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May - 2004 - issue > Cover Story
Razor Sharp Bladelogic
Karthik Sundaram
Tuesday, December 2, 2008
The startup world is familiar with garage days, maxing out credit cards, knocking on Sand Hill Road doors, and trading options for free help. If you are lucky, your project may just take off. If you are Dev Itticheriya and Vijay Manwani, you start off as EIRs and then go buy a startup to jumpstart your business plan. They call it BladeLogic.

“When we first started BladeLogic, we saw a demo from a company called Network Shell, and we got excited because we realized immediately that we were seeing the foundation to accelerate our product plan. It turned out that the founder of Network Shell didn’t have the resources or the business experience to take the company to the next level and we acquired the company,” says Dev Ittycheria, CEO and co-founder of the Waltham, MA-based BladeLogic. Automating data center management—across many multi-vendor platforms and applications, compliance and security issues, and bridging old environments to new—is an IT-business alignment that is enabling enterprises to become nimble. “The telecom industry is a good analogy to explain this market,” says Ittycheria. When the telephone became an increasingly ubiquitous home instrument, manual exchanges—operated mostly by women—transacted the calls, and the exchanges came under stress with the significant increase in traffic. “In 1952, AT&T predicted that—with the then-increasing rate of calls per day—the entire U.S. population of women would be working for AT&T switchboards by 1980. This forced AT&T to rethink how they were doing business and led to the invention of the electronic switch” The device growth in the data center over the last decade is a similar state of affairs. Last year alone saw 5 million servers shipped out, not to mention the past 15 million that are ticking away at data centers worldwide. Provisioning, configuring and changing applications across thousands of servers manually within an enterprise is no more an economical option. With the advent of blade servers and small form factor servers running Linux, the device growth explosion in the data center is further exacerbated. Compounding this problem is the high rate of change associated with distributed applications. With traditional client/server applications, changes were typically made once or twice a year. With distributed applications, changes are made once or twice a week. As a result, the level of complexity associated with managing distributed applications is exponentially higher than the old client/server environment. “People simply cannot handle these maintenance chores anymore. Not with the complexity or the speed of change required,” chimes in Vijay Manwani, the other co-founder and the Chief Technology Officer (CTO) at BladeLogic.

Ittycheria and Manwani—veterans of the ASP industry from Breakaway Solutions—were quite familiar with the pains of managing large, distributed data centers. Ittycheria had joined Breakaway after its acquisition of his startup Applica, when Breakaway was still a boutique consulting company. He was a key officer in the company’s IPO and growth, and was instrumental in acquiring Manwani’s startup, Eggrock Partners, an ASP/eBusiness-consulting firm. “Unlike traditional hosting companies such as Exodus, as an ASP we were responsible for managing the entire application stack including the hardware infrastructure supporting it,” says Ittycheria. “We found that nearly 90% of our labors costs were associated with managing the change inherent to these distributed applications, which over the long term was unsustainable.” As Manwani added, “We identified many tools designed for the old client/server world, but none were optimized for the new distributed computing model.”

Following a market study of the server provisioning market by Battery Ventures in late 2000, Ittycheria—an entrepreneur-in-residence (EIR) at Bessemer Venture Partners at the time—teamed up with Manwani, who happened to be an EIR at Battery, to validate the business opportunity. In 2001, the duo founded BladeLogic, backed by a first round of funding of $6m led by Battery and Bessemer. Atypical of many startups, BladeLogic acquired Network Shell in a strategic move to jumpstart its business plan. In 2002, the VCs signaled confidence in the company’s execution with another round, this time for $10m. “We still have a significant amount of our second round left,” smiles the CEO; the company has quadrupled its revenues from 2002 to 2003, and increased its average selling price by 400 percent.

“The key difference is that industry veterans, who had direct responsibility for managing a large number of distributed data centers, founded the company. So they understand the pains of the people to whom they are selling. As a result, they’ve designed a solution that meets their end user needs better than any we’ve seen in this market,” says Dave Tabors of Battery Ventures. In less than three years, the startup has posted a slew of marquee clients on its site: Chicago Mercantile Exchange, Electronic Arts, GE, HSBC, Novartis, Priceline, SunGard, USAA, VeriSign, and Wal-Mart, to name a few.

“The server provisioning and configuration market has seen some large consolidations in the last eighteen months, partly due to the fact that the large players have realized that their much-touted on-demand computing offer will not get off the ground without the “plumbing,” across servers, which means they need some serious tools to manage the large number of boxes,” says Ronni Colville, head of research, Gartner.

Clients are now finding budgets for the server management problem, an issue that was relegated to the background in the past, she adds. “IT managers feared losing their jobs and pushed back initiatives to automate the data center,” says Colville. But the maturing markets and infrastructure has necessitated the CIOs to review the space. “In this, BladeLogic has been quick to get off the mark and provide proof-of-concept, winning instant approval.”

When interest in this space started to surface three plus years ago, most of the attention from the VC and analyst community was focused on server provisioning. “Given our experience in managing data centers, we knew that provisioning was 10 percent of the overall work effort and hence a small part of the problem,” says Ittycheria. “The bulk of on-going work and costs is associated with managing the lifecycle of the server—which really means managing the changes associated with things like application updates, patch updates, and compliance to server, application and security policies.”

Case in point is how enterprises manage security breaches in the data center. With hackers showing no sign of easing pressure on corporate security staffs, patches and upgrades have become a necessity in server management. Ron Rose, CIO at Priceline.com uses BladeLogic to automate these upgrades and patches—uniformly across both UNIX and Windows servers. “What used to take hours by 6-8 member-teams is now automated and takes minimal effort,” says Rose.

BladeLogic’s Operations Manager (see panel), a comprehensive suite of data center automation solutions now in its fifth major release, has some unique attributes that differentiate itself from the rest of the industry. “Most server management tools are either very Windows or Unix-centric, limiting their effectiveness in being deployed as a truly enterprise-wide solution,” comments Manwani. “We have consciously put a lot of effort in being equally strong across all major OS platforms, which is extremely important when over 95 percent of all data centers have a heterogeneous environment.” Gartner states that nearly 80 percent of all outages are due to either operator-error or mis-configurations, so as more change is introduced into the data center, the more destabilized the data center becomes. Finishing scripts—the nightmare of change—has been the traditional tool to move applications from one location to another and customizing them to a particular business need. “And there ends any automation vision,” says Colville. “A reason why Tivoli and CA are often found shelved is because of their partial success in offering complete automation power in data center management.” Undoing any change becomes a nightmare. “To address this key problem, we have built into the product simulation and roll-back capabilities, allowing customers to simulate a complex set of changes before they actually occur to guarantee a high probability of first-time success, and the ability to gracefully undo complex changes in the event that problems come to pass once changes are made,” says Manwani.

BladeLogic has been displacing incumbents in the game, where clients have chosen the startup over freeware from large players—a fact that Colville attributes to the range of solutions that Operations Manager offers.
Some early clients included Sprint—a client that helped the startup build its compliance engine into the product, and Priceline.com and others, who bet on BladeLogic’s technology to help them solve their pains. “These are live server environments, not betas,” recalls Manwani. “BladeLogic would have an interesting competition if these incumbents get serious,” says Colville. Recent deals have included a partnership with Mitsui in Japan, marking BladeLogic’s entry into Asia-Pacific’s IT market, which was estimated at $175 billion in 2003 by IDC. Mitsui will market, sell and support BladeLogic Operations Manager in Japan through its wholly owned E3 Networks, a strategic subsidiary specializing in IT management.

Ittycheria has been working hard on honing the sales qualification process. “It is very easy for a potential client to ask us to spend time on a development project and then not make a decision,” he says. “For a startup, it is crucial to make the call at that point—do we spend time and resources on a development project, or do we move on? At every point, we have asked clients—across various positions in the company—whether they would buy if we built the next feature.” It appears the company has made the right product and business decisions. BladeLogic has been profitable the last quarter, and the focus has been a high-growth, high-profit business. “Our average deal size is higher than what public companies can claim,” says Ittycheria. “We have customer traction across different verticals and geographies—revenue diversification is our strength. We believe that going public is just a start of a long-term value creation process.”

Colville says BladeLogic would need to acquire application-side strength. “This could be by acquisitions,” she observes. With security, compliance and collaboration merging, BladeLogic’s future growth lies in evolving into application stack across the verticals. As utility computing takes shape, the need for automation and self-healing technologies is going to increase, even as the shift from component management to service management is becoming critical to the efficiencies of data centers. And as CIOs find ways to juggle budgets while the business demands more from IT, squeezing out some dollars from data centers must win a satisfying smile—something that would leave the BladeLogic balance sheet a-chuckle.
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