THINK IT Services

On August 23, 2007, Perimeter eSecurity announced that it was acquiring USA.NET, a leading provider of secure eMessaging services. The announcement came just two weeks after Perimeter received a $50 million dollar commitment from Goldman Sachs, Bessemer Ventures and the Stripes Group.

Perimeter eSecurity, formerly Perimeter Internetworking, has become one of the largest independent managed security services providers (MSSPs) in the U.S. as a result of a series of acquisitions over the past three years. Here’s a quick chronology in reverse order:

• In January 2007, Perimeter acquired Message Secure, a leading provider of managed security solutions to financial institutions and other businesses in the U.S.
• In June 2006, Perimeter acquired ANE Technologies, a MSSP that provided security services to community banks and other financial organizations based in the Midwest.
• In February 2006, Perimeter acquired Breakwater Security Associates, a leading provider of managed security services and information risk management, headquartered in Seattle, Washington.
• In October 2005, Perimeter acquired the assets of US Networks Inc, a managed network and security services provider headquartered in Raleigh, NC.
• In September 2004, Perimeter acquired Guarded Networks, a MSSP and security consulting firm headquartered in Fort Lauderdale, Florida.
• In January 2004, Perimeter acquired iRW Services based in Charlotte, NC.

These acquisitions have given Perimeter eSecurity a nationwide footprint and portfolio of over fifty (50) on-demand managed security services, including Vulnerability Defense, Intrusion Defense, Network Defense, Email Defense, System Defense, and User Defense. The acquisitions have also enabled Perimeter eSecurity to grow its revenues 575% between 2001 and 2006.

The USA.NET acquisition will add over 1,300 clients to Perimeter’s existing customer base of 4,000. Almost half of Perimeter’s customers are in the financial services industry, dispelling the notion that this sector is adverse to offloading its security needs to third-parties.

The driving force behind these acquisitions and the company’s growing prominence in the MSSP market is Brad Miller, the company’s CEO. I had the privilege of meeting Brad and becoming familiar with the company back in 2003 when it was a little known regional player focused on the community banking sector. Brad joined the company in May 2000, coming from Wall Street with a determination to capitalize on the managed services model.

With many of the first generation of MSSPs being acquired by others–such as ISS by IBM, Guardant by Verisign, and Counterpane by BT–Perimeter has been able to use its own roll-up efforts to become a new leader in the MSSP market. Given the company’s track-record of success, access to cash and aggressive CEO, you can expect Perimeter eSecurity’s roll-up efforts to continue.

A little over a year ago, I contributed a commentary to eWeek’s Channel Insider, entitled “On-Demand a Boon for the Channel”, that stated the Software-as-a-Service (SaaS) movement doesn’t have to be the death-kneel for channel organizations.

At that time, many resellers and integrators feared that SaaS would ‘dis-intermediate’ them because of its direct sales and simpler deployment characteristics. There is no question that these attributes will certainly disrupt the traditional business models of many resellers and integrators who capitalized on the complexities of the legacy applications in the past. However, there is still plenty of complexity in today’s enterprise-oriented SaaS solutions to give innovative resellers and integrators a new round of business opportunities to pursue.

Just as in the past, customization and integration remain challenges in the new world of enterprise SaaS solutions. A year ago, I discussed in the eWeek article about how Bluewolf Group had grown to become the largest independent integrator of Salesforce.com deployments. I also discussed how retailers, like CompUSA teaming with NetSuite, were seeking to become viable channels to market for SaaS.

Shortly after my Channel Insider commentary was published, ADP and AmEx also entered the SaaS market as potent new players with their acquisition of Employease and alliance with Rearden Commerce respectively. There entry clearly demonstrated how the SaaS market was quickly growing into a business services opportunity. It also showed that a new set of channel partners are primed to play a part in the SaaS movement.

More recently, other new entrants are also illustrating how a new array of channel opportunities can be fostered by the SaaS movement.

Yesterday, Business Objects and Thomson Financial announced an alliance to deliver financial information on-demand. Under this new agreement, Thomson Financial’s data will be delivered in pre-built, easy-to-use online reports via Business Objects’ Information OnDemand solution.

Last month, Verticals onDemand unveiled the first of a series of industry-specific customer relationship management (CRM) solutions built on the Salesforce.com platform. The company’s new VBioPharma on-demand solution is aimed specifically at the managed care requirements of U.S. pharmaceutical companies. Verticals onDemand promises to rollout other industry-specific SaaS solutions on the Salesforce.com platform.

Saaspoint is an Ireland-based integrator that has experienced the same success in Europe which Bluewolf Group has found in the U.S. Not satisfied with focusing on the European market only, Saaspoint has opened an office in Silicon Valley and plans to expand its operations across the U.S.

These examples are further proof that plenty of channel opportunities exist in the SaaS market and are ripe for the taking for those innovators who want to capitalize on this rapidly growing movement.

One of the energizing characteristics of the IT industry in general, and the Software-as-a-Service (SaaS) market in particular, is the continuous change. Part of the change process is the constant cycle of new companies entering the market and established companies disappearing.

Although many of these companies will come and go with little fanfare, occasionally the meaning of a promising young company that fails to succeed is worth extra consideration. Klir Technologies was such a company.

I was notified of the company’s closure by its CEO/Co-Founder, James Maiocco, at the time of its announcement on August 1, but have been unable to comment on this event until now because of other commitments.

Klir sought to solve companies’ IT performance management needs via a SaaS solution. While Klir had been in business since 2000, it started to attract serious attention in 2006 when it decided to apply some of the basic principles of the rapidly evolving Web 2.0 social networking world to address age-old issues in the IT management arena.

Just as the legacy, on-premise enterprise applications, like SAP and Oracle, have failed to satisfy the corporate needs of many business users, so have traditional network/system management (NSM) platforms from IBM, HP and other vendors fallen short of meeting the needs of IT managers.

Klir was leading a new generation of SaaS vendors seeking to deliver easier to deploy and use on-demand alternatives to these costly, cumbersome and overly complex management platforms. A pivotal component of Klir’s go-to-market strategy was offering a free, single-user license to IT managers that enabled them to test Klir’s capabilities without making a financial commitment and permitted Klir to permeate the market quickly.

As I indicated in a previous blog, this strategy resembled a similar approach which was successfully used by VitalSigns in the 1990s before it was acquired by my former employer, International Network Services (INS).

Klir’s vision of permitting users to benchmark their IT performance against their peers, so they could also build industry best practice standards based on real data, went beyond VitalSigns’ simpler market penetration objectives.

Klir’s innovative solution and initial success attracted more than just the typical trade press attention. In addition to being named to a number of ‘company to watch’ lists, Klir also entered into a number of unique cross-promotional arrangements with major publishers who have become increasingly hungry for new mechanisms to attract and retain readers. The rapidly growing ‘community’ of IT professionals downloading and using Klir’s SaaS solution quickly became an attractive target for IT publishers as well.

In another of my previous blogs, I suggested that Klir was rewriting the rules about how vendors and publishers might work with one another to achieve their mutual business objectives.

Klir’s initial success building a social network of IT professionals also attracted the attention of some major players in the market, including vendors and resellers, interested in incorporating Klir’s functionality into their portfolios and leveraging its community-building mechanism to extend their own market penetration capabilities.

The company built a solid management team with experience at companies such as Microsoft, Amazon and Expedia. And, it had a strong set of investors.

I’d been singing the praises of Klir’s innovative approach for over a year. My consulting work gave me the privilege of having a unique perspective on the company’s strategy and potential partnering opportunities.

Despite its tremendous promise and these exciting opportunities, Klir still succumbed to the same strategic challenges which have stymied countless other companies before them.

First, it failed to successfully convert its community of users into paying customers.

Second, it was distracted from the customer conversion process by its efforts to simultaneously secure strategic partnering arrangements with the major vendors and resellers.

As a result of these distractions, Klir was also unable to clearly distinguish its IT management capabilities on a functional basis from a growing array of on-demand and traditional on-premise players.

The popular business management book by Michael Treacy and Fred Wiersema in 1997, “Discipline of Market Leaders”, stated that most companies succeed by choosing a corporate strategy focused on one of the following three options,

- Operational Excellence in which customer proposition is simple, and companies such as Wal-Mart and McDonalds can offer low or lowest price and hassle-free service.

- Product Leadership where companies such as Intel, Nike and 3M offer products that push performance boundaries.

- Customer Intimacy which permits companies like Airborne Express and Nordstrom to deliver goods and services that specific customers want.

Although I’m a firm believer that the Web 2.0 and SaaS movement is challenging many of the generally accepted ideas of the past, the demise of Klir clearly demonstrates why I remain a realist that today’s trends cannot fully redefine business best practices.