Sramana Mitra: The best way for us to understand the business and the dynamics of the business environment in which you play is to do use cases and segments. That’s why I’m leading you down this path.
Chris Gatch: Sure. To that end, let me give you an example. We have a customer that’s a property management company. If I look into the systems that the company uses, it has Microsoft Exchange that’s hosted on site. There’s a property management application that’s hosted on site. But when you look at the payroll system, it’s ADP, which is a SaaS-based solution. We’re moving those applications that ran on site into the cloud. When we’re done, the company will have no physical infrastructure on site, and it will have a combination of applications that run on a private environment hosted on our total cloud data center product suite. And then it will have some SaaS services that it consumes as well. That’s what I see when I look out across most SMBs. I see some combination like that.
SM: What are the top segments in your business?
CG: This is what’s interesting about Cbeyond. We don’t have an industry focus. Our offers have had a fairly broad appeal in terms of network services and voice services and what I call broad cloud services like email, Web hosting, security, and things of that nature. We don’t have any one vertical that comprises more than 6% of our customer base. Now, when you get to the ones that are the large 6% type segments, they’re what you would expect, professional services segments; medical is a large one. But we have healthy numbers of various business types – even schools and churches and financial services companies.
SM: It sounds like hosted Exchange is a big part of your business. Is that correct?
CG: Yes. We provide email services for about 40% of our customers.
SM: Would you talk a bit about what’s happening in that hosted email market? What are the dynamics from your point of view in the small business segment?
CG: There’s much stronger adoption now. I can’t remember the last time I talked to a small business owner who was deploying his own email server.
SM: My question was more about what’s the competitive landscape there? Exchange is just one solution. There’s Gmail. If a company’s going from a solo business owner to five, ten, twelve, fifty employees, what are the different solutions that business owner is considering and what are the dynamics of that business?
CG: We see very little adoption of Gmail in the business segment. There are serious security concerns. If you own a small business, by definition, Google’s email service level agreement states that the information that exists in your email box, Google has the right to it while you’re a customer of Google, but even after you disconnect from Google, the company still has the right to mine your information. If I’m running a small business, if I’m a doctor or an attorney, there is no chance that I’m going to use Google mail as my mail platform. We do see some of it. I’m not going to say that it doesn’t exist. But what we mainly see are customers using Exchange or a traditional POP or IMAP service that they got from their website hosting provider. Historically, if you hosted a website, your hosting company would provide email at no cost. That’s where a lot of the market was until recently when more have been moving to Exchange. Probably less than 5% use Google as a business tool. It’s the same with Google Docs. We see some adoption of that.