGEL’s secure edge OS. “It’s crazy,” he says. “I walk around pointing at buildings, telling them ‘That’s an IGEL customer. That’s an IGEL customer! That’s an IGEL customer!”

For Ayres the transformation from little known German thin client hardware provider to a prominent next generation secure edge OS provider is a “Cinderella” story. “A lot of people didn’t see or believe this could happen,” he said. “That is why I made the tagline of IGEL Believe. Who would have thought a small German thin client company could suddenly be building a secure, edge operating system baked into the devices of leading hardware manufacturers? This is something no one would have predicted You’ve got to Believe!”