Astaro: Tapping the Channel for Security Revenue

Why sell somebody else’s product line when you can do a better job offering your own? That was the question that ultimately pushed Jan Hichert, CEO of Astaro, and two other cofounders to develop their own Internet security solutions for a market they viewed as needy of attention — the small- to medium-sized business (SMB) segment.

Prior to deciding to go his own way, Hichert was a reseller, dealing in other vendors’ security products. However, in his view, the products were too complex to use and were aimed at the enterprise market, leaving the SMB space untapped. So he and his two partners changed course and looked for a product to better work with SMB clientele.

To jump start their product line, they took open source code for a firewall solution. Adding their own embellishments, they developed a product that did fairly well in its first year.

“Open source let us take the status quo of that industry and our own limited resources and innovate,” Hichert told the E-Commerce Times. “We started in 2001 as three kids fresh out of college.”

Today Astaro offers three products: a firewall, an e-mail firewall and an Internet security appliance.

Building Blocks

All three offerings started with the same idea.

“We took what open source had and then gave back to the community our improvements,” Hichert said.

Along the way, Astaro added its own proprietary software. But despite some initial success, he learned how tough it is to sell a free product.

Big Leap

Astaro set up shop initially in Germany. Selling to the American marketplace was decidedly different, as they discovered in the new company’s initial forays there. It became obvious that Astaro needed help from experienced workers.

Another drawback they quickly realized was the challenge of catching paying customers. Over the company’s first three or four years in business, the combination of the open source platform and a free download distribution strategy got them plenty of free users but few who were willing to pay for an enhanced product and support.

“One of our key decisions as a startup was making our software available for free download. Payment on the honor system for a fully-functional version of our product put us in the same predicament that was almost like following a shareware business model,” Hichert said. “What we were doing was unheard of in the security space.”

Astaro struggled with few paying customers and a sagging cash flow. Many times along the way, he readily admits, the company almost didn’t make it.

Different Story

That was then and this is now, however. Astaro has since turned a corner and is enjoying a measure of success. It now has more than 3,000 SMB customers obtained through reseller channels.

“Compared to our competition, we are much smaller,” said Hichert. However, he added, the company would be smaller still — or bankrupt — if it had continued to sell products directly.

Instead, Astaro boasts 165 employees and a revenue draw of over US$50 million. About 50 of those workers staff the corporate office in Burlington, Mass. The rest take care of business from Astaro’s dual main office in Germany and other countries throughout Europe.

Channeling for Cash

Switching to channel sales became Astaro’s lifeline. It provided a degree of legitimacy that free downloads lacked.

As Hichert explains it, why should a customer buy a product from a no-name entity peddling a basically free product that had no vested ownership in the code?

So for Astaro’s founders, the decision to sell through local resellers made sense and eventually made dollars as well. Hichert and his partners, after all, started out as a reseller themselves.

“We give our resellers hefty margins. We know what makes resellers tick based on our own reselling days. We are the tool providers to their customers,” Hichert summarized. “We’re proud of how we progressed.”

Power Point

The SMB market in the Internet security field is a risky place for a new company. It is a very competitive space with lots of powerful players.

“Even the small guys are growing. Astaro’s having multiple offices is a plus for them. They are playing in a global market. In terms of being in the American market, he does need a presence in the U.S.,” Charles Kolodgy, research manager for Internet security software at IDC, told the E-Commerce Times.

Astaro’s most interesting factor is perhaps the company’s innovation with open source. It gave the company an edge in the unified threat management (UTM) field, according to Kolodgy. UTM is a term Kolodgy uses in assessing the developments in worldwide threat management security activities.

In January of 2002, Astaro was one of the pioneers in the UTM space on a much smaller scale, he said. Other companies use open source to fit their needs. But it was how Astaro adapted the open source platform to fit enterprise needs that made the difference.

“The initial risk was that open source would hold [Hichert] back. But he leveraged it to make it work for his needs,” Kolodgy said.

Gunning for Competitors

When Symantec recently announced it was bowing out of its two-tiered sales approach that combined direct and channel marketing, Astaro decided to go after new customers. It expanded its channel partners and offered a bounty on conversions of Symantec renewals to Astaro.

On June 12, Symantec introduced a new promotion aimed at cutting out its resellers and pushing more automated renewals aimed at the SMB market.

In response, Alex Quinonez noted that Astaro recently quadrupled its field channel marketing team to grow more sales. Those efforts will go after Syamntec customers, offering discounts to resellers that wish to turn away from larger security firm.

“Joining Astaro’s partner program allows resellers to take advantage of a newly built field channel marketing team, resources, training, as well as aggressive margins of up to 40 percent,” Quinonez said.

The Road Ahead

Hichert sees the SMB market growing. As more small companies develop deeper ties to the Internet, Astaro plans to continue delivering.

“More mid-size businesses are relying on the Internet. Mission-critical security is more urgent for them. A small business can fail because of that,” said Hichert.

One of the challenges he faces is keeping growth in check, which Hichert said would put the company at risk of losing touch with the SMB market. Staying close to customers will be more difficult as Astaro grows, he said.

However, Astaro faces more demands than just remaining true to its customer base.

“Astaro needs to meet channel-driven competition. The company has to make sure it has a strong base to move up from,” Kolodgy said.

Also, Astaro has to keep up with the fast pace of security technology.

“One of Astaro’s strengths is its ability to run its product in virtualization. The company is making it real easy to get the product to potential customers,” he concluded.