Adtran Storms The SMB Market

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.

Quick Click:Adtran VARs at a Glance

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."

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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.

Indeed, Adtran relies on its resellers to prove to customers that Cisco and other familiar players are not the only networking options available. "We have customers that for one reason or another are tied to a certain brand," Harnish says. "We'll tell the customer that we're happy to sell them that equipment, but we do inform them that we can give them an Adtran product that does everything they're looking for but costs about one-third of the price."

Quick Click:Adtran VARs at a Glance

For Adtran, it's crucial to have resellers making the case for lower-cost hardware. "Because Adtran sells to a more mainstream audience, resellers become of utmost importance, because that's how this audience prefers to procure the technology," Forrester's Whiteley says. "The company typically provides great incentives and margins, which makes resellers happy. Adtran also has the added benefit of low support costs, so there aren't a lot of complaining users."

Along with economical hardware and boosted levels of customer support, Adtran is putting its engineering muscle behind development of multifunction products tailored specifically to SMBs. "This is a market where customers are adverse to risk," Cole says. "But now many are looking for single-box solutions—products that combine routers, software and security solutions, such as virtual private networks."

Although Adtran's competitors also tout converged devices for SMBs, many of these offerings remain out of reach economically for smaller customers. Many view this as proof that networking powerhouses are still gunning for the big deals.

"When you're working with the larger networking vendors, you quickly find that they don't have a strong core product tailored to the small office," says Michael Nelson, principal at Integrated Access Solutions (IAS) in Lake Forrest, Calif. "What we're really interested in are midmarket-type solutions for the edge, since we're working with hundreds, if not thousands, of Southern California companies that have about 150 employees in their headquarters and five or six remote sites."

Adtran is absolutely eyeing such customers with multifunction products and new managed service software modules. "In 2006, we had a lot of success with chain retailers and other areas, such as finance and banking—those verticals marked by companies that have a lot of branch offices," Cole says.

To serve that market, Adtran has crunched the functionality of several devices and related software into a single appliance. It's a move that cranks up reseller margins, since partners can shift the dollars customers usually pay for equipment into installation, customization and other value-added services, says Jim Butler, Adtran director of channel sales.

"With all of our networking products, we're constantly thinking about additional services that resellers will be able to add on," Butler adds. "This is what has allowed them to realize the double-digit margins they now enjoy and move beyond just basic maintenance and implementation into services they can brand as their own."

Yet, even with the spate of converged devices to pick from—Adtran's included—some solution providers until recently still ran into trouble trying to find equipment properly suited to smaller customers or remote offices.

When Adtran discovered these limitations within its own suite of offerings, the company decided to pare back some of its solutions—for instance, the Adtran Total Access 850 integrated access device, which allows for up to 24 voice ports. "In researching typical configurations, however, we found that these devices were often being deployed with eight- and 12-port configurations," Butler says.

So Adtran introduced its Total Access 600 series of fixed-port IADs. "These products offer a variety of port counts, ranging from four to 24," Butler says. "These tailored solutions better fit the needs of the market and provide significant cost savings to the customer."

The adjustments have also suited Adtran solution providers. "The company's newer product lines fit with our business model a little better," D&A InfoTech's Dolik says. "We've been able to sell more value-added services with these new product lines, because integrated products can be a little more complex."

Indeed, Adtran executives realize that happy partners are the key to facing down hulking competitors, such as Cisco, which is increasingly eyeing the SMB market.

"We have a partner-first mentality. In this market, the only way we'll achieve our goals is through solution providers," Cole says. "If they succeed, we succeed, so we aim to provide them with a level of support above and beyond what they're getting elsewhere."

To Capitalize, Specialize

Resellers that invest the time and resources it takes to specialize in newer internetworking and telephony applications realize the largest overall margins, according to Adtran executives.

"In 2006, those resellers that invested and specialized grew 40 percent over those that did not," Butler says.

Adtran resellers reporting those growth figures worked with the manufacturer in areas such as VoIP and internetworking, or the connection of local-area networks to create wide-area networks through the use of routers, bridges and gateways using different protocols.

To help channel partners cope internally with some of the complexities inherent in internetworking and those associated with new converged products, Adtran has put in place a host of training and certification options. "Many have seen these as an opportunity rather than a burden," Butler says.

NEXT: Adtran VARs at a glance.

Adtran VARs At A Glance