Silverback exec eyes midsize customers

By Denise Dubie
Network World, 01/14/02

Originally a founding member of the MSP Association, SilverBack Technologies last year stopped providing most of its outsourced management services and instead began focusing on selling its software directly to small and midsize corporations. The company changed its business model in January 2001 when Concord Communications executive Daniel Phillips joined the SilverBack management team as CEO and chairman. Phillips recently spoke with Network World Staff Writer Denise Dubie about why SilverBack made the move from service provider to software vendor and how the company plans to compete in the future.

What would you say is one of the greatest challenges facing SilverBack and other network management software vendors such as Computer Associates, Tivoli and Hewlett-Packard?

I had been thinking for the past few years, when working with companies such as Concord, Micromuse, Computer Associates, Tivoli and Hewlett-Packard, about how we were all struggling at making software management products accessible to [midsize] customers, or the lower-end enterprise, rather than the Fortune 1000 companies. [Those companies'] products were designed years and years ago. They are very large, very complex and very expensive products that take an extremely long time to deploy and require a large and very sophisticated IT staff. Basically, I saw what a big challenge it was and is for IT management companies that started with software years ago to get that same functionality to midtier customers.

How does SilverBack's software management product differ from those designed years ago?

We have an architecture and a technology that allows us to deliver tightly integrated fault, asset, performance and security monitoring for network, systems and applications on an appliance that is easy to install and costs less than others out there. The appliance resides on the customer site, and [SilverBack] remotely updates and maintains the software, without managing the customer's IT infrastructure. We take away the most complex part of managing IT software, which is the administration, management and maintenance of the software. In terms of the bottom line, the cost of the product is less, but more important in terms of the consulting, training and maintenance budget for the IT staff, the whole IT budget, the cost is significantly reduced.

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Why did SilverBack change its business model from service provider to software vendor?

SilverBack had a tremendous architecture, but the business model was more of a full-blown MSP. In addition to providing the software, SilverBack had visions of also providing a lot more of the outsourced management of a customer's IT infrastructure. After going on a couple hundred sales calls and meeting with the customers, we realized our real value was our software and our architecture. But it wasn't our ability to also provide outsourced IT management.

There are a lot of other companies out there doing that, a lot of good companies, but we made the decision to focus on our technology. We have two markets we focus on: the first is end users, and the second is service providers that can potentially use our product as a delivery vehicle for their outsourced service. Instead of SilverBack being one MSP with all the others out there, all of sudden all those MSPs are potential partners for us.

What problems do you see with the MSP business model?

All MSPs are faced with the same trade-offs and decisions that large enterprises face. Do they buy HP OpenView or Micromuse NetCool for their fault [management]? And do they buy InfoVista or Concord for their performance [management]? And do they buy RSA or Network Associates for their security [management]? Or do they go spend millions of dollars with a Tivoli or CA to get it all?

Another problem with that model is the software needs to reside in the data center so it's central and remote. And the customers need to move their data off-site, which they don't like to do. Then there's the single point of failure in that they typically need to have a T-1 connection to each customer site in order to poll and collect the data. And the end-user customer of that service provider ultimately gives up its control of the IT infrastructure. Lastly, the cost of buying all of those tools and trying to integrate them together and building lots of data centers forces service providers to have a high cost of goods, which ultimately means the fee they charge the customer is exorbitantly high.

How does changing to a software company ensure SilverBack's longevity?

In this economy, for the short term, the rules have changed. And if you look from an end user's perspective, the odds are very, very good you are looking at how to reduce your IT budget. And you are looking at your IT budget, in terms of cost of products you have to buy and line item for hardware, for consulting, for training and for head count.

Most CIOs are faced with how to cut 25% out of those budgets, and it's a painful thing to do. We provide software that will allow that CIO to get up and running quickly in terms of IT monitoring and then will be extremely easy to use for a less sophisticated IT staff. For that CIO to not have to worry about the administration of the software - which purely relates to head count - while also providing good IT service at a significantly reduced cost - is a strong value proposition in today's economy.

Have you changed your approach to customers in the tight economy?

We made it clear we are a software company with a unique way of delivering maintenance and support. Initially, we were really focused on the small to midsize company that had a handful of point tools. Those customers have made the decision that it's now time to more proactively monitor their entire infrastructure and look at their network and systems and applications as one.

But since the economy has waned over the last few quarters, we're finding there are a lot of larger companies interested in SilverBack. These are enterprises that are in the middle of trying to deploy CA or Tivoli, or to a lesser extent HP OpenView, and may have already spent $500,000 to $1 million. They've been trying for six to 12 months to get it up and running and deployed, and they can't continue to wait. What we're able to do in that environment is bring in a product that provides probably 30% of the other products - but it's the 30% of the functionality that the customers are looking for.