Sramana Mitra: So, you do deals whereby you bring new products into your channel on a revenue-sharing basis?
Chris Gatch: A lot of the services we sell to our customers are with third-party partners. Our desktop security product was delivered in partnership with F Secure. Our desktop backup product is in partnership with a large cloud-based storage provider. For a lot of those, we might white label them and sell them directly as Cbeyond products, but that’s not always the case. There’s still product development effort on our part to communicate an offer like that into our base, productize it, and have the ability to support it and all that. It’s not a long tail. There are targeted opportunities for us, and therefore there are not tons of them that we do. But we do have a history of doing revenue sharing with partners; it’s just select on our part.
SM: That was just a question to understand your business strategy.
CG: One of the huge values Cbeyond has is a robust distribution into SMBs, so many people who target SMBs have a great idea for a service but don’t have a way to get to them. That’s a challenge because you’ve either got to have a brand or feet on the street. It’s hard to get scale and traction in the SMB market without one of those two. You can imagine we get a lot of partnership inquiries because we can reach these people. We have 2,000 small-business customers. On top of that, we have hundreds of salespeople who go out every day and talk to them.
The real challenge in the SMB market is, how do you get in front of the customer? This is where, over my 11 to 12 years at Cbeyond, I have seen it over and over. Companies have great ideas for SMBs but can’t distribute to them.
SM: It’s expensive to build SMB channels. Today it has become a bit easier because of Google PPC and SEO. People can reach SMB customers easily. A lot of companies have built sizable customer bases just because of online marketing, and a lot of SMBs look for technology online. You must have heard of a company called Zoho.
CG: I agree. With point solutions like that – and Zoho’s a great example – you can get out there, and it can be done. But it’s not easy.
SM: Nothing is easy. But it’s a lot easier than it used to be. Selling into the SMB market was an absolute nightmare before. That’s another thing. Because of cloud computing and the way the Internet has evolved in the last dozen years, it has become a lot easier.
CG: I agree. The more consultative the sale requirement, the more complex the product, and the harder it is. The beauty of something like Zoho is you can go to the website, quickly understand the value proposition, and then make a purchase. In our market, we’ve found that it’s hard to sell a lot of the services we do just over the Web without sitting down with a customer and having a consultative selling session.
SM: But virtual PBX doesn’t fit that profile. Virtual PBX is a well-known product.
CG: Yes. It’s interesting. There’s a part of the market that works that way, and there’s a part of the market that when you walk in and say, “Listen, I notice you’ve got this old PBX. Have you considered replacing that thing with a cloud-based PBX,” the person says, “Well, what is that? Tell me about it.” It’s just amazing.
SM: You’re absolutely right. There are different levels of technology savvy out there. There are certain users who need a lot more consultative selling, which is where you win because of that ability to cater to that kind of customer base.
CG: That’s right. That’s our sweet spot, where it’s a more complex product that requires a higher level of engagement like a virtual private data center. What does it really take to move your property management application to the cloud? We’ve got to move a database, the applications; how are your users going to connect to that? How does your security profile change? That kind of sale, or even just getting in front of the customer who wouldn’t think to go do a search and try to discern the difference between Grasshopper, Eight by Eight, and Ring Central is where we win.
SM: We have customers who sell into the real estate segment. We have a software-as-a-service company that sells into the real estate segment. It’s an email marketing solution for real estate agents. It’s a specific type of solution. The company is mostly doing outbound selling and PR and getting good traction. But I think it’s more consultative selling than people just doing searches and landing on the company’s page.
CG: Right. Of course, if you can get people to you, you can do the consultative part over the phone, if you can get the engagement driven through a Web search.
SM: Yes and no. You have to have a staff to do that. We don’t the staff to do a lot of consultative selling. It’s very time consuming.
All right. Well thank you, Chris for taking the time to talk with me.
CG: Thank you. It’s been interesting.