Up Close With Veritas CEO Gary Bloom

Veritas CEO Gary Bloom, of course, senses his moment has arrived. VARBusiness recently sat down with the former Oracle executive to ask him about his overhaul of the company and the competitive landscape. Bloom addresses a wide variety of topics, ranging from market consolidation to reaching $5 billion in sales to developing closer ties with partners.

VB: When we look at the software market, we wonder what's happened to all the once-promising players.

Bloom: The market is consolidating, not because the industry wants to or vendors think it's a good idea, but because CIOs are really looking to reduce the number of vendors they have to engage. It actually helps us get into new businesses because they are more willing to go with us than someone unknown, or whose portfolio is limited or financial underpinnings are in question.

VB: What about the brick wall that most ISVs hit when they reach $1 billion to $2 billion in sales? Look at Novell, Lotus and BEA.

Bloom: Well, I would argue that most companies never get to that $1 billion mark. In the industry, the number is something like 20. We've already gone well past that mark with $1 billion in sales. Most companies don't get that far because they lack the infrastructure to scale a company accordingly. That means being able to cover the market and provide a similarly consistent level of service to all customers, partners, etc. Others lose their technology leadership. Maybe it's because of the lack of infrastructure that I mentioned. And then there are the companies, including some you mentioned, that fail to get well past $1 billion in sales because they are single-product companies. We are continuing to invest in infrastructure, even if it means running our G&A up a little past what some would like to see. We're investing 19 percent of revenue on R&D. And we are continuing to add personnel. We finished 2002 with around 4,800 people and today have around 5,500.

Furthermore, we are insulated from some of the conditions I have described because we are not a single-product company. Like Microsoft, we have multiple product lines. The thing people forget about Microsoft is that it has two great revenue streams in Windows and Office. People tend to think of Windows, but when Windows sales slow up right before a major upgrade, there are Office sales to balance out the revenue. That's how a great company grows,with multiple lines of business. And that's what we have in Backup Exec, NetBackup, etc.

VB: What is your current sales mix between indirect and direct, and where would you like to see it?

Bloom: The channel is extremely important. It has allowed us, like it did Symantec, to grow very fast and do well. We could not have done it without our partners. Our mix today between direct and indirect is roughly 50-50. Now it's different per product segments and there are OEM contributions that require some explaining, etc. But let's say for the sake of discussion that it's 50-50, which it is. I don't know if I have a real idea of what an ideal mix should be. I'm more concerned about whether we are meeting our business objectives. That said, we do have goals in the segments of our channels. But we don't have a set goal of what our mix should be.

We know we have to provide predictability to partners to minimize conflict and we have to provide ample opportunity for value-add. It's important that both parts of our business grow because, in the end, the customer ultimately chooses where he or she wants to buy. The channel has been good to us through the downturn, but our direct business has also grown.

VB: Do you reward people in parts of the company other than traditional channels based on partner satisfaction?

Bloom: We do measure satisfaction, obviously. And it is quite high. I rarely have anyone approach me with a complaint or problem. Really. That's because it is a part of our culture to do what's in the best interest of our customers. As far as your question is concerned, we are very careful to make sure that we incent people to induce the right behavior. But we do not compensate people throughout the company based on partner satisfaction. We measure it for our people in channels, but not across the whole company.

VB: Given your background [at Oracle], are you especially keen to induce behavior that keeps conflict to a minimum?

Bloom: As you know, my background has included managing some of the toughest relationships Oracle had. That included SAP. But the funny thing is that even though we competed in the applications arena head-to-head with SAP, 74 percent of SAP installations ran on Oracle. That says a lot about modern partnerships, where you both compete and partner with companies. And that extends all the way through our channels. If you only go with big customers, that's a risky model. If we become a $5 billion company and half of our sales are through partners, then I'll be very happy. And so will our partners.

VB: So, how much time do you personally devote to partners and partner-related issues?

Bloom: Well, it's tough to measure because we really are working hard. But I can say this: I spend as much time on partner issues and meeting with partners as I do on customer issues. And that's a lot of my time. I do so because I have seen what happens in slow periods or at the end of a quarter when companies try to make everything up in one fell swoop with a sale to a single large entity. I prefer to have the balance that I have. Let me just say this: I sleep better here vs. at Oracle at the end of a quarter.

VB: Let's segue to the competitive landscape. There are people inside Computer Associates who literally twitch when Veritas is mentioned. Is CA your single biggest competitor? Who is your archrival?

Bloom: In an isolated segment, Computer Associates is a big player, but outside of backup and recovery, we don't see CA. Now, we've been listening for two years about CA coming after us, coming after our partners, etc. And you can bet that our product managers and channel people working on our backup and recovery products are very focused on what's going on there. But CA is not a competitor to us in other categories. In fact, no one company has the portfolio we have, so we really are unique. And that's because of where we focus. For example, we just became the No. 1 provider of clustering technology this year,in the world. So that puts us in competition with operating system software suppliers.

VB: Let's look at Microsoft. Some have expressed concern that the extended functionality Microsoft put in its server technology obviates the need for companies to invest in Veritas. True?

Bloom: I don't believe what Microsoft does obviates the need for us. In fact, if you look at it, all of our key relationships are with companies that are bigger than us. Sun, for example. Microsoft, too. They all are developing and moving their products. We leverage the work they do. The key is that you have to create an opportunity to add value to solve CIOs' problems. That's what we do in each instance.

VB: I'd be remiss if I didn't ask you about your situation with regard to having to restate financial earnings. What is the story there? Is it limited to AOL or is the situation more widespread?

Bloom: As a CEO, it certainly is one of the hardest things I have done, restating earnings. That, and the action we took regarding our CFO [Editor's note: Kenneth E. Lonchar was dismissed from the company after overstating his educational credentials on his resume]. When I came here, we were a $1.2 billion company, and now we are a $1.5 billion company. Since then, we have made significant investments to make sure we have the proper infrastructure in place to be a company of this size and beyond. The action taken to restate earnings was not a surprise. We disclosed in our 10Q last year that we identified a problem and were taking action to address it. The issue goes back to 2000, which, obviously, was before my time and not on my watch. But we have to address the issue in a complete manner now.

VB: Are there more of these transactions on your books waiting to be discovered that could cause further actions?

Bloom: That's a question everyone is asking. While we are not finished, we don't believe there are other transactions like the AOL one to contend with. One reason is that the deal was very large and at a time when we were smaller.

VB: It's clear to outsiders that the hiring of a new chief marketing officer, the appointment of a new partner vice president and making other additions indicate you have made a talent transplant at the company. Are you finished?

Bloom: No. I don't think you can ever be done there, but we do have most of the leadership team in place and underneath where we need them. We'll have additional appointments, no doubt. And we'll make other additions, too. But for the most part, we have built the team to scale this company.