Miami-based software giant Kaseya plans to invest in Datto’s products and harness its channel-friendly culture once it closes the US$6.2 billion deal to buy rival Datto, Kaseya CEO Fred Voccola told CRN US.
“When we buy companies, we buy them for a reason. They’re great,” Voccola said. “We don’t [mess] with the culture and we don’t change the brand. We don’t change the companies just to change.”
He added that there are no plans to change Datto’s brand or shut down any offices.
“We don’t buy companies to gut them for profit,” he said. “Every acquisition we’ve done, we’ve doubled or tripled, in some cases, quintupled the amount of investment in the products and support in the business. We’re not buying Datto to destroy it. We’re buying Datto because we want to get better at that, and Datto is the best, so we buy the best.”
The transaction involved a sale from Vista Equity Partners, which owned 69 percent of Datto prior to selling to Kaseya. The acquisition will be funded by an equity consortium led by Insight Partners, with investments from TPG, Temasek and Sixth Street.
CRN US spoke with Voccola to discuss how the mammoth deal impacts MSPs and their profitability, product pricing and contracts and what will happen with key executives at Datto such as Rob Rae, Ryan Weeks and Tim Weller.
Because the transaction is ongoing, Voccola was not able to give forward-looking statements about what Kaseya will do with Datto.
How do you see the Kaseya-Datto deal impacting the ability for MSPs to drive profit and sales growth?
On the profitability front, it’ll be a huge boost to direct profitability. We have a platform called IT Complete and our mission is to provide a complete platform for the MSP [which is a] fully integrated and complete platform that makes the MSP’s technicians substantially more efficient. So, the MSP can generate more revenue per technician. We also charge about 30 percent less than every competitor in every one of the areas of technology we provide. Kaseya MSPs tend to be the most profitable MSPs for two reasons. One, the technicians are the most efficient which gives them better revenue-to-technician ratios. And our software [delivered] to the managed services, we charge 30 percent less and that’s right to the bottom line.
A lot of software providers talk about their software making people more efficient so customers can be more profitable, and that’s all true, [but] we also charge less.
I’m not making any statements about Kaseya and Datto being together (due to legal reasons) but every single company that we bought over the last seven-and-a-half years since I’ve been here, we followed the strategy of integrating the products, keeping the culture of the company we bought and investing more in the R&D (research and development) in support of the companies we bought. We’ve made every product we bought more affordable and the more affordable the technology is, the more room there is for MSPs to make profit.
What do you see as the economic impact of this deal on MSPs and the industry?
I think that the overall financial community, I’m talking public investors, private investors, private equity, now looks at the MSP market a little bit differently. Not that they didn’t look at it seriously before but this is a very large deal and brings attention to it, which is good. This will help continue the financial community’s interest in the sector, which makes valuations for MSPs higher. That’s a good thing. It’s already happening, but I think it helps accelerate that trend.
The less expensive MSP software is for the MSP, the more profitable MSPs can be and the more investment they can make in other areas of their business. The more MSPs leverage Kaseya’s strategy, the less they will have to spend on software. They can then buy more software, they can do more things and be more profitable.
You mentioned Kaseya’s products are 30 percent cheaper. Are there any chances of raising prices or implementing longer-term, multi-year commitments as a result of the deal?
We’re not buying Datto to reduce investment in Datto, change their culture or change their brand. I can’t tell you, due to legal reasons, what we will or will not do but I can say that every single acquisition we’ve done, every one of them, we’ve done them all the exact same way. We’ve never raised prices, we’ve done the opposite every single time. Very often the past is the best indication of the future.
In terms of our strategy on contracts, Kaseya sells products through one-year contracts and multi-year contracts. The pricing goes down the longer the contract, and most people tend to want the longer-term contract. People who choose to get short-term contracts pay a lot more.
Every vendor does one-year to three-year contracts, they do a myriad of pricing.
Will you continue to provide the one-year flexibility for Datto partners once this acquisition is finalised?
I can’t answer that other than saying every single Kaseya product has a one-year option and a three-year option.
What are you doing to ease fears of Datto partners concerned that the acquisition will dilute or even destroy the strong Datto channel culture?
I would love to talk to each and every one of them if I could. We’re spending $6.2 billion to buy an awesome company. The last thing that we want to do is make it unawesome. When we buy companies, we buy them for a reason. They’re great. We don’t [mess] with the culture and we don’t change the brand. We don’t change the companies just to change.
With Datto, we’re keeping the brand and there’s no plans to shut down offices. We don’t buy companies to gut them for profit. Every acquisition we’ve done, we’ve doubled or tripled in some cases quintupled the amount of investment in the products and support in the business. We’re not buying Datto to destroy it. We’re buying Datto because we want to get better at that, and Datto is the best, so we buy the best.
I will say that human beings don’t like change. When change comes fear, doubt and uncertainty set in. We compete with 200 to 300 different software companies and every one of our competitors is trying to sow fear, doubt and uncertainty. I don’t blame them. I would do the same thing. I’d be more than happy to talk to anybody, anybody can reach out and have a conversation with me. We are not going to change what makes [Datto] great. Hopefully we’ll reinforce it and apply what makes them great to other areas of our company just like we’ll apply things that make IT Glue great to Datto.
Are you surprised by a lot of the negative reactions by Datto partners?
Kaseya has over 8,000 MSP partners that are also Datto partners. I’ve talked with over 400 joint customers one-on-one in the last eight or nine days. Some have been in six-on-one forum groups and we have something called our CEO Council with 25 MSPs that advise me in our business. I had them all in a room and we talked about it and went through it. I talked to about 80 one-on-one at Robin Robins (IT Sales and Marketing Bootcamp) event, in addition to the 1,000 or so that were there. Most people said this is great because they know what Kaseya has done. The people who take the time out of their day to go post something on Reddit... people don’t usually post positive things on forums like that. Some people may decide not to use Kaseya or Datto or any vendor for that matter.
MSPs are small businesses. Small businesses…that’s our country. Forget about making money and all that stuff, small businesses are everything. Small business owners are emotional because it’s their business. Kaseya has 17,000 MSP customers. We’re the fastest growing MSP software company at scale in the world, and that sucks that people are uncomfortable with it. And I think that a lot of people may have had a bad experience with Kaseya, maybe they didn’t or maybe they’re being told by their vendors. There’s a lot of reasons for people to be uncertain. I wouldn’t say I’m surprised. It’s normal, it’s what we kind of thought. When we bought IT Glue, it was the same thing. When we bought ID Agent, it was the same thing.
So you spoke with about 400 partners that were both Kaseya and Datto partners, but have you spoken to or reached out to any Datto partners about this? Do you plan to?
No. We wouldn’t do that until the deal closes. Legally we have to say that when we spoke to our Kaseya customers, they’re not joint customers. They’re Kaseya’s customers, they just happen to also be using Datto’s products. We didn’t target them. I talk to customers all the time. I just so happened to have talked to a lot of Kaseya customers that are using Datto’s products. We didn’t talk about our future plans with Datto. They were very excited and said, ’Hey, that sounds great.’ It would be illegal if we reached out to those customers. Tim Weller (Datto CEO) is reaching out to his own customers and telling them why it’s a good thing.
What is your message to partners in regards to the product integration?
On the product side, we are supporting every single product. Will we have two PSAs? Yes we will. Most MSPs have never run a software company. Why would they? I’ve never run an MSP. The financial cost to maintain multiple products in a similar category…it’s not a lot. If it costs an extra 20 or $30 million a year, that number sounds enormous, but it’s nothing for a $1.5 billion company. It’s a lot cheaper than [ticking] off a few thousand customers. We are integrating every technology into the IT Complete platform. Our customers love choice, so if you want to use this product or that product, okay that’s great. It’ll all be integrated into IT Complete, 100 percent.
IT Complete we’ll have about 30 different modules. It doesn’t make financial sense for us to risk customer relationships [by not] investing in products. It doesn’t. It’s financially in our best interest to support all the products moving forward.
Have you met with Rob Rae (SVP of Business Development at Datto) and the channel team? What was your message to them?
I’ve known Rob for years but I can’t go and talk to Datto people and say, ‘Hey, this is what’s going to happen with the deal.’ That’s illegal. This is going to sound mean but I didn’t talk to Rob at the Robin Robins event other than shaking his hand. I can’t [talk to him] yet, for legal reasons.
That being said, I think Rob Rae is one of the most instrumental people at building Datto to the great company that it is. I get asked if Datto people are going to be at Kaseya and who’s going to be where, but I can’t answer that legally. I can say in our history of acquisitions, every acquisition we’ve done, not only did we keep the brand, not only have we made the products more affordable, but we listed the names of the executives. The management teams stay in their executive positions at Kaseya.
So Rob Rae, Ryan Weeks (CISO at Datto) and Tim Weller are all staying on?
I can’t answer it. You can ask them. I can’t answer it.
Would you be offering them retention bonuses?
I can’t answer that either, but every acquisition that we’ve done the executive team remains.
When it comes to retention bonuses I will say that Kaseya is incredibly generous with our employees. Now, I would never want someone to stay just because of a retention bonus. They’ve got to believe, they’ve got to want it, they’ve got to want to continue their mission. Doing a job just for the money, that doesn’t last. That doesn’t lead to good service. We wouldn’t want people like that. The mission that Datto has of serving MSPs is one of the reasons we bought it.
This deal makes Kaseya the leading vendor versus ConnectWise. How does it feel to be on top?
We were way ahead of ConnectWise before the deal. And the numbers speak for themselves.
I’ve known Jason Magee (ConnectWise CEO) for 20-plus years. My little brother and him worked together at a VAR in New York City in the late 90s called Interactive Futures. I’m saying that and you can publish it. If you talk to Jason you can let him know that I’m busting his chops.
Will Kaseya continue to invest in and develop Datto's business disaster recovery service offering on its own separately from the Kaseya unified backup BDR offering?
We will continue to invest in all products moving forward, just like we’ve always done in every acquisition we’ve done.
How are you feeling about the prospects for integrating and combining these two companies?
I feel great. This is super fun. Datto is awesome. As the CEO of a company, when you get the opportunity to pick up several thousand really good people with an awesome brand,
I’m excited. I think it’s going to be great, we’re going to learn a ton.
When you think about the investors in Datto, Vista [Equity Partners] bought Datto, and it believes in investment and growth. Insight [Partners] is the private equity firm behind Kaseya and it’s all about invest, invest, invest.
The DNA of both companies is growth. It’s a good culture fit. Let’s not cut costs and find ways of saving every penny. Let’s put on big MSP events, let’s invest in our customers, our people, our organisation, etc.
Just to give an example, when Arnie [Bellini, ConnectWise founder] was running ConnectWise, it was all about the channel. They got bought by Thoma Bravo. Bravo is a very successful private equity firm, but they’re more on the ’cost reduction, let’s create value through cutting costs opposed to creating growth’ side. So culturally, from when Austin [McChord, Datto founder] started it to when Tim [Weller] took it to the next phase, it’s always been about investment and growth. That’s an exciting thing to get into.
When Thoma put ConnectWise and Continuum together it was about, ’Let’s get everything offshore.’ They cut costs massively, and as a CEO that sucks. It’s not fun. This is fun. This is growth, and let’s create, so I’m looking forward to it.
What is your vision for Kaseya/Datto and the MSP industry going forward?
Kaseya was founded by Gerald Blackie. Gerald and Arnie Bellini from ConnectWise were kind of like the pioneers of the modern MSP software world. This industry has grown up, I think we’re all lucky. MSPs and software providers, like Kaseya, we’re all lucky that we’re benefiting from a massive trend. This trend is going to continue and that is small-to-midsize businesses are investing in technology at a rate four times GDP growth. This level of investment focus, the world has never seen it before. The MSP has become the most important business service provider in the world to their customers. That’s badass. That’s really cool.
Our goal is to give these MSPs the best software kit possible so they can make the most money. We want to give them a platform that’s integrated so the engineers are the most efficient and we want to provide it to them at 30 percent less so that they make more money. That’s our job. We want the MSP community hopefully to be better from it. There are literally hundreds and hundreds of software companies out there that these MSPs can choose from. We want to earn their business. We want them to realise that it is in their own best interest to use us.
I think we’re going see massive growth. Small businesses are spending on technology not because they have to, but because it’s the best option for them.
Inflation is here to stay. It sucks for everybody. When there’s inflation, technology becomes even more important because you need to automate more things. It’s a fight against inflation, so we’re going to see MSPs becoming even more important. And hopefully, our platform is the platform that they want to go to and leverage.