In an article written on September 24, 2012, Sramana Mitra interviewed Chris Gatch, CTO of Cbeyond. They discussed Cbeyonds affordable cloud service for small and medium businesses. Gatch says, "We’re all about leveling the playing field between the big, better capitalized, better staffed companies and the small and mid-sized businesses we serve." Below is part 1, 2 and 3 of "Thought Leaders in Cloud Computing: Chris Gatch, CTO of Cbeyond."
It’s nice to have an IT team on staff, but that’s not affordable for all businesses, especially small and medium businesses. That’s where managed services providers like Cbeyond come in. They offer small and medium businesses the same level of services that they would receive with on-staff IT teams at a fraction of the overall cost.
Sramana Mitra: Hi, Chris. Let’s start with some context. What do you do? Where are you going directionally? What is your personal background?
Chris Gatch: I’ll start with Cbeyond. We’re a small business–focused managed services provider. We position ourselves as technology allies to small businesses. We deliver infrastructure as a service offerings in the area of cloud and networks or cloud and communications. Our goal is to bring enterprise class services in those areas to small businesses. We’re all about leveling the playing field between the big, better capitalized, better staffed companies and the small and mid-sized businesses we serve.
SM: What is your definition of small business?
CG: It runs, for our business, from five to about 500 employees. The concentration of our customers is fewer than 100 employees. In fact, until last year when we moved our focus to a slightly larger customer set, our average customer had 12 employees.
SM: What are the services you offer?
CG: Going back to our beginning in 1999 as a startup focused on integrated voice and data services for small businesses, over time we started adding a series of productivity enhancing applications to that bundle. It started with simple things like email and Web hosting. It evolved to include services like hosted Exchange, desktop security, and even workforce mobility solutions. We added mobile to our bundle. We just kept adding as small-business owners would come to us and name the areas where they were having challenges in their businesses. Starting in 2010, we recognized the opportunity that we saw in cloud. We made an acquisition in the cloud computing space and the hosted PBX space. One company was called MaximumASP and the other Aretta, which sharpened our focus on the cloud area. In most of our opportunities, we are now leading with the cloud and using network services to complete that offering and enable it. We’ve created more ability to bring high bandwidth capabilities to customers with the idea of enabling them for cloud services.
SM: How do you recommend that a small company move to your system? What are the first few things that the business owner will buy, how does he scale his cloud infrastructure, and what would that cost?
CG: It would depend a lot on what problems he was trying to solve for his business. But for a company that’s truly virtual, meaning it is independent of any physical office location but has a distributed collection of employees working from home, the main products we have that would be useful would be our total cloud data center product and our total cloud phone system product. Both of those are cloud-based services. The total cloud data center is exactly what it sounds like, a data center in the cloud. It starts with a private networking layer to which you can add compute resources with virtual and dedicated servers. There is a firewall component that resides on top of that. All of that infrastructure rides on the environment within in our physical data centers in the United States. If you have a distributed virtual business, you can get an environment that’s the equivalent of having a physical computer room like you had in the old days when you would get a single location office.
It’s the same thing for the total cloud phone system. It’s telephony services, hosted PBX services in the cloud, so that distributed small businesses can have users in various locations around the country. They can have phone numbers local to each of their markets if they want them, but at the same time, they present to the world a single identity. A small distributed business could look like an organized company from a communications perspective. We bring a lot of value by integrating cloud services and network services. That might have less value to an owner of solely a distributed business because he doesn’t have a physical location. But one of our distinguishing characteristics is that we integrate both a robust portfolio of network services and these cloud services. So, when there is a physical location, we can control that experience end to end.
Sramana Mitra: And what does it cost?
Chris Gatch: It’s going to vary. A cloud data center can start at about $350 for a private center, which includes a completely segmented network environment, a logically separate firewall, about half a terabyte of storage, and a modest level of computing resources. It can scale to much larger numbers depending on what kind of cloud infrastructure the client needs. On the hosted telephony side, for a total cloud phone system, like most hosted PBX offers that are in the market, the price probably settles around $25 a user. That’s not counting international usage. If it’s a distributed virtual company with international locations, that figure could change considerably.
SM: How much more does it cost?
CG: It’s only going to vary based on long-distance international usage. So, there’s not anything that different from somebody having a phone in India and a person having a phone in the United States if they’re just talking to each other. But if the company operates internationally and U.S. callers are making lots of calls to customers in India, for example, these customers are off the user’s direct PBX. Then you can incur international telephony usage fees. That’s common outside of something like Skype or those types of community services where you’re just talking among people in that network. It’s pretty common in the industry.
SM: How does the landscape look to you in terms of the evolution of the small-business workflow and work environment? Where does it hit limits such that your type of service becomes important?
CG: When you talk about tools like Google Docs and Google Drive, for an office worker or knowledge worker in a company that’s predominantly a consulting firm or professional services where there’s not necessarily a line-of-business software but they’re providing some kind of knowledge service, and their computing requirements are traditional collaboration tools and word processing tools, you can do an effective job as a new company using SaaS-based solutions to satisfy your needs and not have to buy any infrastructure, be it virtual or dedicated and on site. Then we get into other types of companies that have line-of-business software that is required to run them: a medical office where you need a patient management system, an electronic medical records system, a restaurant that needs a point-of-sale system, or a shipping company that needs a warehouse inventory management system. Most of those packages are not SaaS based today, and they require users to have a dedicated environments to operate those solutions. In the U.S., I’ve seen research that says there are probably 2,000 software ISVs providing more than 5,000 line-of-business applications that are used by small businesses.
Where we find our sweet spot is in providing what would normally be physical infrastructure that would reside in a small business’s computer room and allow the business owner to host those same applications that normally run the business, but do it in the cloud. That can include the Microsoft Office suite, by way of an example. But once you get into companies that are distributed virtual companies that consist primarily of knowledge workers, and they don’t have these line-of-business applications, other solutions like Google Docs start to present themselves and become good alternatives. This is especially true for international distributed virtual companies.
SM: It sounds like you are competing with the public cloud with a private cloud solution for small businesses. Is that a correct characterization of what you’re doing?
CG: Yes. I would say that our total cloud data center product is like a private cloud, but normally when you hear people say private cloud, they mean that it’s infrastructure owned by the small business on which a provider is managing a cloud for them. In our case, we’re removing the requirement for the small business to have hardware to run applications. There are many applications for which there are SaaS alternatives, in which case we provide, for most of our clients, high-quality network connections with quality of service and symmetric bandwidth that helps add to that experience.
In some cases, we’re providing our own public cloud services like hosted Exchange. You have to break the market down. We commonly hear platform as a service, infrastructure as a service and software as a service. There’s a big market for all of those. Some applications are great SaaS offerings, but many of our customers have traditional line-of-business applications for which there are not SaaS alternatives, and they need infrastructure to run them on. Today, that infrastructure is in their computer rooms, and there’s great value that they can get by moving that infrastructure into the cloud. It’s just another slice of the market.
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.