Extreme Networks bolsters ‘customer intimacy’ to spur growth

CEO Ed Meyercord talks about Enterasys merger and an expanding set of software capabilities undergirding Extreme’s wired-wireless switches

Ed Meyercord just wrapped up his first year as the top executive of Extreme Networks, a company that helped launch the gigabit Ethernet market 20 years ago. In this installment of the IDG CEO Interview Series, Meyercord spoke with Chief Content Officer John Gallant about how Extreme is capitalizing on its acquisition of Enterasys Networks and the company’s tighter focus on the mid-tier of the network market. He outlined how Extreme’s hands-on customer service is spurring growth and how having a wired-wireless-software ‘solution’ set is opening up new opportunities among Cisco and HP customers.

Ed Meyercord, CEO, Extreme Networks

Ed Meyercord, CEO, Extreme Networks

When you took over as CEO a year ago, what were your goals?  What did you set out to do?

First, we wanted to stabilize the company and focus on a new strategy. We’ve done that this year. The company had historically played in many different markets, trying to be all things to all players. We were focused on hyper-scale cloud, on service provider and high-speed trading, but meanwhile 70% of our customers are in medium-sized enterprises. 

Further, Extreme was a point product company; great switches, great reputation, great customers, but point products.  The genesis of the Enterasys merger was to add the wireless capability and software.  I was the chairman of the board at the time and this made a ton of sense, and when I became CEO the first thing was to complete the integration. 

We had to do some belt tightening in order to right-size the company and get focused on a new strategy, which is to target the medium-sized enterprise. The company had declining revenue and a cost structure that was too high.  We made some changes to the leadership team, moved quickly to take out about 20% of the cost structure and to focus the company on its target market where we have competitive advantages and where we can win. 

So the objective was to stabilize the company in the first year and then pivot to growth.

But there were a few other changes as well. This was an engineering led company - not in a bad way, because the company had fantastic engineering - and the investment decisions were being driven by engineering. I always believed the company should be driven by its customers and its partners, so we had to make structural changes.  We completely reorganized the company. 

We created a global sales and service organization.  Services used to be in engineering, if you can believe that.  We also created a new marketing and product line management group, pulled that out of engineering and put Norman [Rice] in charge of that.  He’s done a terrific job centralizing marketing - meaning there were marketing dollars out in the field globally that weren’t coordinated. He pulled all that back into a centralized group to focus the marketing initiatives on our target market and to create structured programs that we could invest.  Norman’s group is sitting in between the sales and services organization and engineering, driving our investments in technology so they are consistent with what customers and partners need to execute our strategy.

What remains to be done?

We have accomplished a lot.  Now it’s a function of accelerating growth.  We are ahead of plan.  We pivoted to growth in our third quarter, which ended in March, when we saw sales climb 4%. 

We are investing in and building this marketing platform to target verticals.  We’re solution selling.  We’re selling end-to-end wired and wireless to the campus enterprise and targeted verticals.  A year ago, 30% of our sales teams had sold wireless.  Three people were trained.  Today 100% have been trained on wireless and 100% have sold wireless.  We’ve made that part of the solution. 

We had 10% of our sales in the first quarter ended in September that were solution sales, meaning they included our management, control, analytics software products.  It was 15% in the second quarter at the end of December, and 18% in the quarter ending in March.  We’ve trained on solutions selling.  We’ve been moving towards wireless, towards solutions and now it’s all about growth.

We have the solution set and unique capabilities to solve problems for our target customers. The solution is wireless and wired, so it’s the access point and the access switch all the way into the core of the network and the data center.  Then we have SDN flavors, varieties that will plug into our VXLAN solution or an OpenStack solution. We have visibility with our single pane of glass – we are the only provider that has that.

Regarding Enterasys, are you still offering both lines of switches from the two companies or have you integrated those?

Yes. The switches have different characteristics and different capabilities but now they can work together.  Now we have solutions that may include a switch from legacy Enterasys and switching from Extreme and they’re operating and functioning together.

They’re on a common software platform now?

I want to clarify.  We still have different operating systems but we have switches that are capable of running in the same operating environment. In terms of our software, we have common management in our control and our analytics that can run on top of our entire switching protocol.

I have covered this company since it launched back in the 1990s and, if I have it right, you are the sixth CEO in the last decade. Why so much leadership change?

There’s been a lot of change in the industry. The board has been very active in trying to find leadership to develop and execute a growth plan.  At the end of the day it’s about growth. We’ve had CEOs who had various ideas, but usually they were product led and they were somewhat silver-bullet strategies, where a guy had an idea, said if we develop this switch it’s going to transform the company.

We made a transition with the acquisition of Enterasys because we needed a CEO that had a different skill set. We picked a CEO who struggled at integrating the companies and had some issues, which is why I became the CEO.  One of the things I’m most proud of today is the team of people we have.  The leadership team at Extreme is very strong.  They’re working well together. 

What I knew from being on the board is the company struggled from a lack of alignment in leadership, where the vision from engineering was different from the vision in the field.  We’ve brought that together today and I think we’re a much more stable company.  We’re the strongest that we’ve been and, in Q3 we grew four percent year over year, purely organic growth.  That’s the first time in five years.

How do you define medium sized enterprises?

Our ideal customer is going to be a business with $150 million to $2 billion in sales, with a campus with 250-2,000 people, and a data center with 750 servers or less. Our target verticals include education, government, manufacturing, healthcare, hospitality and public venues. It’s an $8.1 billion opportunity. 

The key for us, which we haven’t done historically, is to share our success stories and share our solutions with the channel, our partners, our direct sales teams, so they are aware. For example, Volkswagen is a big customer of ours.  We deployed the network in the new facility they just opened in Russia. Tata Motors in India, the National Railway System in France, Intel Corporation or Samsung Electronics, these customers rely on Extreme for their networking. 

In an interview with a channel publication, you said Extreme doesn’t want to be a little Cisco.  What do you mean by that?

We don’t want to be a little Cisco because they’re playing in markets where we’ve said we don’t want to play and because Cisco is not really growing.  Their growth comes from acquisitions.

While they are our largest competitor in our target market, which is medium-sized enterprises in our target verticals, they don’t have a focused solution like we do. 

For example, they have two competing wireless products. Meraki [which Cisco acquired] is a cloud-based platform, while Cisco also has an on-prem-controller based platform and two sales teams from the same company show up and compete with each other. And they don’t have unified management, a single pane of glass, like we do. 

The other huge differentiator for us is customer service.  If you talk to Gartner analysts - and they talk to thousands of enterprise customers every year - our industry as a whole is notorious for terrible service.  That’s the industry rap.  But customers say Extreme’s service is very good.   100% of our service is in-sourced. Ninety-four percent of the calls that come in are resolved by the person who takes that call.  It’s a qualified technician who is picking up the call and that creates a level of customer intimacy that the big companies just can’t deliver. 

Instead of being triaged and popping around the globe trying to find the right person that can answer your questions and resolve your problem, literally the person who picks up the phone is going to resolve your issue. We’ve analyzed our enterprise customer base and the biggest differentiator is customer intimacy. 

In fact, our new tagline is ‘Connect Beyond the Network’.  It’s about the customer relationship.  It reflects the pivot from engineering-led to customer-led.  It reflects the customer intimacy.  It reflects our technology investment and our vertical investment, investing in solutions that are solving customer problems instead of selling point products.

So you don’t want to be Cisco and compete in every market, but how do you sell a company that already has a Cisco solution? 

We win in a lot of different ways.  Norman has been very active with our NFL relationship.

The NFL used to be all Cisco, but it is now more concerned about the stadium experience. It’s more strategic and that’s why we’re exclusive with analytics with the NFL, as an example. 

Our selling motion is becoming more about having the customer intimacy, which is how we’ll win.  We run into a lot of ABC – ‘anything but Cisco’ – customers, people that are frustrated from a pricing perspective.  Once people get locked in, from a total cost of ownership perspective, Cisco is a very expensive company to do business with, with all of their proprietary technologies. They’re known for that.  We bring a solution and a differentiation and a higher level of customer service and we can win those customers. 

The other thing we leverage is our customer base.  The Dallas Area Rapid Transport is the train and bus system in greater Dallas serving 8-9 million people.  They are an Extreme customer.  It’s a competitive situation and the CIO wants to go to her board and she wants to recommend Extreme but the board doesn’t know Extreme, they know Cisco.  They know HP.  But then they find out we’re the provider of the rail system in France, which is one of the largest and best run rail systems; they find out we have McCarran Airport and the Pittsburgh Airport and the operator of all the airports in Spain and Mexico.  When we start sharing the depth of our customer relationships and the quality of the customer relationships, it takes away the brand issue.

Speaking of HP, what’s your take on HP’s acquisition of ArubaI talked to Meg Whitman a couple weeks back and they claim that that’s been a hugely successful acquisition for them.  What does it mean for you that HP Enterprise is more aggressive in networking, more aggressive in wireless now?

There’s no doubt that it makes HP a tougher competitor because Aruba was a tough competitor on the wireless side.  A couple of things come to mind.  It gets back to focus.  HP is playing in a lot of different markets.  We believe we’re the only provider that’s exclusively focused.  This doesn’t mean we don’t have other customers.  It means we’re directing our marketing and our technology build at the medium-sized enterprise campus environment, solution selling in our target verticals. 

We think this is going to give us an advantage.  We think Aruba, which was very good executing a similar model, becomes less focused now that they’re part of a bigger HP.  We also know there are a lot of channel partners that have been somewhat disenfranchised with the change because if you were a big Aruba general partner you are now a very small HP partner.  There’s been some dislocation in the market and there’s an opportunity for us to get new partners.  We’ve seen some hiring opportunities to get wireless talent on board who don’t want to be part of a massive enterprise like HP and we think there’s some channel opportunities for us as well.

I want to talk about your software-defined network (SDN) strategy.  I think it was in your earnings call you described it as ‘elegant.’ What differentiates the approach you’re taking to SDN and what makes it elegant?

 I think the reason why the Gartner analyst called it elegant is that it’s beyond the data center.  The big SDN solutions out there, like Cisco ACI [Application Centric Infrastructure], are all data center driven.  We have the ability to control and shape quality of service for applications out at the edge and even in our access points from a Wi-Fi perspective.  It’s the Extreme control and analytics platform and the ability out at the edge to shape and manage the network that makes it elegant.  We can control the network from the data center out to the edge. We also have the flexibility to work with VMware in terms of their SDN solution.

It’s our view that there’s a lot of confusion about SDN in the market.

I would say that’s true.

There’s a lot of talk about creating an SDN market in the cloud, self-provisioning applications from the cloud.  We’re a lot more practical in our application of SDN.  Our application of SDN is, for example, enabling schools to turn on and off bandwidth in a classroom.  That’s the real application of SDN. 

We’re focused on application delivery from the edge and it’s about how we simplify networking for our customers at the end of the day.  Whether or not that comes from the data center or how that plays out at the edge, it’s about simplification.  Our customers don’t have big IT staffs. We want to make it easy for customers to solve the problems they have around devices on the network and about application delivery.  We have tools that make it simple for them to deliver applications.

At this point is SDN a big customer ask?  Is it driving the market at all?

Not in our market. There is ask around application delivery.  SDN is more of a buzzword that promotes a discussion.  In our market we don’t see people buying SDN.

I want to ask about the recent launch of Extreme Cloud.  Can you explain what that offers customers?  What are the benefits of that?

Almost a year ago we had a customer advisory board meeting and our customers were asking us for ways to deliver new revenue streams.  A big hot button for them was managed services.  The way for us to deliver managed services is through a cloud-managed offering. We have self-provisioning access points which can be deployed and then the AP calls into the cloud and registers.  It makes it easy for partners to manage multiple environments.

At this point is it just wireless environments or is it wired as well?

Wired is coming at the end of June so you’ll have both.  We will also offer flexibility as far as subscription pricing for both.  I think we’ll be the first to have the subscription pricing for the access layer switch. Henry Ford Medical Center has different doctors’ offices that they’d like to deploy, so rather than rolling trucks to manage the network in a remote location, they can deploy our AP that will then call home into the cloud and then they can remote manage from the cloud.  The cloud is really about ease of deployment and speed of deployment, also for our partners, their ability to manage multiple different customers.  We also have a feature that’s different from the rest of the industry which is white labeling, so from a partner perspective you can leverage your own brand using our platform.

And that gives them an ongoing revenue stream as well beyond the initial product sale?

Right, a mostly recurring revenue stream.

Makes sense.  You mentioned the hyperconvergence market.  Do you have a play there?

No.  We really don’t.

By intention?

By intention.  I think there could be partnering opportunities for Extreme and we’re not closed to having discussions.  We could be a part of a hyperconverged environment through an OEM partner.  We have some large partners that are considering us to be part of their solution.  But in terms of our primary focus, our primary focus is on this middle tier enterprise campus.

Is it your sense that in the segment of the market you target hyperconvergence solutions are not as in demand as in other parts?

That’s correct, although there is this emerging private cloud and in a private cloud environment we are very competitive.  We have products that are very competitive in that environment but typically these customers are not buying hyperconverged.

Gartner listed Extreme Networks as a visionary in the Magic Quadrant for wired and wireless LAN access.  What makes you a visionary?

Our software.  Its Extreme management and our control and our analytics and what that allows us to then build for enterprise customers as far as the solutions.

So it’s the combination of capabilities?

It’s the fact that we’re one of two players today that actually has end-to-end wired to wireless.  We’re the only player that has the single pane of glass.  Our service is differentiated.  With our software tools we can create customized solutions that our competitors can’t.

I think this was also in your earnings report where you said currently about 12% of your customers today have a complete solution from you with wired, wireless and software.  Where can you ratchet that up to in, let’s say, the next year? How do you get more customers to have that full solution from the company?

You do a few things.  You upsell your current customers and you make sure your teams are trained and educated and they understand how to sell solutions.  We’ve invested a lot in training and education.  It’s been very effective.  The field has embraced it and our partners are embracing it.  We have training programs for our partners as well. We’ve gone from 10% in Q1 to 15% and now 18% in Q3.

Obviously the Enterasys acquisition has been beneficial to the company. What’s the strategy on future acquisitions? Are there parts of the product line that you need to expand on?

We will be opportunistic, and any kind of strategic opportunity - or what I would call an inorganic growth opportunity - would be one that’s driven by technology, something that’s going to enhance the solution we deliver to the market. It’s going to be something that fits into our customer strategy where we could expand and leverage an existing base of customers.  We will be looking in the growth areas of the market.

This is something I’ve been asking about for years, whether customers will be doing away with more and more of their wired access into the network and becoming essentially wireless enterprises.

We don’t see wired switches going away.  However, we do think that software-driven network solutions will drive hardware sales. Most of our competitors sell point products.  They sell point switches or point APs.  We think the enterprise is shifting toward solutions because they don’t have big IT staffs.  They’re trying to solve problems and if they can have a network partner that’s helping them solve problems and they have software tools that allow them to do that, that that becomes an important part of the sale.  It allows you to then sell a solution at a higher margin and it allows you to pull through the hardware portfolio.

What should people expect from you and the company over the next year?

You should expect to hear a lot more about Extreme.  You referenced the Gartner Magic Quadrant.  Gartner also said we’re the best-kept secret in the industry and a big part of the opportunity for us is to let the genie out of the bottle and make everyone aware of this. 

We’re going to do that by telling our customer story, by having centralized marketing, by creating programs for our partners, educating our partners.  We have an incredible base of customers and we have great people in the company. We’re going to make it a lot easier for partners to sell and a lot easier for our salespeople to sell Extreme.  We’re going to do some very creative things on the marketing side to promote awareness. 

The good news is from where we were a year ago, we’ve got the right team in place, we’ve got complete alignment, we’ve got the most focus the company has had in its history, we have all the product pieces and now we’re investing in designing solutions and then communicating all the solutions and the successes out to the field to create a path of least resistance to have Extreme considered in any kind of a network solution evaluation for enterprise campus customers.

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