Carousel's Big Bets: Mobility, M&A and Video Drive VAR 500 Power Forward

The Exeter, R.I.-based VAR grew by 12.5 percent from 2008 to 2009, then 34 percent in the following year, and is tearing through 2011 on a growth streak matched by few VARs its size.

With the industry consolidating and the cloud era dawning, VARs far and wide are challenged to make themselves more relevant and trustworthy to customers than ever before. To Carousel's top executives, that's not an optional transition.

"We need to get wider and deeper with clients," said James Marsh, Carousel's senior vice president, in an interview with CRN. "All of our Fortune 500 clients have told us one thing. They say, 'We're doing business with 300 vendors, and we need to knock out 50 percent. Here is a punch list of the vendors we're going with, and we need to bring this business to you guys.'"

Carousel, ranked No. 89 on this year's VAR500 list with revenue of $225 million, grew up as a telephony and infrastructure solution provider. But in recent years, it's expanded further into virtualization, data networking, security, video, wireless and the broader UC market. The company ended its 2010 having grown overall revenue 34 percent year-over-year. Its traditional voice business is up 20 percent, and all of its other major business lines -- from managed services to video -- are up between 100 and 1,000 percent, Marsh said.

The growth has been partially organic but also driven through an aggressive M&A strategy. Carousel has been one of the most acquisitive nationally-ranked solution providers out there, having bought outright, or acquired assets from, eight fellow VARs in the past two years, including video specialist OmniPresence, and Juma Technology, a fellow East Coast Avaya power.

In a recent interview at a Carousel customer appreciation event held at the New England Aquarium in Boston, Marsh said Carousel has been growing so healthily because it's poured resources into fast-growth segments, from video and virtualization to mobility, managed services, and, in a once-unlikely market segment now favored by more than a few solution providers, carrier and telecom services.

Marsh described Carousel's emphasis on placing bets where market shifts are occurring. Carousel's videoconferencing business, for example, is up more than 300 percent, in part because more businesses are finally adopting video. But that adoption isn't coming in expensive endpoints and dedicated videoconferencing rooms so much as it reflects how video is now part of an overall UC conversation, he argued.

It's a shift reminiscent of what happened in the voice market more than a decade ago, Marsh said.

"Going back 15 years, on the voice side we were so TDM-focused, and then the people that got out of TDM and got into hybrid IP and then full IP are now the guys doing well," he said. "We see this happening in video where a lot of the traditional A/V-type guys that have been in this business for a long time can't seem to move to that full UC conversation."

Solution providers also have to be looking at video managed services as a potential sale for customers who don't want to buy video endpoints or on-premise infrastructure, he said. Carousel as a whole is looking at more ways to offer hosted solutions to customer, in video and elsewhere -- particularly midmarket customers.

At present, Carousel only has a few hosted infrastructure pilots with customers. But in the next two years, Marsh said, hosted solutions could be 20 percent of Carousel's business. The reason for that is simple: more customers want to consume their IT from afar, with the infrastructure off-premise.

"The hosted piece is a place where we've got to hit a home run," Marsh said. "You find a company of 300 people, where the IT has gotten too complicated today. Why not go in and say, 'Let me take all of this off your plate'? The conversation, in my opinion -- why we're making this bet -- is that the midmarket space should be completely hosted, from data to security to voice."

NEXT: Carousel's Mobile and Managed Services Play Another key piece of Carousel's growth strategy centers on mobility, particularly the infrastructure technologies used by organizations to effectively and securely manage their employees' mobile devices. Carousel doesn't sell tablets, but the margin for VARs isn't in the resale of tablets and mobile devices so much as it is the UC systems, applications and security controls that cover those devices, Marsh said.

"Every client is coming to us and saying tablets are being brought into our network," he said. "It's 'How do we secure it' and 'How can our network support it'. We're not selling tablets but helping clients answer that. You have a [large company] saying: you cover my tablets, what's your strategy."

Marsh said Google's $12.5 billion acquisition of Motorola Mobility will be important to watch because it makes Google that much more of a mobility company. The growth of Google's Android mobile OS, he said, will mean Android-based tablets outsell Apple's mighty iPad within a few years. But Marsh, like most solution providers, said he isn't sure where Google stands with the channel.

"I do not understand where Google is going from a channel perspective," Marsh said. "I have no idea. I have had no conversations with them. [Google's] mobility piece is going to be part of the enterprise world. I'd like to understand where they're going to target, what markets and what kind of value."

As the IT ecosystem around tablets grows and acceptance of iPad and Android tablets in the enterprise becomes the rule, not the standard, Apple and Google will have some key decisions to make on how to address the IT channel selling to that enterprise segment.

"If they really want a channel-type organization and want to go to market with people that are not badged Google and Apple, they're going to have to find a channel they can go to market with and try to get their share," Marsh said. "It'll be interesting to see what they pick at the end of the day."

NEXT: Carousel's CAPS Program

Perhaps a less-heralded growth opportunity for Carousel is in software, specifically app development.

Earlier this year, Carousel went live with a software platform called CAPS (Carousel Applications Server), which its team created as an in-house development tool for IP telephony applications. The first CAPS bundle, released in May, was targeted at Avaya enterprise environments and included Carousel-developed applications covering Click to Dial, Enhanced Caller ID and push messaging capabilities.

CAPS itself runs on Microsoft Windows servers and is available only through Carousel. The idea is that Carousel owns more of the app offering customers crave: end users customize their applications, and Carousel pockets more of that overall spend on applications that appeal specifically to telephony, UC and contact center customers.

Matthew Zanni, Carousel's director of software engineering, joined Carousel nearly two years ago to spearhead Carousel's software development efforts. Zanni said that as his team looked at customer challenges related to telephony, they saw a new way to drive stickiness with Carousel customers.

"What we realized soon enough was an opportunity to do what a lot of third parties do already today, because to get into computer telephony integration [CTI], for customers, is expensive," said Zanni in an interview with CRN earlier this summer.

Custom-built CTI applications are traditionally time-intensive, he said, with a lot of extra cost and man-hours spent tweaking or revising those applications. CAPS solves that problem by offering customers applications that are about 80 percent complete because a lot of the coding and standard tasks needed for the majority of CTI applications are pre-built and provided by Carousel.

"The majority of applications are similar. Eighty percent of the code can be written once and be re-used, so we thought, maybe if we build this into an application platform we can have that and then they can do 10 to 20 percent customization, maybe the screen arranged a different way and different security policy," Zanni explained. "It ties them to us at a much deeper level -- it's a value add they can't get someplace else."

Zanni's team is broadening its focus to hit contact center-centric applications and also applications that touch CRM, ERP and other business systems, he said.

Telephony is a lot more specific an app development competency than many IT managers realize, Zanni added.

"Telephony programmers are such a niche breed, and I need people that have the core understanding to do mission-critical applications," Zanni said. "If there's an error in the [telephony], the CEO is going to see that the second it happens."