Q&A: SonicWall's CEO Outlines An Enterprise Strategy

CMP Channel sat down with SonicWall CEO Matt Medeiros at the SonicWall Peak Performance Partner held in Las Vegas to discuss SonicWall's expansion into the enterprise space of the channel and how the company is equipped to deal with an impending recession. Here are a few edited excerpts:

SonicWall has announced to its partners that it is expanding into the enterprise space without abandoning its core SMB market segment. What kind of strategies are you implementing to make that transition?

The good news is, for the last four years, we've been doing 20 percent of our business with enterprise. What we've been doing is selling to the distributed remote offices of enterprise. We've always had a relationship. What we've had to prove is that we've had technology and innovation capable of being put into the core of their networks.

So, for the last three years, we've been retooling our engineering teams. We've been retooling our go-to-market strategies. Our marketing organization has created the right messaging and awareness to where we felt comfortable moving into that. It's an entire company-wide campaign that you have to move forward with, to prepare yourself for that type of transition.

Do you have the partners to take that technology in? It's easy to take a small business technology into an enterprise branch office. But can that partner go into the core of a data center of an enterprise?

I think there's two dynamics that are going on here. First and foremost, a lot of our partners have become sophisticated security specialists. And that is a requirement that enterprise would seek -- someone who has more experience and can see more threats from a different type of topology than just the one that the CIO sees. There are plenty of our partners that are truly capable of going into enterprise, and making a difference for that enterprise customer. And recommending and installing and managing long-term SonicWall solutions.

The second dynamic is that enterprise budgets are being cut again. With this recent wave of reduced spending, CIOs and departments are looking for ways to offset costs. And what they're finding is that a lot of the resellers are secured practitioners and are better equipped to manage their security load of outsourcing and keep it inside. So I think that those two dynamics are playing very well with one another.

We do have to find new partners though. If we don't have a new level of partner at SonicWall, I think we will limit ourselves. But I'm pleased to say that as I go across the country and throughout the world, many of our existing SonicWall partners are fully capable of going into the enterprise, getting their attention, and then earning their business.

How does the new Partner Excellence Center forward this move into enterprise?

I think the Partner Excellence Center allows the partner to not only have just the SonicWall products, but a host of products. We're pretty excited about the relationship that we've got with HP ProCurve. HP, the brand, has a great opportunity to get enterprise-type customer awareness. That certainly is a draw and an opportunity for us.

In light of an impending recession, how do you plan to whether the storm and really recession-proof SonicWall?

I came to this conference believing that we were going to hear a lot of comments about the questionable economy. But the good news is that most of our partners are pretty upbeat. Their existing pipeline for the next six months shows some level of stability. Each of them has their own lifestyle, their set of economics. But some of them are really showing us substantial growth rates -- we're talking about growth rates that exceed 50 percent in the first half. So I'm pretty excited about that. There are an occasional two or three that I've had conversation with who say they have a challenged business model. For the most part, I'm pleased with what I'm hearing.

Now we're still going to be very cautious, cautious in the sense that we're not going to set expectations too high. I'm also going to continue to spend -- spend on our channel program, spend on our awareness campaign, spend on the technology that we have to develop.

That seems that could be a move with significant potential risk. How are partners reacting to that strategy?

I think for the most part partners reacted very positively. They're feeling good because we are a clear alternative to some very expensive products. We are the antidote and have an opportunity in an economic uncertainty. And they feel very strongly about that -- that they can sell our product as a clear alternative, based on the performance first. So our performance is better than the competition.

You can't go in and lead with 'we're less expensive.' You've got to be able to prove that we've got the right technology. We've got the right solutions. It is better than the average. Then you can go in and say that this is going to be less expensive for you to purchase, for you to install, and for you to manage. I think that that is working very well as our antidote to some of the economic uncertainty.

Next: Medeiros outlines the company's strategic direction

Do you think that the good news for SonicWall's partners is that they are in SMB while enterprise is the segment that is currently slowing down its spending? Is that a good thing for SonicWall knowing that the enterprise is tightening its belt?

I take a very different view. We are highly dependent on new business starts. if you take new businesses filing their fictitious business names, the rate is much lower than it has been. A lot of new businesses actually use their line of credits on their home as a way to influence their cash. There's a strong indicator that shows that new business starts are not happening. When the economy truly does fall into a recession, and we start to see layoffs, many new businesses get started by the people who get laid off. Where are we on an inflection of recession or on this economy curve? I think it's still unpredictable.

However, I think that there are several things that we've done for strategic direction in the company. Fortune and luck, we've been growing our international revenue very well at 45 percent compounded annual growth rate for the last two years. So we're building more diversity through our revenue stream with our international customers and again, keeping our ability to invest in the total company.

Secondly there's no doubt that moving up into the mid-tier segment and enterprise, and competing very well with products, gives us an opportunity to kind of weather the storm.

The third thing is our subscription revenue. We have built a model that's based on this recurring revenue of subscriptions and customers who have used our technology today. There's 1.2 million install"based units. They understand the importance of this recurring subscription. They've already made the initial investment. They have to update that subscription annually. That's also been an insulator to some degree. And you've seen the recurring revenue from SonicWall truly grow. So we think those are three strong antidotes to the direction of an uncertain economy here in North America.

Do you think security is one of those areas that might be more resistant to challenging economic times?

Absolutely. I think there's no doubt that during bad economic times, there are more threats out there. The criminal society wakes up and we see far more of it in recessionary periods in our country. But without even getting to that point, I do think people realize that regardless of the economic times, you have to maintain a very strong security solution. Without it you're vulnerable.

And you're no longer just vulnerable to those nuisance threats. These people are here to do one thing: get information and get money. That's it. And if they can't get money, it's not of worth to them. I do think security is a bit more resilient.

One of our products is doing very well with some of the economic uncertainty, and that's our CDP product. Business owners are starting to realize they have to protect their business in a better way than they have in the past. They can easily be out of business with their digital assets being accidentally erased or somehow compromised. They need to keep more information stored, backed up, relevant and protected. That's what our Continuous Data Protection solution does. If there was a fire, if there was some kind of catastrophe, they would be able to be backed up and running and doing business in a short while, by being able to store data at multiple locations.

You made four new acquisitions in the last year. Of the new technologies you've added, what is working best and what do you want to see more of?

I think we've all been disappointed in our engineering capabilities around CDP. We weren't able to get the right talent. It took us over a year to hire enough engineers or support that technology. And that's where the disappointment was. There's never been disappointment over the technology, or the shipping or the market acceptance. We've actually had to throttle down our expectations of growth because of our own inability to engineer the next set of features into the product. That's I think something that often happens when you acquire a company. You look at the product, you're told what it is, you do your best effort to understand where it's at, and you believe that people are going to stay with it as you go to the next level.

So this year, is your big bet CDP or enterprise?

If I had to pick one, based on growth rates, I'd have to pick SSL VPN. SonicWall had it first. We were number one in unit share in the industry. We knew that we had a great opportunity to continue to grow with the SSL VPN. We felt very strongly that secure remote access was going to be critical for all businesses regardless of size, just by looking at our customer profiles. Most of the small businesses we had weren't buying desktops, they were buying laptops. Most small businesses had a very distributed workforce and they were working 24/7. So they needed the secure connections back into their main servers. We realized that it was a time for market discussion. It was make versus buy. We could acquire Aventail or create the technology ourselves. We felt that we were much better off buying the company than in fact investing in our engineering and taking the time to get to that level.

Do you feel that SSL VPN is still on the upswing, that it's not done?

Absolutely not. We're at our infancy with SSL VPN in the market. I was just with a major studio in Los Angeles area. This major studio is making a decision to use this technology, not because they want more connectivity for their employees. They're dependent on a vast array of contractors that have input into their networks. And what they found is that they're capable of managing their security policy around their own computers very well, but they weren't able to manage the security policies of their contractors.

Every time you make a connection on a SonicWall SSL VPN solution, we actually look at your antivirus on your laptop. We can patch update and make sure that you have the most current version. The users, the IT organization, can determine if it was updated five days ago, six days ago, ten days ago. But if it was 30, 50 100 days, no way. You've got to go back and get an update on your antivirus. You have to have your hard drive completely swept clean before we let you back into our network. That's a very powerful tool for IT organizations who are dependent on virtual workforces.