Out With the New, In With the Old

New Oculan CEO favors license model over subscriptions

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Funny thing about the future: It rarely lives up to its billing or stays true to its vision. Take software, for example. Pundits said a few years ago that software would be purchased like a subscription instead of a license. So let me ask you: What balance of the software you sold last quarter was delivered via subscription?

Suffice to say, the future just isn't happening as expected, though the success of Salesforce.com and a few others suggests it still might turn out as planned in--you get it--the future. At least for now, customers still prefer to complete transactions once rather than sign up for monthly contracts that burden their books for extended periods of time.

As such, more ISVs are rethinking their go-to-market strategies. That includes Oculan, a network- and systems-management solutions company based in Raleigh, N.C. Founded in 1999, Oculan originally thought it would create a sensation with an appliance called OpticNerve that served as a network operation center (NOC) for emerging managed-service providers (MSPs). The device was an MSP's dream come true and addressed everything from network management to asset management to service-level management, performance management, event management, dispatch, notification, etc. The problem was that Oculan sold the device on a subscription basis to MSPs, which, in some cases, sold services and subscriptions to end-user customers. The business model backfired when MSPs began to founder in 2001 and 2002.

Last November, Oculan founder and CEO Steve Giles left to pursue new opportunities, leaving the company without a formal leader until earlier this year when Robert Davis officially signed on as president and CEO. Davis and the company's investors, which include Soros Private Equity Partners in New York, looked at the company's assets and saw three promising factors: good technology, a loyal, if not exactly productive, channel and a market poised to take off. "It was a perfect confluence," he says.

To make the most of the opportunity, the company decided to de-emphasize the subscription model and concentrate on a more traditional business model. When the company unveiled the new flagship Oculan 250 network-management and security appliance, Davis insisted that VARs be allowed to sell the device outright in addition to renting "the purple box."

"We found that 100 percent of the resellers and partners that signed up were interested in driving up sales," Davis says. "The problem was that only about 20 percent or so could figure out a subscription model. With the changes we made this spring, we have been able to open the market up for the remaining 80 percent."

Not that Davis has anything against a subscription model. In fact, Oculan pays for its Great Plains accounting and sales force-automation solutions via subscription. But to help drive VAR sales, Oculan, which has always relied on partners, last month unveiled two new channel programs: the Purple Partner and Premier Partner programs. The former is a basic entry point for those interested in selling the Oculan 250 and other products, while the latter is a more formal program for those willing to pledge to higher-volume commitments.

So far, both the programs and the Oculan 250 have received positive reviews. A recent Aberdeen Group write-up on the appliance goes so far as to say the device, which sells for less than $10,000, offers a distinct value proposition.

"There is no comparable breadth of pre-integrated functionality at this price point available on the market today," sums Aberdeen analyst Valerie O'Connell. Adds Davis: "We did some competitive analysis and looked at what we have in our box, and cannot find anyone with the same capability."

That said, challenges remain. Oculan is still losing money, but thanks to an influx of $5 million in cash from Soros in March and better operating margins, the burn rate has been dramatically reduced. In addition, the company still needs about 250 partners to actively resell its solutions to meet its per-month expectations. It's not there yet, but Oculan has signed up 40 or so new partners since unveiling the two new partner programs. Furthermore, it's culling through its list of 200 or so existing partners to determine how many of them can switch from a subscription model to a VAR model.

For some, that may mean tossing out a new way of doing things and bringing back the old way of doing things, at least for the time being. If that's too old-fashioned for you, let me know: tcdoyle@cmp.com.

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