Paul Lidsky, President & CEO, Datalink
The past year has seen more and more attention focused on what's become a nexus for the burgeoning cloud services market: the data center. The result has been rapid growth of companies providing data center storage and services as well as a flurry of acquisitions and mergers as consolidation increases.
Datalink (Nasdaq: DTLK) is a good example of the type of growth being seen in the data center segment: In 2010, the company grew 38 percent organically and over the past year saw its stock jump 150 percent. The company is valued at nearly $300 million and has a presence in 32 cities across the United States, serving companies in all of the commercial verticals such as healthcare and finance. And Paul Lidsky, president and CEO, sees the upward trend continuing into next year and the foreseeable future. FierceTelecom's managing editor Samantha Bookman recently talked with Lidsky about Datalink's transformation from a siloed storage provider to a full service data center integrator, and what's in store for the storage industry.
FierceTelecom: Datalink's growth in the past year has been pretty remarkable. How did you do it?
Paul Lidsky: I think really it started two years ago. We began a transformation as a company from being a siloed storage integrator to becoming a full data center infrastructure integrator. That created a lot of growth for the company ... in 2011, and we saw a lot of growth in 2010 because we saw more opportunities with our customers than ever before. We got a greater percentage of their wallet share, of the spend in the data center, and we got to participate in more of the infrastructure and be more of an advisor to our customers than we ever have before, and that's continued to drive very strong organic growth.
...That's been a big part of our growth, the move to the data center. We're more relevant to our customers than we ever have been before. We're more involved in their data center infrastructure than we have been before. Then you couple that with acquisitions, which are part of our growth strategy: We made an acquisition in December 2009 which resulted in additional growth in 2010 and beyond. So last year the company grew 64 percent. Thirty-eight percent was organic growth; the rest was acquired growth. This year we're continuing to grow in the 20-plus percent organic growth and we just made another acquisition Oct. 3 which added about $65 million in revenue to our business. ... So the combination of strong organic growth and acquired growth along with the expansion into the full data center has really fueled the overall growth of the company.
FT: What triggered Datalink's transformation into a data center integrator?
PL: Basically, our customers were telling us. We all knew that virtualization really brought together a lot of the components of the data center. Virtualization began as a server concept and rapidly spread to virtualizing an entire data center, which meant knowing how to virtualize the network as well as the storage components along with the servers. So what happened is that customers began to tell us that the individual siloed resellers--because they had network partners, they had storage partners, they had server partners--what our big customers told us is that the individual resellers didn't know about each others' technologies.
So as they started to virtualize the data center, what the customers found out is that they were in the middle trying to figure it out themselves. And what they told us two years ago is ‘We really need more help from Datalink. We need you to be an advisor for us across the entire data center infrastructure; we need you to know how to integrate virtualized server storage and networking. And we need you to take that one step further; we need you to help us consolidate multiple data centers which is part of this.' We heard that enough times, and when we laid that out against the technology trends and realized that unified computing is becoming a reality, we realized that we needed to transform our company in order to be relevant to our customers in the future. That's what drove it.
FT: How does Datalink bring all the components of the data center infrastructure together?
PL: As you probably know, we're a reseller of other manufacturers' hardware and software, so we're not a manufacturer ourselves. We have a best-of-breed approach in that we have selected OEMs who we have very strong partnerships with that we bring to bear on solving these problems. For instance, in storage: primarily NetApp, EMC and Hitachi. For networking: primarily Cisco (Nasdaq: CSCO). In the server space: primarily Cisco UCS today--we do some Oracle as well for customers who have that. And then there are many other manufacturers represented on the data center floor that we also have in our portfolio.
We have an engineering-led approach to our data center sales and our data center relationships with our customers, in that we're more interested in solving problems than selling hardware. So our hardware sales come as a pull-through for solving problems; and our customers are used to having our engineers in their offices. Our long-term customers know that our engineers are part of their teams, and so what happens is that we're there helping solve a problem in the data center, and that's how we get started. And then we bring to bear whichever manufacturers we believe are most relevant to solving that problem, and then our teams know how integrate all the components.
FT: In October, you acquired Midwave, an IT services provider. What drove that acquisition?
PL: Midwave was our number one competitor in the Twin Cities, in the Minneapolis-St. Paul market. So we knew them well. There was an opportunity to acquire them and really build a dominant force here in this part of the country. They had very similar go-to-market models as we did, and very similar skill sets, but they brought some additional pieces that we really wanted.
They had a consulting practice that was CIO-level strategic IT consulting. We also had one at Datalink; we combined them and doubled the size. That's a national consulting play for us. They had a managed services business that primarily focused on the monitoring and problem resolution ... changes of network infrastructure as well as data center infrastructure; and we have a 24x7 Datalink OneCall services business which provides for maintenance on a lot of the hardware and software that we sell. So we wanted to combine our OneCall program with their managed services and now we have more to offer our customers.
They also had great relationships with EMC and Cisco; those are businesses we're building and so that allowed us to add to that. And they had the same go-to-market model in that they are engineering-led as well: They really lead with solutions orientation rather than hardware. So when they became available we thought that would be a great acquisition for us; it's turned out to be a wonderful one, easy to integrate, easy to take right back out to the market as a combined force, so it's been very successful so far.
FT: Let's look at the overall industry for data centers. There is this growth happening where there's a lot of interest thanks to cloud services becoming very popular. Did you see this happening over a number of years with gradual growth or did it just happen over the past couple of years?
PL: I think cloud services has certainly gone from--in 2009, 2010 it was a lot of whiteboarding. I think in 2011 you see a lot more implementation, or at least serious planning for it. Most of our customers, since we deal with primarily enterprise-class customers, are building private clouds, so they can take advantage of cloud services within their own IT infrastructure, and so that their IT organizations can be more service-oriented toward their customer, which is the company itself. That's driven a lot of opportunity for us, for our customers--a lot of growth for us, for sure--and the industry has profited from it in terms of its overall growth.
You also have virtualization, which is driving a lot of growth. The industry (is) growing at about 30 percent per year, and you still have a lot of customers who have not virtualized even 50 percent of their physical infrastructure. So there's a lot of work to be done there in both the virtualization of the data centers as well as consolidation of multiple data centers into fewer.
I think part of our industry growth has just been the explosion in storage. It's growing somewhere between 400-600 percent over the next few years and there's just no end in sight. So that does a number of things for all of us. It obviously creates storage growth, but with storage comes deduplication, backup and recovery, data migration back and forth to business continuity sites. So there's a lot going on. When storage explodes, it takes with it a lot of ancillary services. So that's all created growth in the industry, and then you move into big data and that creates more opportunity, and you don't see that ending anytime soon; in fact, just the opposite. So the combination of the cloud, cloud services, with virtualization and consolidation and the explosion in storage growth all contribute individually and together to a very healthy industry.
FT: How does Datalink work to ensure security of data that their customers trust to them?
PL: That is something which we also got from our acquisition: Midwave has a robust security practice, which is something we were going to build this year. Now we've got that as part of our practice. What we do is we build that into our overall solutions approach. (In the past) most of our customers who needed security went to a security integrator. And what they're saying is ‘we'd really like to do more business with less vendors, and we'd like to have fewer partners doing more with us, and we'd like to have it more highly integrated.' So that's what we do with security, we integrate it into the basic data center infrastructure design that we're doing instead of looking at it as an add-on. That affects how you construct the infrastructure, how you plan for that; because you want to plan it to include whatever type of security component that you want. We do primarily security with Cisco and EMC, but it's more of an integrated approach as opposed to ‘OK, now we need security.' And that's something that Midwave brings us.
FT: How are you looking to continue Datalink's growth?
PL: We'll stay focused on the data center infrastructure, and you'll see us move outside that too. ...A lot of our customers ask for a single-partner approach as it relates to not only data center, but networking outside the data center, Voice over IP outside the data center of course. So you'll see us expand our business over time to include more of the IT infrastructure of the corporation outside the data center walls. But our primary focus will be inside the data center.