Adtran Storms The SMB Market

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As enterprise networking titans clash over complex Fortune 500 accounts, Adtran is taking a more measured approach. The Huntsville, Ala.-based manufacturer cranks out multipurpose appliances and more affordable alternatives to name-brand routers, switches and other staple networking gear—all in an effort to storm the SMB market with a grassroots strategy that hinges on maximizing solution provider margins.

Adtran rivals Cisco Systems, 3Com, Juniper Networks and others are dispatching internal sales reps and channel partners to aggressively pursue enterprise mega-deals that call for advanced solutions. Although these networking giants also covet SMB market share, their channel partners often struggle to pull down decent revenue for reselling more recognizable networking solutions to smaller customers.

By contrast, Adtran isn't singularly focused on capturing only the biggest of corporate targets but has fanned out to nail down a solid presence in as many SMB accounts as possible. To do that, the vendor has pledged not to compete with its channel partners. Instead, the company strives to offer as many discounts and incentives as possible to its solution providers, executives explain.

"We want to make sure we enable our partners to win in the SMB segment," says Adtran vice president of sales Ted Cole. "We're doing that by introducing the right products and pricing them appropriately to increase profits not only for ourselves but for our resellers."

Statistics provided recently by a top executive at an Adtran reseller appear to back up the vendor's claim. This executive estimated that his company—which he asked not be identified so as not to reveal information to the competition—could realize profit margins as high as 50 percent by incorporating Adtran products in an SMB deal. Meanwhile, Juniper's products typically raked in margins of 5 percent to 24 percent, while gear from Extreme Networks promised profits of 10 to 34 percent.

Increased VAR profits are tightly tied to the difference in the cost of Adtran's products, says another Adtran partner. "We've had much better margins on Adtran sales than with others, mostly because of price," says D&A InfoTech's Frank Dolik. "The company's pricing structure just seems to be a little fairer than that of its competitors," he says.

Battling Big Brands
Adtran executives realize that the company can't simply sit back and enjoy the advantages brand recognition brings to its many competitors. In fact, Adtran in its product literature is often up front with its strategy to undercut equipment hawked by networking behemoths such as Cisco. For instance, Adtran boasts that its NetVanta 1000 series of Layer 2 switching products in some cases costs half as much as similar products on the market.

"We have found opportunities to compress our costs in order to expand the margins of our resellers," Cole says. "We have our products priced appropriately, and this means less pressure on our partners to offer further discounts to customers. We count on our partners to win opportunities. We don't just use our resellers as a means of fulfillment."

Though less expensive, Adtran products are by no means second-rate, according to Rob Whiteley, senior analyst at Forrester Research, a market research firm in Cambridge, Mass. "Adtran has an engineering heritage, and, with that, a history of delivering solid, reliable products that adhere to standards-based technology," he says. "While Adtran is often seen as a conservative, no-frills company, it still has a fantastic reputation. Adtran's strategy is to focus on products that hit the mainstream audience, not the leading adopters that need lots of bells and whistles."

Certainly, bells and whistles are not what many SMBs are after. Many smaller companies simply crave basic VoIP capability but don't typically need a slew of ports or add-on functionalities that can drive up prices, especially on converged voice and data equipment now widely available in the networking market.

"Our focus is on SMBs with about 50 to 300 employees. Many are just looking to make a move to IP voice," says Al Harnish, president of Hackensack, N.J.-based Eastern DataComm.

Harnish, who regularly pursues such deals with solutions built around Adtran products, says he's made this choice not only because products from Cisco and other networking giants tend to be priced higher, but also because major networking companies tend to limit their best discounts to larger resellers. "For the smaller resellers going after the smaller deals, the discounts are next to nothing. Often, we'll give a customer a proposal and they'll then shop it around to a Cisco Gold certified partner," he says.

NEXT: What Adran's doing to make its partners happy.