CRN Exclusive: Datto CEO McChord On Expanding Into Networking And Security To Build Opportunities For MSPs

Datto In Constant Remake Mode To Widen Its Support For The MSP Channel

Datto is a company going through massive changes to itself as part of a plan to make it an indispensable part of the MSP channel. The company, best known as a developer of data protection technology for MSPs, has in the past few years made two major technology acquisitions that have made it a major player in the networking and security markets. At DattoCon last week, the company also unveiled plans to enter the virtual desktop business. And, as with everything the company does, this is all being done specifically to make it a more valuable part of the MSP business.

Datto CEO Austin McChord sat down with CRN during DattoCon to talk about the company's technology expansion and how it ties in with Datto's maniacal focus on the MSP business. Here's how a small company, just turning into a midsize business, hopes to take on the IT industry's biggest storage, security, and networking companies.

This year is Datto's 10th anniversary. What are you doing to celebrate?

We closed Six Flags [in Agawam, Mass.] for our entire team. I probably rode about 20 roller coasters in the period of about an hour. ... You'd be on the roller coaster, and they said, 'Put your hand up if you want to ride again.'

How have you seen the MSP business change over the last 10 years?

Oh, man, an enormous amount. If anything, the MSP business has gone from this niche and offshoot from VARs and break-fix guys to really becoming the definitive way to how small businesses will get their IT services. And it's pretty clear that it's moving to a service-based economy for how IT is done. It's pretty clear that if you are a sub-1,000 FTE [full-time equivalent employee] business, MSPs are going to be how you are going to do your IT. And if you are not doing that now, it's going that way.

Would Datto be considered a small or a midsized business?

Probably crossing over the border into becoming a midsized company. We're north of 850 employees today, and we'll probably break the 1,000 mark by the end of the year. That would firmly place us in midsized business territory.

Does Datto use an MSP to run its IT?

Datto does not use an MSP to do our IT. Our IT needs are dramatically more complex than the average business. The average 1,000-person company does not need to secure almost 5,000 servers running the amount of data centers around the world we have. A 1,000-person company hopefully doesn't have 320 petabytes worth of data.

If you look, Datto has had to search far and wide to bring in really impressive IT talent to run our internal IT infrastructure, whether that's our CIO, who joined in the last year or two, or our chief information security officer that we recently brought in. We have a pretty large team because we need to lead. So not only do we need to drive IT to make our internal company productive, but we need to be there to educate MSPs so that they're following the best practices in the industry as well.

Are the CIO and CISO roles you just mentioned new positions?

Those are new within the last 12 months. We added a new CIO, a guy by the name of Loic [Vienne]. And then our chief information security officer came on board earlier this year. His name is Ryan Weeks. He came to us from a company called FactSet.

Why did you feel the need to create these new positions?

Datto was becoming a midsized company. We're big. And we need to lead when it comes to delivering on that security promise. And so, while we felt we could keep up in the past, it was really important for Datto to set a high bar for the industry.

When you just said 'security,' you weren't talking just about data protection. What areas of security is Datto involved in?

Datto is involved in almost every aspect of security except desktop AV [antivirus]. We think about security at the network level with our networking team that's working on DNA [Datto Networking Appliance], our access points, our switch gear. We think about security from the backup and DR [disaster recovery] side, which we're deeply involved in with our Siris and Alto product lines. And then we're looking at new ways to provide additional security services across the board. So that's things like our ransomware detection, where we're literally using patent-pending algorithms to detect this stuff while it's happening so that we can notify people even when their desktop AV might let them down.

Datto in the last couple of years has actually moved beyond data protection into both networking and security. How important was it for Datto to expand into these areas rather than focus its core data protection technology?

I take issue with you using the word 'rather.' Just look at DattoCon. If anything, we've doubled down on the core data protection story. And if anything, where our strategy comes from is listening to partners and that feedback. … Datto's job, and our big passion, is around giving MSPs amazing tools. And so, we saw these other areas, and we said we think that somebody can do a better job.

Maybe we're a little bold at Datto in saying that maybe we can be the ones that do that better job. But we're certainly not afraid to take those chances. And so we put a little bit of resources, a little team, in those areas, and we've made great progress and great strides. And it's generating great feedback.

Are MSPs the core focus of Datto from a marketing standpoint, or just one of several focusses?

MSPs have always been Datto's focus.

When you first started, did you think of MSPs as a core focus?

I had no idea they existed. The MSPs called us. Very early on, I went out and sold the very early version of our product. It was literally a bunch of stuff with hot glue and Lego pieces and what not. And I got Engadget and Gizmodo and other tech blogs to write about it. And I started getting calls from MSPs about, 'Hey, do you have a channel program? Do you have a channel program? Hey, do you have a channel program?'

And then eventually, we were, like, 'Yeah, it opens tomorrow. Call back.' So we created this channel program, and ended really up building this great feedback group where MSPs would tell us what their needs and problems were, and we could iterate quickly to meet those needs.

Datto in 2014 acquired Backupify, and this year acquired Open Mesh. Were their products originally aimed at MSPs?

Essentially, the way that I think about those is, we acquired technology and knowledge. In the case of the Backupify business, we took the leading provider of SaaS application backup and said, 'We want to bring on all of your skill sets and we want to help tune your solution and have it make sense for MSPs.

And it's the same story with Open Mesh. 'You guys build great APs [access points]. You sort of understand the MSP story. But I think together we can do something even bigger.'

Since then, the Backupify technology has transformed into what at Datto?

We call it Datto SaaS Protection, and that's what we sell to MSPs. And the Backupify side of the business, we let that continue to operate as it was originally. But our core focus is on the Datto side, which sells entirely through MSPs.

So Backupify is still available …

… for enterprise customers only. So if you're a 10,000-seat organization, you can purchase it direct from our Backupify team. But not anybody that is in in the same realm as our MSPs.

Where does the Open Mesh technology fit in the Datto product line today?

Datto Networking. It fills out the suite with our UTM[(unified threat management] appliance. We have Open Mesh switch gear, Open Mesh APs, and Datto's UTM appliance called DNA. And that gives us a complete suite of networking solutions.

Is Datto actively looking at other potential technologies or companies to acquire?

Datto is always interested in the next big thing.

So what is the 'next big thing' Datto may be looking at?

We showed [at DattoCon] what our labs team is thinking about in how do we open new markets for MSPs. Our labs team had an idea around how we can make very small clients with zero to 10 employees profitable for MSPs. And that was around doing something with VDI [virtual desktop infrastructure]. There are other areas we pay attention to like, could MSPs generate revenue from IoT-type stuff, for example. That's another place we're paying attention.

It really comes back to what can we do for our MSPs, and what can we do to enable them to grow their businesses.

Datto is in some pretty competitive markets when it comes to data protection, security and networking. What is unique about Datto that lets it successfully compete in these markets?

More broadly, it's our speed to market. That we're fast, that we're responsive, that we listen to partners, and that we're able to run that feedback cycle again and again and again. And that Datto can out-innovate anybody else in the industry, and we've proven that time and again. And I think that's the reason our company continues to be successful.

And even though Datto is rapidly approaching the size of a midsized company, we still have the same agility that the smallest startup has. That's incredibly important to me. And that's how we continue to be successful.

We see the IT industry is in a period of consolidation. Could you see Datto as a potential acquisition target?

Datto is a large company that is very valuable. I certainly don't come to work thinking about Datto as a target of acquisition. I would say the big thing I come to work thinking about is how can we build great product for MSPs. Any action we take, whether it's to go public or be acquired or acquire a whole bunch of other businesses, we would do that in service of our MSP customers.

Is Datto looking to some day go public?

We're certainly at that size. And certainly, we have a very healthy financial profile. As far as when we'll go public, you'll be the first to know. But no announcements today.

Does Datto do much with indirect channels outside of MSPs?

Not really. MSPs are our focus.

Where does Datto fit in the MSP market in terms of competitiveness and partnering with other companies?

We certainly believe MSPs are best served by a broad ecosystem of businesses. And if you look at our DattoCon conference, we have over 80 different sponsors from all different areas across the board. And Datto wants to be a good citizen of those ecosystems for MSPs.

From a market share perspective, we're a leading vendor in the DR space, without a doubt. That's chosen by our customers, and we're grateful for that. We've been growing at an incredibly fast rate every year for the last 10 years, and we expect to continue that growth.

Is Datto in recruitment mode for MSPs?

We added well beyond 1,000 MSPs last year, and we expect to add even more MSPs this year.

Is Datto's primary business in North America?

The majority of our business is in North America. We have a rapidly-expanding EMEA [Europe, Middle East, Africa] base. We have about 70 people who work in the U.K. We also have a growing operations center in Sydney, Australia. A really fantastic and passionate team there. Additionally, we have international locations in Singapore.

Datto has nine data centers worldwide. As you look at it …

The most fun one to visit? Iceland.

I'll bet. If you look at how the data center business works worldwide, with varying regulations like Europe's General Data Protection Regulation, does this impact your North American MSPs or help them do more business overseas?

It varies. I don't think there's a lot of change in how they're operating internationally. I'd say that international markets look different than U.S. markets. The sales models are different; the interactional models are different. It takes training to do business there. But I think the MSPs themselves are not dramatically changing their businesses.

What are the MSP trends you are following as you look into the future?

I think that MSPs are getting more sophisticated, and they're becoming less of a lifestyle business as they see the real growth opportunity. And they're looking at how do they really run optimized, best-of-breed practices. And it's gone from a hobby, or a local guy to real entities with big deals. That transition is something that we're really happy to see. It's great news for us. We wanna help every MSP get there and operate at an even more professional level.

Datto at DattoCon introduced a virtual desktop infrastructure prototype offering targeting really small businesses. How big a market do you think that is for the MSPs?

We think that it's potentially a pretty large market. You look at the 50- to 1,000-seat business accounts, and I think you're looking at somewhere around 170,000 businesses in North America. When you look at the one- to 10-seat business accounts, it's somewhere around 2 million businesses in North America. So it's a potentially huge new market that we can make profitable for our MSPs.

Datto has a huge focus on the Microsoft ecosystem with much of its product lines. Why the focus on Microsoft versus VMware or Google or other environments?

Microsoft really understands the channel well. They've done a great job of explaining the value of Office 365, explaining the value of Hyper-V and a lot of their other solutions to the MSP channel. That's not to say VMware or Google or Amazon don't run great businesses. But Microsoft has done a great job of focusing on this sector of the market, and it's our job to respond to that.

We already have a ton of VMware support. We have great integration with VMware. Steve Herrod, the former CTO of VMware, sits on our board. So we've got good connections there. But on the Microsoft side, this is an area where we can improve, and we're seeing them gain a lot of prominence in this area of the market, and so we want to make sure that we can support them.

One of the primary values that Datto claims is that, while Microsoft and Google already have cloud backups for their applications, Datto fills in a lot of the functionality that is missing from their offerings. Could you see Microsoft or Google over time doing more in terms of data protection for their applications and therefore compete more strongly with Datto?

Is it a possibility? Absolutely. But if you look at the backup industry, it's been around for two decades. At any time during that time, Microsoft could have built an amazing piece of backup technology for Windows. But it didn't. I don't see how any of these other areas are dramatically different.