Palo Alto Networks CEO Arora: ‘The Role Of VARs Is Changing’
‘A lot of our platform, amplification and execution happens through the SI channel—we can’t get it done without them,’ says Palo Alto Networks CEO Nikesh Arora.
“A lot of our platform, amplification and execution happens through the SI (systems integrator) channel -- we can't get it done without them,” Arora told CRN during a recent event at Palo Alto Networks headquarters in Santa Clara, Calif.
About half of Palo Alto Networks’ business comes from larger deals with longer sales cycles that are more closely associated with SI partners, Arora said. That half of the business is growing faster than the smaller transactional deals.
[RELATED: Palo Alto Networks On Track To Join ‘Top Three Players In SIEM’: CEO]
Arora said the resellers thriving in the software-as-a-service (SaaS) world of modern security are “value-added VARs” that have robust consulting and advisory services and are doing complex customization and systems integration for customers.
“The ones who have those capabilities, yes, we're playing well with them because they are no different than an SI, because they lead us into deals,” he said. “The ones who are still processing hardware, they will need to innovate or they will lose share to the value-added VARs.”
Partners should not expect to make nine percent margin on a pure reseller deal, said Arora.
“I can ship an authentication code in an email as delivery–that doesn’t deserve nine percent” margin, said Arora “That doesn’t require customization. … The role of VARs is changing. Now, some VARs have understood that a long time ago. They see the market conditions on a daily basis. Some have a large proportion of hardware still because Dell still exists, EMC, Cisco still exists. They still do that stuff. But some have understood that for the software business, they need to get in the game of being advisers, being evaluators, being deployment specialists.”
Palo Alto Networks Partners
Palo Alto Networks has about 15,000 channel partners worldwide, according to CRN’s 2024 Channel Chiefs.
Heading into 2025, Arora wants services partners to know that Palo Alto Networks is hard at work building out programs and partnerships that create more wins together. He highlighted deeper partnerships with the likes of CRN 2024 Solution Provider 500 member Cognizant as well as Infosys, Wipro and Tech Mahindra as signs of Palo Alto Networks investing in the channel.
The demand for higher level consulting and systems integration services comes with CIOs looking to consolidate security spend in favor of a platformization strategy.
“We are expending a lot of effort toward interacting with CIOs and C-level executives,” said Arora in the company’s quarterly earnings call this week. “And actually, we're spending a lot more time with our GSI (global system integrator) partners trying to address that issue because they are typically involved in the transformation stage where they say, 'Let's take all this stuff and put it together and replace it.' So, we're seeing early success.’’
Arora said Palo Alto Networks should have moved sooner to a platformization strategy which is resonating with CIOs.
“When you sit across the CIOs, you say, ‘Look, you have nine different products. You could bundle it together, take it down, have one management pane, and you'll save a lot of cost,” he said. “Because then they understand because we're not ingesting data nine times across nine products. We're ingesting it once, analyzing it nine times, and giving them the outcomes they want. So, I think the trend is in our favor.”
As to the margin implications of the platformization strategy, Arora said the strategy is leading to cost of sales improvement that positively impacts margins.
“So, the more we can platformize with existing customers and have large deal sizes with customers, it reduces our effort,” he said. “We don't have to get 20 deals to get $20 million. Like some of our peers, we can have one deal for $20 million, which means the cost of sales is lower on an incremental basis as we establish the land-and-expand strategy from a customer perspective.”