Palo Alto Eyes IPO, Distribution As Growth Goes Viral


Back in June 2008, when Lane Bess signed on as CEO of Palo Alto Networks, sales were modest and industry buzz was a whisper.

Bess' conversations with potential channel partners were promising, he remembers, but apart from the early adopters -- who believed in Palo Alto's firewall technology that could manage applications and content by user instead of by IP address or port -- there was nothing to suggest the industry's network security incumbents were sitting up and taking notice.

But fast forward two years, and Palo Alto has hit one major milestone after another, from its first quarter as a cash-flow-positive company to the type of industry notices and word-of-mouth that are building Palo Alto's brand equity and throwing a scare into the space's established players.

In other words, where Bess once spent days poking his head into the sales director's office in an attempt to stay optimistic about sales, he's now wrestling with the big questions of Palo Alto in two-tier distribution, adding more sales staff, and prepping the company for an initial public offering that at this point is pretty much inevitable.

"We had two dozen customers two years ago. Then you had the cold nuclear winter of a down economy, and with that you don't know what the future's going to hold," Bess said in a recent CRN.com interview. "It's not easy. I wouldn't call it a technology in search of a market. But it's a technological innovation -- disruptive -- that the market has a strong need for and in some cases doesn't know it."

After some hiccups early in 2009 -- Palo Alto hired, then let go of, channel veteran Nancy Reynolds in a move that saw many observers questioning its channel momentum -- its channel story is also thumbs-up, and Palo Alto VARs have been steady in their praise of its expanded channel program, which launched in January.

Now comes the question of two-tier distribution. After the March release of the most recent Gartner Magic Quadrant for Enterprise Network Firewalls -- in which Palo Alto was named a "visionary" -- Palo Alto saw more than 7,000 inbound customer leads almost immediately, Bess said.

"When I get to a point where my funnel is filling up and falling on the floor, my thought is, 'Do I need to be touching more VARs?' " Bess said. "It's something we need to consider."

Palo Alto is in talks with many of the "usual suspects" in distribution, Bess confirmed, declining to name names.

"It's almost a self-selecting process," he reasoned. "I didn't want to go out to a distributor because I suspected the smart distribution partners would come to us first. There are a few that haven't called me, but that to me is an indication that they don't get my business or they're so entrenched with one set of incumbents that it wouldn't be worth the energy to spend."

 

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