Q&A: WatchGuard CEO On Two-Year Anniversary, SMB Security Opportunity, And UTM Competition

WatchGuard CEO On What's Next

Prakash Panjwani took on the role of CEO of WatchGuard Technologies two years ago. He joined the network security vendor from data-protection company SafeNet, where he helped spearhead more than 12 acquisitions and an $890 million acquisition by Gemalto. Since taking the top job at WatchGuard, Panjwani told CRN he has focused on driving a faster innovation cycle and further developing its partner go-to-market strategy, to name a few. The ultimate goal, he said, is to help WatchGuard and its partners better take advantage of the growing opportunity for security for SMB and mid-market companies. In an interview with CRN around his two-year anniversary, Panjwani discusses what he thinks he has accomplished so far, and where the Seattle-based company is heading next (including what acquisitions it is eyeing). Take a look.

Let's look back – what was the state of WatchGuard when you joined two years ago?

Looking back at April 2015, I felt like there were really three things that I came into… The one I definitely knew was that it is a great market… The second thing I was pretty sure about – and this turned out to be very true – is WatchGuard as a company has two amazing strengths: a very solid product offering… but also a very solid go-to-market channel. The third area that I felt walking in, where I was tentative as CEO, is what impact I could really make. I knew what I brought to the table: I had worked with private equity firms in the past and it’s a different model in terms of how you work with them and drive profitable growth… and overall security background [in a CEO] is something that this company has lacked before and that was something I could help with.

What changes did you make when you first started?

Number one was setting a very crisp strategy for growth. The market is hot, we have a great go-to-market channel, the core product is good – we just needed to figure out how we grow around those trends. The very first thing we did was build around what we're good at. To me, that's technology for small and medium-sized customers and distributed enterprises – that's where we show the clear value… We took a view of bringing enterprise-grade security to SMBs, and that meant expanding our portfolio and our vision much beyond just network security elements. The other piece of growth, of course, is just constantly expanding your market reach… The second thing was really around culture… To me it was really defining my own values that I hoped would filter across the organization… There were two values that I wanted to make sure they knew. One is just having a customer state of mind, and that includes partners because they are our route to market… We have changed significantly the way we think about compensating employees so it is very much driven by a profit sharing plan that cuts across the whole organization now, so if we do well people make more money.

What sort of changes have you seen since you implemented that strategy?

The results have been outstanding. I couldn't have seen that coming… We have had nine consecutive quarters of growth, and I don't want to jinx us but I'm hoping we'll hit the tenth as well… But, financially aside, I think it's really coming from the fact that the strategy of an expanded portfolio has really come true. We definitely innovated ahead of the competition with new releases coming out pretty much every quarter. A few things just to mention: we were the first ones to launch cloud sandboxing for SMBs right before I got here and we continued that innovation, we acquired this company called Hexis last year, and generally this year we launched a first-of-its-kind service for SMBs called Threat Detection Response… It's those kind of things that I feel are truly driving innovation. We also launched Cloud Wi-Fi… That's just a couple of examples of why that growth isn't just because the market is hot, it's really coming from the fact that we have expanded the services… We also launched a new Security Suite…

We have grown our headcount by almost 30 percent since I have been here… Most of that growth is in R&D, support and IT because it's about driving new products to market. Then, also from a marketing side just scaling the company to support the larger customer base and the partner base that we have.

How has the WatchGuard One partner program evolved?

It had just launched the quarter I got here. That has been a tremendous success. The unique thing about WatchGuard One is that it is a value-based program. It is not revenue based. We reward partners based on the investment they are making into WatchGuard in terms of training and resources. We have stuck true to it… We have grown through that WatchGuard One partner base dramatically over the past two years. By definition, on Day 1 we had grandfathered a few of them in, but I think we have about 900 partners initially in WatchGuard One. Now, we are up to 1,500. They have been growing collectively around 30 to 40 percent in revenues we get through WatchGuard One… We paid out the most rebates we ever have to WatchGuard One partners in our history – we grew almost 50 percent in terms of rebate dollars that we paid out last year… I think the reason is that our partners are just selling more, but they also are selling more services per appliance, which means the margins are higher for us and for them. It's truly a sea change that's happening underneath for our partners based on what we have gone through.

Will you be looking to make more acquisitions?

I have to be careful because we obviously try to keep it confidential. I think when I think about the expansion of the portfolio, there are two things to talk through quickly… From a technology acquisition perspective, it is almost everything that the enterprise security needs are that we can look at and try to apply it. The second part, which is more critical, is when we look at technologies we look for things that are actually channel-ready or we could get it channel ready. One thing that is not going to change at WatchGuard at any time is that we are 100 percent channel. That means that we have to really think through – even if the need is there for the SMB – can we bring it to market in a way that financially it is possible, support-wise it is possible, and then most importantly the partner sees a value to create value-added services around it.

What technology categories will you look to make investments in?

I can give you broad categories that are really, really important to us. I think one obvious thing is what Gartner calls CASB. More and more SMB customers are going to cloud applications and many of them are outside of the firewall… It's about providing more control back to internal IT around visibility over those application and access control to those applications… The second area to me is just around access control in general. I think everything from single-sign on to two-factor authentication or multi-factor authentication technologies that are needed to protect information in the enterprise… Then, I think we strongly believe that you have to have multiple layers of defense. Even though we integrate in a way that we hide the complexity from the end user… I think web application firewalling has been around for a long time in the enterprise world, but we just don't think it has a standalone meaning in SMB. I think we'll be looking at technologies that we can integrate to provide web application security, which is obviously a threat in SMB as well. These are the broad categories. Some of these we are looking at organic or even OEM or partners. But, I do think that some of these… we would rather acquire than just OEM.

How have you seen the competitive landscape evolve over the past two years?

The UTM space is just getting redefined. We are doing it ourselves. The term Unified Threat Management means more now than it ever has in the past… I really look at UTM as a broad definition of how do you truly manage everything inside the SMB… I think our approach is different in two ways than some of the more well-known competitors. Number one is that this is proven by [our] track record… We have just been ahead of them in terms of bringing some of these newer technologies to market, whether it’s the cloud sandboxing in late 2014… and then we launched Threat Detection and Response… That to me comes from the fact that WatchGuard has a history of being a platform and being able to acquire or innovate technology on top and bring it to market just faster… The second area is, I think, we are certainly taking a broader definition of how we think about our portfolio in the future… Most of our competitors are still suffering from [an identity crisis]. They are direct or trying to move up in the market – everyone from Fortinet, to SonicWall, to Sophos have enterprise channels and are still trying to expand at the expense of their partners and then try to go backwards… We are very crisp and clear. We have never gone away from it in our history.

Do you see new competitors emerging?

I do think that there are some new competitors that will emerge. I do think that the market is moving in the direction of UTM. What I mean by that is the SMBs, mid-enterprise and even the higher enterprises are realizing that buying these standalone solutions is just not practical with the security threats in the world we live in today. Even the large enterprises don't have the security talent or resources to integrate everything together. I think as the market moves in the direction of integration and UTM, I do think there will be, by definition, more competition, but I also think the market gets bigger for us. The mid-enterprise is now moving toward UTM, which they never would have considered before in the past.

What are the challenges you see for WatchGuard?

Number one, one area I think we have been doing a great job around but I wish we could move even faster is really around how more and more security will be consumed as a service… It creates opportunity, but it also means we have to be ready as a company to target more of those MSPs and help our partners transition in that direction. I think the end-customers are definitely going to consume more and more security as a service, rather than just an on-premise solution… The second challenge to me is WatchGuard [is] I feel like we need to expand even faster. What I mean by that is not the product side itself, but I feel like on the sales and marketing side we are expanding our reach. In the U.S. and Europe we have grown dramatically, but [in] Asia-Pacific we have grown but I think we can do a lot better than what we have done. It's really just about adding resources… I feel like we're not even close to where we want to be in terms of what we could do in the market… We have some challenges, but good ones. I think they are things we control, it's just about moving at a faster clip.

How do you see the customers' needs evolving? What's different than in year's past?

I think there's more of a wealth of knowledge than customers ever had before… The level of understanding of threats is just dramatically higher now than even two years ago. The awareness helps our partners explain the solutions better than we could in the past… But, on the other side of that, along with higher awareness comes higher expectations… [Customers] are just tired of investing in a solution and then being told they need more and more to protect themselves… They are willing to spend the money, but they don't want to be sold these piecemeal solutions anymore. I think what this does for the partner community is it creates a great opportunity. They can elevate the conversation. They are no longer going in to sell a firewall, they truly are going in to say, 'here are a set of integrated services and I have a high degree of confidence that you will be protected and I will have a regular engagement with you…' New services allow them to do that. That's what I see changing on the user side. A lot of the big enterprises are going to move in the same direction. I strongly believe that they will get tired of buying these standalone products from companies that just do one thing.

Will enterprises then look to buy WatchGuard, or is that not a market you're interested in addressing?

I think product-wise they will move in that direction and we are definitely ready – the product works the same way independent of the size of the opportunity. One of our strengths is we have the same services running on a small table-top box with five to ten users all the way up to the data center appliance. From our perspective, product is not the issue. We probably won't address the enterprise market primarily because of our go-to-market approach. We don't want to be distracted. Large enterprise means exactly what some of the competition went through: you get distracted by direct sales, channel conflict, and all that stuff that we have zero interest in having that issue, especially when we think the SMB and midmarket and distributed enterprises still represents so much more value to be created there. If the market moves in that direction we will take it, but not at the cost of sacrificing our go-to-market approach.

What are the next set of goals that are you are setting for yourself and WatchGuard going forward?

Number one is… all around security as a service. We're investing significantly in running more and more management and visibility capabilities through a cloud service. The primary goal is helping our current partners and managed service providers for an easier onboarding experience… The second area to me is… expanding the portfolio… We are trying to keep a pace we can manage where we can integrate, buy companies, and bring them to market through WatchGuard channels. To me, that's a huge priority of managing those categories that we're interested in and we're looking at companies in that space and figuring out what will fit for our end-customers as well. The third priority for me is WatchGuard One. WatchGuard One, two years in, is a very successful program. People love it. Now we're trying to build on top of it. For example, because we've added Cloud Wi-Fi and Threat Detection and Response, what we're looking to do with the next wave is create even more specializations… The second thing we're doing around WatchGuard One is as the business has grown, we have added more people so they are looking at marketing in a different way to help partners in different regions. The way we do MDF, we are giving them a lot more flexibility in how they use them to be beneficial.