CEO Kriens Leads Juniper To New Heights

At some point, Kriens recalls Grove saying, "You may have to listen to no one other than yourself." Kriens' little voice inside told him to keep spending on innovation. So he poured it on -- so much in fact that, for a while, his investments into R&D amounted to roughly 30 percent of revenue. That's almost double Juniper's normally high rate of investment and off the charts compared with many companies. Dell, for example, spends in the single digits on R&D.

What a difference a year makes. With his stock now back above $25 per share and the $4 billion acquisition of NetScreen well behind him, Kriens can be forgiven for a bit of rejoicing. After all, the recently completed September quarter amounted to the single best one in the company's history. Furthermore, Juniper continues to give Cisco, a company that is more than 25 times the size of Juniper in terms of revenue, fits. To wit, Juniper grew its share faster in the second quarter of this year in the high-end, service provider router market than rival Cisco, according to Gartner. What's more, Juniper's acquisition of NetScreen gives the company both a compelling portfolio of security technology and security allies.

In an interview with VARBusiness senior executive editor T.C. Doyle, Kriens outlines his latest moves, which include the hiring of former Cisco managers Tushar Kothari and Bob Bruce, as vice president of worldwide channels and vice president of America's channels, respectively, and his latest thinking. Hint: He believes that Cisco and Juniper will soon find it in their mutual best interest to work more cooperatively together.

Although not generally thought of as a partner-intense company, Kriens notes three-quarters of his revenue actually flows through third-party allies. Because much of that goes through very high-end players, such as Siemens, Ericsson and others, the company is not thought of in the same vein as Cisco, 3Com or even Nortel. But Kriens believes Kothari and Bruce can change that. They've already unveiled a partner-friendly channel program and closed ranks with Ingram Micro. Because his company focuses its energies at the high-end of the market, where margins are richest and value is cherished over volume, Kriens believes his value proposition is uniquely compelling for those looking for an alternative. In addition, he believes his company's effort to emerge as the leader in the new era of virtual networks makes his company's value proposition all the more differentiated.

"We're not really building a company but an industry," he says. If that sounds like some new age, pre-bubble blather, then consider this: Juniper is now bigger than it was at the time the bubble burst. Not many can say they have clawed their way back that far. Not Cisco, for example. Or 3Com. Or a host of others.

Of course, Kriens and other still have to get their arms around security threats, which are outpacing vendors' ability to keep up, he notes. "Not a comforting thought," Kriens concedes. For more on what else Kriens has to say, keep reading.

VB: How much channel ambiguity do you guys tolerate here? Do you like a lot of conflict and just deal with it because it helps the top-line revenue, or do you like clear-cut market opportunities defined for you and your partners?
Kriens: We aren't interested in creating as much conflict or ambiguity as exists in the typical models. Some is unavoidable because we cannot restrain trade, obviously. One of the other mantras of the company that has served us quite well is focus and execute. We succeed because we are focused on what we believe our strategic problems and opportunities are. We focus purely on the problems that we want to solve, and we execute with the same laser [-like focus] to solve that. The partnering model is just an extension of something that is in the DNA of the company. The worst thing a company can do of any size -- but which is fatal for small to medium companies, and is painful for companies elsewhere -- is to scatter your bets across a wide range of choice, whether that's product design, partner models, solutions, etc. I believe to be successful, we have to focus on what we are going to do and why it's going to be better. And when we talk about how we are going to make partners successful, one of the things that imposes is an investment in understanding the partner model itself, and understanding the objective and agenda of our partners. It's not possible to do that with a broad brush. Otherwise our understanding is too casual and our ability to succeed is limited by, realistically, the depth we can go to understand what our partners need. It's limited and therefore the success is limited as well.

VB: Fair enough. What percent of your business today is done though partners and where do you see that three years from now?
Kriens: I don't remember the numbers exactly, but it's about 25 percent that's done direct and three-quarters through partners. The percentage going through partners will go up, not down. We don't have a specific goal for that, but the business done through our partner model will become a higher percentage of the total -- perhaps not every quarter given the bouncing around in any given quarter, but up if you look at a trend line of the next two years; it will be up and to the right in terms of total revenue generated [from partners].

VB: Take me through how you carve up the market and where you decide to dispatch your worldwide [sales] team. Do you want them in the typical pyramid model where they go after the top tier of 250 to 1,000 end-user accounts, and do you then expect partners to help in the next tier and so on? Or do you see it differently?
Kriens: It's not driven so much by a top-down size of company ... We tend to, and will do more over time, drive our resource allocation in line with where the most successful partnerships are, whether a financial industry [or] vertical determination, whether it's a cross-section of the market geography/regions or countries sort of thing. If we find opportunities we think we can leverage, we will focus and drill down there. And since it starts with partner success, a lot of the determinations about where to go get made as a function of where we can create the best leverage with our partners.

VB: Each year, we do a massive partner satisfaction study -- one of the largest of its kind in the industry. Forty-five hundred people take this survey. We go to the partners of the various vendors and ask what they are happy about ... We take a look at the numbers and give out awards across various categories. This year IBM won eight out of 18 different categories. That prompted us to look at the raw numbers across all categories. The takeaway was this: In past years, if someone had a really terrific partner program despite a mediocre product, they could still get a high score. They could still win. This year, however, we saw a marked change in the results -- the winners fired on all cylinders in everything ... When I hear what you're saying, it leads me to think that you're not just building a good partner program or banking on good technology.
Kriens: I think you're only going to see more of that condition, not less. People are not going to be satisfied with anything less because customers are not. The customer is not going to be satisfied with a high quality product that is poorly supported, or vice versa, or an uneducated supplier, even if the products and support are great. Especially in the spaces that we operate. This is still a pretty rapidly changing, evolving marketplace. Security is a moving target. Any deficiency is going to be magnified pretty dramatically. Whether it is support, product quality or reliability, or feature match or perpetual currency, or, in other words, does the product continue to evolve and stay up to date and all of that any one of those that falls short is going to be magnified as a deficiency, which translates to an exposure and a risk and a disappointment. So I think one of the reasons why you are seeing that phenomenon is that it is just not acceptable to do four out of five things right and do one thing wrong because this is not a stagnant situation that we are trying to serve.

VB: Let's segue to business questions and more macro stuff. One of the question I always ask guys in your situation is this: You've been here since 1996 -- have you wound up with the same company you thought you were going to have?
Kriens: [laughs] Well, on one dimension, I would say yes, which is the following: If you were to have seen our first slides in 1999, we drew a mountain. And we said that we were going into the core network market place, which was the top of the mountain. We are going to start there. Most networking companies start at the bottom. And they build simple, small products for the edge and then they try to climb the mountain, which is hard because you are, in the strategic sense, competing against a superior force who is at a higher elevation with greater resources. Sun-tzu would say that's a failed strategy from the start. On the other hand, if you start at the top of the mountain with the core infrastructure, now you can use the benefit of elevation to take a smaller force and be more successful at moving out and down. And, if you looked next at the next slide -- and, again, this would be 1998 and 1999 -- you would see that what else you can do from the top of the mountain is see the top of the next mountain ... So, the benefit of being at the top of the mountain from the first day is that you can go both down and out into the markets that you're in, and you can see the top of the mountain for the markets that are unfolding.

So, it has been the strategy for the company since the first day to start at the top of the market and build down. So core was supplemented by broadband access, which was supplemented by the edge, which was supplemented by secure end points, and that whole evolution is becoming an industry that one might think of as the virtual network industry, which is very different than the physical definition of the market. It's not about selling a big catalog full of stuff to a small or big service provider. It's about selling this virtual network capability, start to finish, top to bottom. And that means from the infrastructure in the public buyer and the network operators through the infrastructure in the private network in a small business or a large business. But from the time you push enter to the time you get your answer, we are responsible for that virtual infrastructure that makes the answer on the screen show up. That has been the vision from the first day. I wouldn't claim, because we didn't, that we predicted the explosion of the Internet. We certainly didn't predict the downturn. A lot of things happened in terms of timing that happened to us. Some were very fortunate, like growing the company to $600 million in 24 months. Some were unfortunate, like watching the downturn that we all lived through. At the same time, the company just had its largest revenue quarter in its history and has grown well past its size at the peak of the bubble. And there are few if almost no companies who can say that today -- that they are larger than that time in the networking space. So, it has been a fortunate set of circumstances. And anybody who discounts luck in this equation is giving themselves too much credit. But we've also taken the good fortune and the good luck and been able to execute with that, and that has helped us a lot.

VB: I want to ask about MandA activity, things that you did right, things that you did wrong. But what you said is kind of startling to me -- i.e. that you just had your single best quarter because, as we all know, networking, summer doldrums, that's the time to buy. How did you pull that off?
Kriens: [laughs] I have said for a couple of years and mean it now more than ever: This will be a very selective recovery. There will be no across-the-board recovery to the benefit of all participants. Those days are gone. Money will change hands. But that means there will be winners and losers. The key is figuring out what is most required to win, and for us that means being at the right place at the right time with the right product set, and going in the right direction from there. We have the portfolio to do that. We have the focus to do that. And, increasingly, as it ties back to our discussion, the partners that we can support and make successful will help carry us to the destinations that are possible from what we have achieved faster than we can get there on our own. That's why it is so strategic. It is still a foot race. This new market is unfolding at a rapid clip and only the swift will survive. It isn't for everyone, no matter how it takes for them to figure it out or how long it takes for them to get there.

VB: You mentioned surviving the bubble. When you look back at what decisions you made to survive the bubble, was there any one or two that you say, "Thank God I made that decision?"
Kriens: There were two. One was to accumulate cash during the good times. We had $1 billion worth of cash during our low point. The second was to maintain the investment level in the portfolio of products, even in declining revenues. The target for this company in terms of development spending is somewhere in the teens -- somewhere between 15 [percent] to 20 percent of revenue. In the downturn, our number was 30 percent. And our profits were zero. And we could afford to do that because we had the cash. But we also believed that the sun would rise and when it did the companies that continued to invest in the vision and the destination, especially given the leverage and the lead we had, would return multiples of that investment when the market came back. After that, there were a bunch of decisions about how to spend it and what to do and all that. But at the high level, the decision about how to protect development investment, even when it took the stock to $4 and evaporated the profitability of the company at the depth of the downturn, is why we are one of the few companies enjoying the success you just mentioned in this selective recovery.

VB: Take me back: Did you ever considering shaving a bit back on R&D and moving the money over to the other side of the ledger?
Kriens: There was a lot of pressure to do that. But I had a lot of good coaching. For example, one of the discussions I had and have had on occasions is with Andy Grove at Intel. I sat down with him and told him of the situation and explained what we were doing and asked his advice. And he said, "If necessary, listen to no one but yourself and do what you think is right." And, as he is quite fond of saying, "You can't save your way out of a recession." He said you have to invest in what you're good at and what your advantages are. When things start to recover, he said, that's when you will have needed to make that investment long before that day. What you're good at is innovation and product advantage, and that is what you need to protect. That gave me great comfort because he is much smarter than I am.

VB: So you've got this momentum built. You're the hot company giving other people fits, etc. But how do you preserve this momentum? How do you build on it and what kind of company do you want to be?
Kriens: The answer is not complicated really because it is the same things we have been doing: Stay focused and execute, stay committed to the vision of this virtual network, because we are not really building a company here, we're building an industry. And the virtual network is an industry. And the model that I would reference is ... in the early days, there was only one computer company because there was only one definition of the industry and that was IBM. And it's still a great company. Meanwhile, we have Microsoft, Intel and Oracle. And that's because the problem became more specialized. And as the industry matured, it evolved and became multiple industries around microprocessors, databases and PCs and what have you. And the reason those companies became the institutions and industry leaders that they are is because they defined and solved a different problem, which is fundamental. The reason Apple is $48 per share is because the digital entertainment industry may well be a very different industry than the PC and server market. And if it is fundamentally different and that is sustainable, then they are market leaders in a new industry and not followers in an old industry. That was sustainable and different enough for Microsoft and Intel, and it was because they took a different technology approach and solved a problem unrelated to the mainframe computing, which IBM was born to do. The virtual network here is totally different than routing in the '80s, for lots of reasons that are for another day. But it's technically different, it's functionally different, and the deliverable result and benefit to the user is different. One of the premises one has to make, or one that anyone sensible has to make, is that everyone in the world is equally smart. We're no smarter than anyone else and certainly no smarter than our competitors. But we are focused and we have some real-world learning on virtual networks that has translated into real-world experience that we think is a product cycle or two ahead of what others have been able to bring to market. And that's one of the reasons why the investment decision was so critical if you take the extension of what we talked about focus and execute, there are actually four phases: focus, execute, learn and repeat. That's how you stay ahead. And if you go into a market trying to do what somebody else does, which is what AMD or Informix tried to do against Intel or Oracle, it's hard to do the same thing. Assume you're equally smart. Someone has already done one iteration of something -- how are you going to pass them? You do something totally different.

VB: Fighting Cisco. We talked a little bit about not being the AMD to Intel or the Avis to Hertz. But Cisco classically comes to mind as the archrival. But is that too myopic and are people missing a bigger picture here?
Kriens: You're exactly right. It's what people like to talk about or write about because it's easier to grasp, and conflict is more interesting.

VB: Note to self: ... Kriens makes fun of journalists...
Kriens: [laughs] ... It's not journalists actually so much. It's analysts, it's financial industry watchers ... it's sort of the obvious thing. But what's interesting is that in all the case of Intel, Oracle, Microsoft, Dell -- what those companies did was put their heads down and focus on what they were going to be best at in the world. They did it and it wasn't really that dependent or that important what their competitors did because they really didn't see those competitors as their competitors at the end of the day. The irony is that in many cases, and it will probably happen that way again because history has a way of repeating [itself], they ended up cooperating with those companies that were once competitors. You know Microsoft runs a lot of software on IBM machines that run Intel processors in some cases. It doesn't look like that at the beginning because everyone wants everything. At least a big company that is having its market divided wants to pretend that that is not happening. But it actually becomes in everyone's interest that once these markets divide to cooperate because the customer doesn't care about the divided supplier market, the customer cares about the answer to their problem.

VB: By way of extension, are you suggesting that, at some point, you and Cisco will work a little bit more cooperatively together than perhaps you currently do today?
Kriens: I think if history repeats itself, ironically it will happen because there is a lot of surrounding capability that we're [doing.] You know they have a consumer business. We're not interested in being in the consumer business. They sell a lot of fairly straightforward consumer devices, even when they sell them to enterprise customers. That's not a business that Juniper has anything to add to. We can connect all those devices in a virtual network in a uniquely valuable way. And that's where I think, for example, is one of the places it may end up being more complementary than competitive.

VB: You set the world on edge and put yourself more in the spotlight, perhaps, than at anytime I can think of with the NetScreen acquisition. It seemed to be the right answer at the right time. Talk about security, where you guys are progressing and what still needs to be done in that aspect.
Kriens: The faster that the virtual network industry evolves, the more successful we will be and the more quickly that will happen. That's the underlying premise of the whole strategy. Security, and people's confidence or lack of it, is the greatest impediment in the pace of adoption of the virtual network. If I don't trust it, I won't use it. If I do, I will receive enormous value from its flexibility and its cost and its performance, and I'll use more of it. So we saw security and see it today as being the most critical question to answer in the larger goal of rapid adoption in mass scale for this network industry that we are doing our best to create and lead at the same time. So that made the decision [to buy NetScreen] simple. I find that the best, strategic decisions are easy to make. They are not gut-wrenching, painful calls because that should usually tell you something about the decision in the first place. The beauty of the NetScreen decision was that it was fantastically easy to make. Right company, right technology, right brand, right leadership in the market, perfectly aligned with our strategy from years before of building out this [virtual network.]

VB: Do you think the industry is doing enough to secure itself? Everyone has an immense amount of money poured into it, top brains, etc. But there's a lot of almost scattershot, uncoordinated efforts going on.
Kriens: Well, we are not as secure as we need to be and part of that is the pace of the threat, which is escalating faster than the pace of the solutions. I don't know when those trends change.

VB: That singular statement, which is obviously true, is not very...
Kriens: ...Not very comforting, is it? It's a dangerous situation. It's one that takes a constant vigilance. And that's why, from our point of view, perpetual innovation is so critical. The spending on development today in our security product line is 50 percent greater than it was when NetScreen was a standalone company. There's a lot of work to do, and some if it is in the actual threat mitigation, and some of it is in the management of the solutions that you roll out. These are two different but critical elements in this.

VB: What's the No. 1 technical priority for Juniper for 2005?
Kriens: Technology that is smart and faster at the same time without compromise. The technical problem today is you can have one at the expense of the other. You can be simple and fast or smart and slow, both of which are totally unacceptable. And so being smart and fast at the same time is hard for all of us, and hard for the products that are being brought to market today. And it's the one thing that technically differentiates Juniper more than any other across our entire product line, everywhere from a 5GT that you can buy for hundreds of dollars to a core router that you buy for $1 million. They are simultaneously smarter and faster than the alternatives.