The power of Co-Opetition: Founder & Chairman of Redis, Ofer Bengal

Great. First of all, thanks for coming. So I'd be happy if you tell us about Redis in a few words. So Redis is a software company that developed and sells what is called database software. Database is the software that manages data for applications. The application can be anything from a small app on your phone to a system that manages a bank or an insurance company. We sell our software, which is also available as open source, meaning anyone can download it and use it without paying anything. To organizations, we sell a version of this software that is much more robust, much more reliable, much more suitable for large organizations. Today we have over 10,000 customers around the world, mainly in North America and Western Europe. A large part of what is called the Fortune 500, very very large companies, household names. Almost every big name you can think of in the world is our customer.

So look, we sell today mainly through cloud providers. As you know, there are three major cloud providers: AWS, which is Amazon; Azure, which is Microsoft; and Google Cloud. Today, a large part of the world's technology goes through these players, and it's quite essential to create some kind of partnership with them in order to sell through them. So today we sell in almost all the accepted sales methods in the world. First, there is what is called zero touch or low touch or PLG, it has all sorts of names. The meaning of this is that the product sells itself. That is, you present your product on your website or in some service, and customers who want to use it can automatically register and start consuming the product. In our case, connect their application to Redis DB and start streaming data there, and we keep the data for them and manage the database for them for the life of the application. The second way is through salespeople, what is called field sales. That is, you build a team of people who know how to reach your potential customers and sell to them. So you have the direct sales channel through your salespeople, and you have the sales channels that are channels where you use the large cloud providers. I haven't gotten to that yet. So in general, theoretically, three main pillars: one is zero touch or PLG, two is field sales, and three is channel sales. The three cloud providers also fall under channel sales.

So look, each of them, in our case, is a completely different story. Let's start first with how you sell through a cloud. There is the straightforward way. Each of these clouds has a marketplace, like an App Store. And basically, almost anyone who meets certain threshold conditions can present their product there, and they give it a place. The problem is that over the years, there are so many services under each category that the chance that someone will just come and connect to you and choose you there is very very low. Therefore, customers looking for products don't necessarily go there like they go to a market. When you go to buy vegetables, you go and say 'let's go to the market, and if we see a stall with nice tomatoes, we'll buy.' It doesn't work like that. Customers don't really look for the products there. That is, if you put your product in the marketplace of one of the cloud providers, don't expect a sales explosion there. You need to do many many other things. So if you ask what are the things you need to do, you need to pay attention. I'll tell you after this what we actually do today, but maybe it's worth taking the tips of the things we learned over the years, because we learned the hard way. First of all, the question is how do you get yourself noticed in the marketplace. You need to be very very careful that it's not just stuck somewhere in the marketplace, because that won't bring anything. You need to get into discussions with the sales department of each of these cloud providers. Today these are quite large entities, and you need to try to reach a situation where you get attention there. If you don't get attention there, don't expect to sell through that cloud provider. Now, once you have that attention, there are a number of things to pay attention to. First, can you feature what you sell in other places on the cloud provider's website besides the marketplace? There are many ways to do this. Build solutions that integrate with their own solutions. They offer a very very wide array of products. If you can build an integration with one of the products offered by the cloud provider, it gives you much more power because they will feature you much more prominently than just being in the marketplace. Another thing is what is called the sales focus of the cloud provider. Each of these cloud providers sells thousands of products today. They cannot at any given time promote all these things in terms of marketing and guidance to their salespeople. Therefore, each of these cloud providers usually chooses each year a number of what they call focus areas. These are the five things they want to focus on this year. Usually they will look for use cases of their customers that involve as many of their products as possible, but use cases where they can show relevance, meaning use cases that many many customers need. Then of course they can generate the most business. At the end of the day, they want to sell as many products as possible. It is very very important that you try to understand what the focus play of the cloud provider is that year and see how you fit into it. Because if you don't fit into it, there is a very small chance that someone there will pay attention to you, because the whole system there is built around this thing. Now, when I say system, within each of these cloud providers there are many many bodies that play and influence your ability to sell. First and foremost, there is the partnerships body whose purpose is to create collaborations. This is a body that is relatively easy to connect to because they are always looking for new collaborations. But just because you connected with them doesn't mean you succeeded in making sales. Because who ultimately sells within the cloud providers is again a sales body. They have a very very large field sales team, a very very large marketing team, a very very large product team, and a very very large engineering team. Without you touching and talking to each of these other bodies, the partnerships body cannot push you because they need to feel that there is interest within their organization to sell your products. If, for example, the product team doesn't say 'listen, there's something here, let's see how we integrate it with our things,' not much will happen.

So look, this is already grinding work, I would say daily, that depends on several things. First, on your product, how sexy and attractive it is. That's obvious. Second, on who your people are who do this whole thing. Now we are in a world that is becoming more and more professional. You know, we Israelis always think we are all-powerful, we can do anything and know everything. I'm sorry to disappoint you, but it doesn't work that way. When you want to sell through a channel, the people who do it on your behalf need to be people who know how to sell to the channel. This is a real profession. It's a profession. They are not the same people who sell to the end customer. They are different skills. So what skills do you need? When you go as the CEO of Redis, and you need to build a sales organization within Redis that sells to the channel, what skills are you looking for? Where are these personas even found? Are there skills in Israel? I think maybe they are starting to be in Israel, but mainly they are in the United States. There are people who have done this. Look, these people need, first of all, preferably to come from the target audience itself, meaning from the cloud provider. Because each of these providers is a huge entity. To succeed within it, you need to know it very very well. You need to know all the players, who is against whom, who has power, who can move things. So it's highly desirable, and in our case, most of the people working with the channel came from the channel themselves, meaning they came from the cloud provider, worked there before in various things. Some of them, by the way, worked in the departments of the cloud providers.

Exactly. And also, look, first of all, there is the importance of personal connections, that they know people. But let's assume it's not mandatory to know people, at least to know the organization very very well and know how to maneuver within it. Because if you come without this knowledge, you will waste a year just understanding who is against whom, who is important here, and who is just blabbering and you waste your time on them. So there is a very great importance that these people know the organization they are going to sell to very very well. Now, beyond that, they also need to have the skills of salespeople, because ultimately it's sales like anything else. Even to a cloud provider or a channel, you need to sell. You need to excite them. So you need hunters who know how to navigate within the cloud provider organizations. Now, there are a few more things that are super important to pay attention to. Ultimately, every sale, whether it's direct sales or sales through channels, the compensation of the salespeople is critical. People don't understand how important it is. Those involved in sales understand it very well. Sales compensation gives incentives to your salespeople to sell. The more they sell, the more money they make, plain and simple. Now, ask how this relates to the channel. Here too, ultimately, if you want the cloud provider's salespeople to sell your product, you need to ensure they have an incentive. Now, most cloud providers do not agree that you give money to their salespeople. It's not acceptable. But you need, during the negotiation you have with the cloud provider, to discuss this again and again and again. When the salespeople sell my product, which for them is a third-party product, it's not the cloud's own product. When the salespeople sell a product that is from the cloud provider's own house, they get 100% recognition of the sale amount for their commission. When they sell a third-party product, because the cloud provider doesn't make as much margin as on its own products, and you also share in the margin, they usually won't agree to give the salesperson selling your product 100% recognition of the sale for their commission. Now, of course, this creates a problematic situation. If there is, for example, a similar product from the cloud provider to your product, and on it their salesperson will get 100% recognition, and on yours they will get 30% recognition, then why would they sell your product at all? This is a very very big problem, and it's one of the things we fought very hard over. It's not a war you win in one day. It sometimes takes years to increase the recognition percentage on the commission for sales of your product. This is an important thing. So we really fought within the large organizations so that their salespeople would get higher compensation for selling our products. Amazing. Without this, nothing will move.

So look, first of all, it depends on your product. Our product is excellent from this perspective because being a database, you store data, and data takes up volume, and volume means servers. So the more they consume Redis, the more they consume servers from Amazon, Google, or Microsoft. So from this perspective, we came from a very very good position, and they have an interest. But if you ask about our story, this thing was also a bit to our detriment, and I'll explain why. If we go back, Redis started as open source, essentially as a product that anyone can consume without paying anything, download it and use it. It also came with a very permissive license. The meaning is that anyone can take this software and do whatever they want with it, get the source code and do whatever they want with it. Now, Redis gained its popularity by word of mouth. I can't even take the credit for our company that we caused Redis's success. Redis's success was created because it's a very good product, a product that is very loved by developers, and it spread by word of mouth. This did not escape the eyes of the cloud providers. At a very early stage of the road, each of them launched their own Redis service. So Amazon had a Redis service more or less at the time we started offering Redis services. Microsoft had one about two years after that, and Google maybe another year after that. That is, we built into a very very competitive world where the three cloud providers essentially offer our product. So you are competing with them. So ask how do you compete in such a situation, and how do you even succeed in selling through the cloud providers? The story is very very not simple. It sounds like it's in their interest not to sell Redis, exactly, to sell their own Redis. And I'll say more. Today, AWS, Amazon, sells Redis around one and a half to two billion dollars a year. Their Redis. And Microsoft and Amazon together sell another about a billion dollars of their Redis. That means there is a market of about three billion dollars on our product that we don't benefit from. This is the situation we live in. Since we were born into this competition, it was quite clear that we needed to create a very large differentiation between their product and our product. Essentially, we built the entire commercial offering of the company on this. There is the Redis open source that the cloud providers use. On top of that, we built a very thick layer of capabilities that are mainly suitable if you are a large organization and you want to use Redis very robustly, very resiliently, with high availability, very fast performance, very high scalability, something that never falls, what we call five nines, 99.999% availability, and so on. We worked for several years to build these capabilities. Today, if you look at the product the company sells, called Redis Enterprise, I think about 5 to 10% of it is Redis open source, and 90% plus are things that don't exist in open source or in the products of the three cloud providers. This was our way to compete with them.

So the cloud providers sell two things. They sell their product, they never stopped. If you look at AWS, they have a product called ElastiCache. And Azure has a product called Azure Cache. And Google Cloud has a product called Memorystore. These are Redis-like products based on open source, and those are the ones I said they sell in the billions. Completely separately, we created partnerships with them to sell our Redis Enterprise through them. Now, because we started this path as a kind of frenemies, it was not easy, and it took years. If you want to hear a bit about the path, our first breakthrough was actually with Google Cloud. What happened was this. Amazon for many years was considered a kind of enemy and threat to the open source world. Why? Because every open source that started to succeed, Amazon immediately grabbed it, made it their own service, and sold it without giving a penny, without sharing with those who developed the open source. They became the enemy of the people in this sense. Within the competition of the other two cloud providers, and you need to know there is terrible competition between these three cloud providers. Within this competition, when a new CEO came to Google Cloud, named Thomas Kurian, who was number two at Oracle at the time, he decided on a different strategy. He said, wait, if I want to try to compete with AWS, and he was number three in the world of clouds, maybe we'll try a different way, which is to be friends of open source. So about three years ago, he approached a number of about 10 open source companies and said, let's make a partnership. We sell products based on your open source, but let's help you sell your products through our cloud. We were one of those companies. He even invited me to present this plan at the Google Next conference in 2018 or 2019, I don't remember. I stood with him on stage, and they even prepared a presentation of what our product would look like in Google's user interface. This was the beginning of the path. And indeed, we started selling through this partnership. What this partnership did was not just that we were stuck in some marketplace that no one visits, but they actually featured us on the first page of Google Cloud in a way that you discover us quite quickly. Not just us, a few others as well. This gave a very big boost to the business. And indeed, to this day, our biggest business through clouds is with Google Cloud. Amazing. This was the beginning of the path. The second breakthrough was, you know how it is, when one sees, the other gets jealous, and so on. Then suddenly Microsoft Azure saw that Google Cloud was becoming friendly to the open source community, and they looked at what they needed from this open source. They identified two or three companies only that they wanted to partner with, but a slightly deeper partnership. Because what happened with Google? At Google, they initially told all these open source players, we will take your product and make a real Google user interface, meaning from the customer's perspective, it would look like a Google product, they wouldn't notice it's a Redis product, for example. In the end, they didn't do this thing. And even when they talked about doing it, they said you will operate the service. What does it mean to operate the service? When you provide a database service, you constantly need to add servers because the amount of data grows, do clusters, and various things like that. Servers fall, there's a lot of dealing with it. So first, who buys the servers? In Google Cloud's model, they said, listen, you will sell through us, but you will buy the servers from us. So okay, we bought the servers from them, and we were supposed to, and we did, take care of these servers. If a server falls, bring up another server. If more servers are needed in the cluster, increase the cluster. All this was on our DevOps. Then Microsoft came to three companies and said, we want to do a partnership with you, but in a different model. What is the model? Give us your software, and we will take this software and embed it within our services, of course with a Microsoft user interface. It will look like a Microsoft service through and through. This is a kind of OEM. Think of it as OEM even in the automotive field. Today, if I buy a Honda car, for example, I might not know that the components inside or the software inside might be from a company like Redis. I buy a Honda, I don't know who the components are inside. But at that moment, Redis sells through Honda as a channel. Exactly. So this was the idea. After a long negotiation, we signed an agreement with them where they receive our software, Redis Enterprise, and they, with the assistance of our development people, develop this thing to be the top tier in their existing Redis service. They already have a Redis service that they built entirely on their own based on open source, but they said whoever wants a better Redis, more stable, more sophisticated, this will be the tier of Redis Enterprise that we will build. And they indeed built this thing, and today we sell very nicely through this partnership.

As we said before, the key to this is knowing the organization. You must know, as I said earlier, first the focus areas. What are their focus areas? What is important to them? And how do you fit into this thing? By the way, from what you're saying, I understand that what is important to Microsoft is not necessarily important to AWS in terms of focus. Correct. Each of them has its own focus each year. You need to know what they are. Now, it's not simple. I'm making it sound like a cookbook, like do this and that and everything will succeed. It's very hard, and it really depends on your product and how much it interests them. Because there are many wonderful products that the cloud providers might not be interested in, or any other channel for that matter, like system integrators. But by the way, we talked about channels and didn't mention system integrators, which is also one of the important channels. Not so much in the case of Redis, but in previous companies I founded and was involved in, it was a very very important channel. But the rules are the same. Even if you go to a large system integrator, you need to know it inside out. What interests it? What is important to it this year? What functions work there? Who is against whom? And so on. So it's exactly the same thing. Now, how do you reach such a Julia? It's really not simple. It can be through connections. Today in the Israeli industry, there are many people who worked for years at Microsoft in Redmond or Seattle, at AWS, or in Silicon Valley at Mountain View at Google. You need to try through your connections to reach these people. That's the story. There's no other way.

I think it depends very much on the startup and what the product is. If it's a product that makes a lot of sense to sell through cloud providers or system integrators, the sooner the better. But there are many products that you want to start selling, certainly B2C, not through these companies. B2C I'm less in this world, so I can't tell how important channels are there. But if it's B2B, it really depends on your product. I would say the sooner the better, always. But of course, there are products that are much easier to sell in zero touch at the beginning, what is called PLG, where the product sells itself. This is the best. These are dream companies in my eyes. Companies that can go a long way like Atlassian. A company like Atlassian is a dream. There is no higher scale than that. But most of us are not Atlassian. Ultimately, when selling to the enterprise world, you probably need to work with channels as well. Therefore, I say as early as possible. But you can't always afford it because it requires dedicated people. Sometimes you prefer to reach first sales to show that your product even sells, and it's easier to do that through your own salespeople. So it's all a matter of priorities. If you asked me, I would start first by selling directly to feel the market, reach customers, see what they say, and so on. But once I've shown that the product has a right to exist and it sells, then I would go and start looking at which channels can help me.

Exactly.

Look, the skill of reaching customers, you can't describe the leverage you get through channel work. What do I mean? AWS, I've forgotten the number, but they have thousands of salespeople. Now, salespeople are not someone who travels around the world on a plane looking for someone to sell to. Usually, the way modern systems work is what is called named accounts. Each salesperson has only five customers. All they do in life is sell to five customers. If it's a big customer, they have only one customer. And if it's a very big customer, there are ten salespeople selling only to that customer. Now, when you talk about an entity that has thousands of salespeople, it will take you decades to reach this coverage of customers if you try to do it alone. So if you have a way to reach such a large channel that has good coverage of your customer market, it can shorten your time to market by years and years. That's a huge advantage. And I also assume that channels work on commission, right? We pay them only when they close a deal, whereas with our own salespeople, we pay them a salary upfront. That's true. But look, when you work with a channel, you also need to invest. As we said earlier, you need people to work with the channel. So ultimately, I don't know if you saved on salespeople. But with the same number of salespeople, if you take three salespeople working directly versus three salespeople working with a channel, the three working with a channel have a chance, if they work well, to bring in much much more sales than the three direct ones.

So look, today we have a sales organization of about 400 people out of the 850. And I estimate that there are about 30 to 40 people working with the three cloud providers, because we hardly work with system integrators. So it's still a relatively small portion compared to the number of people working in direct sales. Look, it depends on who your channels are. We have only three main channels. So we don't need more than that. But if you have a product that is suitable for many system integrators, there are many in every country, then you might need many more channel people.

Look, in a sales organization, it's like an army. There are sergeants, majors, lieutenant colonels, you know. There are regional managers, and so on. There are those who sell only to strategic accounts, those who have a few customers, those who sell over the phone. It's a whole system. We won't go into it because it's not the topic of this podcast. But yes, that's how it is with us. By the way, I think I forgot another advantage of channels, and that is selling to the government. I don't know if people know, but the largest customer in the world is the US government. No entity buys more technology than the US government. Now, selling to the US government is not a simple story at all. You need to go through seven circles of hell to get there. It's a process called FedRAMP, and it takes years. One way to bypass this is to sell through a channel. Because if, for example, Microsoft sells my product to the US government, they can sell it in huge quantities. I don't need to go through the FedRAMP process because Microsoft went through it years ago and is qualified by the US government to sell to them. So this opens a huge door for sales.

Exactly.

Listen, it's simple. Find the most suitable people to handle the channel. First of all, channel in general is good. It's a good thing. Sometimes it seems like grinding work that doesn't bring anything. I would say it's long work that takes a very long time to build your entire network within the organization with all the dozens of bodies inside. It's not easy. Do it and start as early as possible, because otherwise it will take them a lot of time to learn the organization they need to sell to. That's one thing. Second, look as quickly as possible for a champion within the organization you want to sell to. These are the two most important tips when you build your structure with the channel. There's another thing to pay attention to, especially when you're talking about a channel that is a cloud. Today, the clouds have gained very very immense power from the fact that they offer the entire set of services a customer needs. Therefore, today, when a large enterprise organization signs a deal with one of the clouds, the type of deal is not 'I buy this, this, and this from you.' Rather, it's 'I commit to buy from you next year for $10 million total.' Then the cloud says, 'Okay, if you buy from me for $10 million, I'll give you 30% discount, meaning you'll pay $7 million but you can consume $10 million.' What this causes is that the same customer, which could be Citibank for example, now has a supreme interest to buy as much as possible from the cloud. This creates a situation where someone comes and offers that same Citibank a third-party product that might be much better than the product the cloud sells, but they say, 'Forget it, I already have a budget of $7 million to buy $10 million from Amazon, for example. Why would I now engage with a new vendor?' Now think also about the people within Citibank, the dozens and hundreds of teams there. If they want to buy the product that Amazon offers, they don't need to issue a new requirement to the organization and start the process of vendor qualification. Everything is closed. They just go and consume the product from Amazon. If they want to buy the same product from a third party, they start a process of vendor approval that can take a year, and they'll be told, 'Why are you buying from this one when we can buy something similar from Amazon?' Why am I telling you all this? In all our negotiations with the cloud providers, we insisted and made it very very tough that when customers buy our product from them, it will count for the customer as part of their consumption commitment within Amazon, Google, or Microsoft.

Exactly.