Palo Alto Expands Into Two-Tier Distribution In North America

With the company now cash-flow positive and having grown its North America business some 300 percent in the past fiscal year, its executives are shifting into high-growth mode in hopes of a successful initial public offering (IPO) on the horizon.

Palo Alto's firewall technology -- which manages applications and content by user instead of by IP address or port -- has many a convert in the channel now, plenty of strong industry buzz thanks to its plaudits from Gartner and other researchers, and increasing brand strength, having signed its 2,000th customer in September, after signing its 1,000th in April.

Palo Alto CEO Lane Bess alluded to the company's discussions with distributors in an interview with CRN in June. And late this summer, it onboarded two distributors, in hopes of targeting North American geographies where its channel base is sparse, and adding to its ranks of 150 existing solution providers.

According to Rene Bonvanie, vice president of worldwide marketing, Palo Alto had first tried out Westcon in Australia, which was successful.

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The distributor stood out, Bonvanie told CRN this week, because of its service and enablement programs for VARs and its ability to help Palo Alto expand both geographically, meaning new territories, and into key vertical markets, given Westcon's sizable federal government, health care and education bases.

"We wanted to work with a VAD with services they could deliver to the channel that were beyond the fulfillment functions a distributor usually has," Bonbanie said. "We want them to become a substantial help in doing marketing with these resellers, but they're also somebody who has the presence in the market to help us penetrate into territories we haven't. As good as the business is going, we haven't covered North America to the point where we're everywhere."

Westcon became interested in Palo Alto based on customer feedback, said Lynn Murphy, senior vice president, North America, for the distributor.

"They do get a lot of attention," she said. "Their innovative nature addresses some of the challenges in security. Gartner has classified them as a next-generation firewall, and it's net-new growth for both of our companies."

The deal with Computerlinks, Bonvanie said, gives Palo Alto a partnership with a distributor aggressively attempting expansion into North America from its established base in Western Europe. As with Westcon, Palo Alto was seeking a services-oriented distributor that would complement its own services and provide close-touch support for VAR customers.

Palo Alto has cultivated direct relationships with most of its North America VARs, and it doesn't intend to change those if those VARs prefer one-tier, Bonvanie said. But a number of Palo Alto VARs also have longstanding relationships with those distributors, he noted, and that makes fulfillment and support in many cases a lot easier, especially with back-end rebate programs.

Bonvanie said Palo Alto expects to attract about 40 new resellers through Westcon and Computerlinks in the next six months, but the company will be selective.

"I'm more interested in having those few who are on track to provide coverage than have 100 who aren't performing," he said.

That much-mentioned IPO is definitely on radar, but now is "not a great time" for it, he added, thanks to the slow-to-recover economy. Palo Alto's immediate future might be better spent bulking up, Bonvanie said.

"We plan to double the company in the next year," he said. "We have a great disruptive product and we will drive a lot of product innovation."

Bonvanie said he also understands concerns that such a hot-hand company makes an undoubtedly enticing acquisition target, especially with security companies being snapped up by tech behemoths left and right.

But he reiterated Bess' previous assertion that Palo Alto isn't looking to be acquired. He mentioned NetScreen, the security hardware vendor acquired by Juniper in 2004, as an example of a hot security company that saw disruption in its channel after being acquired.

"VARs like a horse, and NetScreen was a very nice dark horse -- a thoroughbred -- that was acquired and forced into a model they [VARs] didn't like," Bonvanie said. "I think a lot of these guys will tell you that we're the next dark horse, and the last thing they want is a Cisco or Juniper to come into it. They're always wanting to find their next horse to back."