Scaling With VARs And OEMs: Nexenta CEO Evan Powell (Part 4)

Sramana: Given that universities were not going to be your real market, what indications did you have as to what markets would be your beachhead?

Evan Powell: We started with an open source core and our software was based on industry standards. Once we put up our store front and our free download site for our commercial product, we then allowed people access to our commercial product. As a result of that we had data. We could see who our free users were. We found that this model showed us that users were all over the world.

The one delta compared to the university users is that universities can have a bunch of hardware sitting around and they will take our software and install it on the hardware. The average storage buyer wants to buy a box. They want an appliance they can rack, stack, see blinking lights, and have storage. We identified very early that we did not want to change buyer behavior. It was enough to get them to think about us since we were a more open solution, and a more cost effective higher performance system.

We were already making them think of our open source based solution so we did not want to make them change the way they thought about storage any more than they had to. Early on we started cold calling hardware resellers who were selling servers and disks and who we thought might want to put storage software on those servers. We seeded the market by giving the product away but I focused my time, and the time of my sales force, on calling into the VAR channel to see if I could get a few of them to adopt us so they could sell a total solution together.

Sramana: What kind of traction did you get from the VAR channel?

Evan Powell: We had a pretty good hit rate. There were a lot of people who had questions. We are obviously years behind the openness that has come to the server market. As that openness and commoditization has hit the server market some resellers have done very well selling increasingly high volumes of not highly differentiated x86 servers. As that happened, their margins evaporated and on a per-sale basis we see single digit margins on servers.

When we come along and offered them the change to put our software on the box then they were able to have a 30-point margin. A few of them got that. Pogo Linux, now Pogo Storage, got that very early. They build their business based on their expertise in the hardware and our software. These days we get pinged by a partner or two every day. It has flipped from the days where we were cold calling white box mid-tier resellers to the point we are at today.

Sramana: What percentage of your business today is from VARs?

Evan Powell: Overall that channel represents 85% for us. We may drive the deal ourselves. Our team may be engaged with a customer and we will bill it through a partner, or a partner may be driving the sale and we support them. White box sales are two-thirds of that 85%. There are traditional storage resellers who are also selling unified storage solutions, and they see us as an alternative. We are just now starting to pick up some of the world’s biggest storage resellers.

In China we have a company called Beta Fault Tolerance. They have sold several hundred millions of dollars a year and they picked up our product earlier this year. If you are the favored vendor of a legacy storage vendor in one area we are not going to spend a lot of time on you until we start beating you in deals. Then you are going to be interested. Until that point you are still making money on older technology.

We do have an OEM, which we think is really important. A piece of advice I give to entreprenuers is that it depends on your segment. I don’t think OEM was the end all, but it is not that way in storage anymore. However the relationship that we have had has been extremely useful. We signed our first OEM when we had just 30 people. An OEM at the right time with the right partner is great. It is tremendously valuable.

This segment is part 4 in the series : Scaling With VARs And OEMs: Nexenta CEO Evan Powell
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