SonicWall CEO: How To Beat Cisco

SonicWall President and CEO Matt Medeiros recently spoke with CMP Channel about how the security appliance vendor is beating rival Cisco in the sales trenches with better technology and higher margins for partners. Below are excerpts from the interview.

How is SonicWall is beating Cisco in the sales trenches?

When we talk to our partners and end customers, CIOs and CEOs, they clearly are looking at our technology as a differentiator. So the ability for us to provide full UTM (Unified Threat Management), Gateway, AV (Antivirus), Intrusion prevention, spyware on one common appliance, one common management system is a crtical advantage that we have. Also our reassembly-free deep packet inspection provides the users with less systems degradation than any of our competitors. The performance of our product is clearly at a leadership level.

Second to that, our channel partners just make more money selling our product. Profitability behind selling SonicWall versus Cisco is a very important part of why we are winning both with the end customer and the reseller.

Talk about the price of a full UTM solution price for a SonicWall solution versus a Cisco solution?

The ratios of two to three times more expensive to buy a Cisco product is very consistent regardless of which product you are talking about and what capacity you are buying. Whether you are buying our very top end, our E7500 Appliance and spending roughly around $25,000, you'll spend $50,000 to $75,000 for that same solution for Cisco. Or if you are only buying our $500 solution our entry level TZ product you'll still be spending close to $3,000 for the current ASA product with what they are calling UTM and it is still not even the same UTM. That is the other thing we have to be very clear about. The industry standard for UTM is gateway, AV, intrusion prevention, spyware, antivirus. And what you'll see from Cisco is you absolutely don't get those compliments of technology. Again, we are at a very compelling opportunity from a technical standpoint.

Besides the box and technical specifications, there are a couple of other reasons we continue to win with both channel partners and end customers. Customers avoid complexity and our products are just easier to install. Therefore our resellers are more productive. They are making more money on the installations. And we are just easier to manage through our global management system. I think the fact that we have got this very strong economic proposition at the box level complimenting that with the installation being seamless and easy and the management of the solution. It is a striking difference in comparison (against Cisco) as far as economics to our channel partners.

How many solution providers have you taken from the Cisco camp?

We really don't track that statistic but here is what I can tell you: our unit growth is substantial year over year. And more important than that we have added here in North America another 1,000 partners. With today's economy business starts at the VAR level are not that prevalent. But what I can tell you is we are getting conversion (from other vendors to SonicWall).

Any specific customer win that comes to mind?

We just had a very large semiconductor company in North America choose SonicWall. One of the reasons they chose our technology over Cisco is quite frankly again this whole notion of easy to use, easy to manage across a large scale network. That was in the last three months. I called on the account with the VAR and our entire sales team because of the size of this order, over $500,000.

The reasons we won the award is not just the actual price difference. It was based on the three dynamics of economics: the purchase price was less expensive, the installation was going to be less and easier to do, and long-term management was going to be much easier. They have adopted our global management system. They truly looked at total cost of ownership and we won hands down.

What was the dynamics with the CIO in that deal?

The CIO said that 70 percent of his IT budget was now being deployed to just maintenance of his existing infrastructure. Think about that. He was saying that the 30 percent remaining had to be spent extremely wisely. Given the current economic trends in North America with budgets being tightened, the CIO felt that he absolutely had to consider an alternative and that is how we got brought to the party. It was an absolute Cisco environment.

Let me give you this anecdotal comment from the CIO when he actually signed the PO (Purchase Order). He said: 'No one ever got fired for buying Cisco. But everyone's been fired for blowing their budget.'

How do you battle the Cisco fear factor with regard to if you don't use Cisco all the time your network is at risk. How do you VARs battle that?

It's a battle we fight always. I don't think it is going to go away. You have to give Cisco the credit that they deserve. They have built a long term sustainable franchise and it's enviable by all of us in the industry. But what I will tell you is that people when they consider an alternative take a deeper look and they are finding out that some of the things Cisco has implied or driven from a technology standpoint aren't necessarily what's important to their business. The flexibility a smaller vendor like SonicWall provides those customers is becoming far more meaningful.

NEXT: Why VARs Find SonicWall More Profitable Than Cisco

Why are solution providers finding it more profitable to sell SonicWall versus Cisco?

First and foremost they are making more money on the actual sale of the solution. Just because our box is cheaper than Cisco doesn't mean they are passing that on. They are retaining more margin with the customer.

The second thing is remember we sell security as a service. Every one of our products is dynamically updated. Every day I am pushing a new profile or a new personality to every box that is out there if you buy our subscription services. Our VARs make money on that renewal subscription business. Unlike a lot of our competition where you make the initial sale and after that engagement is done you don't get to participate in the economic stream until there is a complete refresh cycle. We allow our VARs to participate with our subscription service every year, every month, every day.

Talk about the buying trends you are seeing with how attractive alternatives are to the bigger brand offering?

You have to have state-of-the-market technology. If you don't have the technology right just being less expensive isn't going to work. A lot of companies have tried to fight the big guys from the standpoint of only price. What we have done is tried to define and defend ourselves with our technology. We are the only company right now with a 16-core multiprocessor delivering incredible, unmatched UTM performance, almost at a 10X factor, compared with what Cisco's current ASA product is doing. We have got a compelling technology offer. We are not asking customers to compromise. Now you couple that with the ability to go off and say we are less expensive. The second discussion is let me show you how you can be more effective with your budget. Let me take a pain point away from you which is I can help you preserve more of your budget for more alternatives that you have to have. The neat thing about that is once we have saved them money on UTM they are quick then to look at SonicWall's product lines for email security, SSL VPN or CDP. By broadening our product offering and offering a superior economic solution we are actually able to get a substantial larger invoice value than just the one UTM box. By doing that we are building customer relevancy. We are building vendor relevancy. We are becoming far more sticky within that customer. Sixty percent of our VARs are not dropping boxes and walking away. They are managing these solutions. In fact a lot of our customers don't even know what is in their IT cabinet.

What's coming in 2008 from SonicWall?

The first and most important thing is our customers are going to see continued new product introductions from SonicWall. So we are not pulling back on our R and D spend. We are investing heavily to bring seamless very important solutions to market. 2008 will be a record year for new product introductions in all categories for SonicWall. That is very important because our VARs may have sold a UTM device and now they need to sell an SSL VPN device. The fact that SonicWall is number one in the world in unit share of SSL VPN is a great opportunity for our VARs now to go back to that strong customer base they have had and continue to penetrate with further product offerings. That is very good situation we have put our VARs in given the current economic trends. Finding new customers may be harder in 2008, therefore taking care of older customers with new technology may be the right approach for a lot of our VARs in 2008.

Do you see a flight to SMB technology and value compared to high priced enterprise solutions with the downturn in the economy?

I do not wish anybody potentially the effect of a downturn in the economy here in North America. I just would not want to wish that on my worst enemy and clearly on ourselves. But what I can tell you is that as we see the economy getting pushed closer and closer to a recession, alternatives are being talked about far more frequently. So the sheer fact that customers are asking to look at alternatives is giving SonicWall and other alternatives a great advantage. It is the economy that is driving this perhaps more so than any other thing. People again are getting their budgets squeezed and saying 'If I have to have my budget again halved or cut by one third because of the current economic issues then I am going to go back and look at alternatives. I still have to do security. In fact I would argue during bad economic times we are probably more likely to see even more security strikes. So security is going to be top of mind with all of our customers. The question is how can they get more out of their budgets. And that is where it becomes a great opportunity for SonicWall To really take advantage of being the alternative. I think we are positioned very well to do that.

One of the things we have been studying for the last three years is if you talk to enterprise CIOs who we do a lot of business with primarily in their distributed and remote branch office networks. We still get in conversations with these guys. We just never had the conversation with them about their hub or data center. What we are finding out is it is not that these enterprise customers are reducing their performance requirements. What they are saying is they want more pragmatic and stable technology. Bear in mind the technology we are offering in UTM is much more stable. It is not that we are commoditizing the technology. What is real important is that they are asking for stable pragmatic technology and that is what we are providing.

Any data from the field that more enterprise CIOs are coming to the table with their budgets being cut?

Absolutely when I peel back my Salesforce.com pipeline which our sales team provides us pretty rigid input into in terms of our pipeline report there is no question this is a common indicator in the reports I am reading daily.