Palo Alto Networks: Are These The Channel's Happiest VARs?

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As one the more frequently buzzed-about companies in the network security space, Palo Alto Networks has made quite a splash with its so-called next generation firewalls, which manage applications and content by user instead of IP address or port. The company's subsequent ability to pack a range of advanced security features into single products at affordable price points for the enterprises has announced it as a major new network security player to compete with the Ciscos, Check Points and Junipers of the world.

But perhaps at least as impressive is the way in which Palo Alto Networks, in the short span of five and a half years, has ingratiated itself with nationally-known security-, networking- and data center-focused solution providers who thought they'd seen it all with firewalls and network security technology, let alone found a vendor who could back its engineering up with top-of-the-line marketing and channel support programs.

"People are starting to know who they are," said Helen Lesser, executive vice president at Nexum, a Chicago-based solution provider. "There are obviously big firewall companies out there and big companies in the IDS/IPS space as well, but without a doubt their name is coming up in conversation even before we bring it up with customers. That's definitely a tribute to the growth they've had the last few years but also the value and innovation they've created in this space."

Danny Timmins, CEO of NCI, a Mississauga, Ont.-based solution provider, said that within the past year, customers have been requesting Palo Alto versus the other way around -- a huge customer mindshare leap in a short period.

"They call it a disruptive technology and I think they've done a good job selling it that way," he said. "It used to be they'd have to ask to be looked at, but now they're being asked be on RFPs. It's not only the channel that wants it, our customers are also asking for Palo Alto and that's really happened in the past year or so."

Palo Alto executives offered perspective on the company's recent strides at its Double Down Partner Summit in New Orleans this month, which was Palo Alto's third annual North America partner conference and included about 155 partners.

To date in 2011, 26 Palo Alto partners -- of about 700 or so worldwide -- are doing more than $1 million in bookings with the company, versus nine partners who did so in 2010.

The company's average deal size and consideration rate are growing considerably, according to Brian Harmon, vice president of North America at Palo Alto, and Palo Alto wins more than 90 percent of deals when a customer has successfully tested its solution.

"We want a seat at the table for any opportunity," Harmon said, urging partners to get even more aggressive behind Palo Alto in the new year.

Mark McLaughlin, who became Palo Alto's president and CEO in August, said that one of Palo Alto's biggest growth advantages is the size of its market opportunity -- ample "headroom," as McLaughlin put it to partners.

Thanks to the evolving nature of threats and the pressures placed upon IT managers by trends like virtualization and mobility, those IT managers are forced to look at new ways to solve network security problems, he explained. McLaughlin cited research from IDC indicating that Palo Alto's addressable market, counting VPN, IDS/IPS, web gateway and firewall spending, will be more than $12 billion by 2014.

With Palo Alto still a private company -- and its financial picture a closely guarded secret among its top executives, especially with initial public offering (IPO) talk a daily reality -- McLaughlin and his team did not provide detailed revenue figures.

McLaughlin did say that Palo Alto Networks has doubled in size every year, has seen seven quarters now of positive cash flow, and has more than 5,000 customers in 80 countries. In addition, the company has more than 40 deployments sized $1 million or larger and is adding new million-dollar deployments at the rate of one per week. It has more than 500 employees and is adding between 100 and 125 every quarter.

"Competitors like to say, 'that's the little start-up," McLaughlin said. "But this a very late-stage private company. The company does not need to raise capital to do what it needs to do."

Solution providers interviewed by CRN in New Orleans said Palo Alto Networks has been steadfast in growing with partners, and protecting both their investments and their margins. Palo Alto, for example, denied a reseller contract to Dell -- an announcement that brought thunderous applause from partners gathered at a conference keynote -- and has also maintained it will leave professional services sales entirely in the hands of solution providers.

For NCI, which does about 60 percent of its revenue in professional services, that's a key message, said Timmins, whose organization also focuses on Check Point.

"We're not a box-pusher, we're a consultative solutions provider," he said. "Without knowing that we can get our professional services on the back end, we probably would not be involved with Palo Alto and certainly not at the numbers we're doing with them today."

"Our business is doubling year-over-year with them, and there are a lot of good vibes about the organization," said Steve Groom, security practice manager at Trace3, an Irvine, Calif.-based solution provider. "The product itself has made the short list at an awareness level, even at the bigger shops who usually wait for products to become stable before they invest. I'd love to say they could be doing something different, but they're really doing things the right way."

Next: Why Partners Are Investing

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