In April 2022, Kaseya and Datto rocked the MSP world with the announcement of a blockbuster deal in which Kaseya would acquire Datto for $6.2 billion.
With strongly mixed reactions coming from the MSP community and anxiety around the deal, Robin Robins, founder and CEO of Technology Marketing Toolkit, invited Fred Voccola, CEO of Kaseya, to sit down with her for an interview on stage at the IT Sales and Marketing Boot Camp in front of approximately 2,000 MSPs. Less than a week after entering into the agreement, Voccola answered Robin’s hard-hitting questions in his first-ever address to MSPs since the announcement.
Voccola, who became CEO of Kaseya in 2015, has led the company to phenomenal growth. Since taking over, he’s taken the organization from approximately $65 million in revenue with 350 employees to a company generating over $500 million and 2,200 employees, averaging 38% growth per year over the last three years. The acquisition of Datto will bring Kaseya to $1.3 billion in revenue.
To support the expanding customer base, Kaseya is committed to hiring more than 1,000 people globally by the end of the year. The company is also expanding its headquarters in Miami to 64,716 square feet of cutting-edge building space to accommodate its growth plans. To expand its R&D footprint in Poland, they opened a new office in Kraków earlier this year. And to create an enhanced workforce pipeline, Kaseya has established university partnerships with organizations such as Florida International University in Miami to ensure students have the skills needed to thrive in the tech industry. Kaseya has also created their Grow Your Own program to support its new hires globally through educational programs, mentorship, and leadership development.
The rules of the U.S. Securities and Exchange Commission (SEC), and the fact that the Datto transaction will not officially close until a later date, prevented Voccola from disclosing everything about the deal. He did address, however, the major concerns surrounding the deal, which has lit up social media. While some comments have been quite tame such as “Will Datto be adopting the multiyear contract requirements that Kaseya has?” others are hateful and unprintable. Voccola discussed his strategy and gave a glimpse of what you can expect with Datto by discussing how they’ve approached the 14 companies Kaseya previously bought in the MSP sector. Plus, for the first time ever, Voccola unveiled an innovative new AI technology: the Cooper Intelligence Engine — years in the making — due to be released in June 2022.
Here are some highlights from the interview.
Why Did Kaseya Buy Datto?
Voccola’s reasoning for buying Datto lines up with his vision for Kaseya, which is simple and compelling: to help overworked, overburdened MSPs increase profits and lower costs by delivering a completely integrated, highly secure, and fully automated IT and security management platform known as IT Complete.
“We think about the technicians in the MSP sector,” Voccola explained. “The No. 1 cost factor for an MSP is people. The No. 2 factor is the kit, the software, and the tools you use to deliver the services you offer. The biggest constraint on an MSP’s profitability and ability to grow is how much revenue each technician can generate. How many endpoints can they manage, or how many customers can they manage? [You can use] whatever metric you want.”
“While 2022 has brought significant opportunities due to the need for cloud migration and hybrid workforce management, MSPs and SMBs are stretched thin as they manage IT environments that are growing in complexity — all while dealing with supply chain issues and a hyper-competitive job market that has made staffing a significant challenge. With our newest features and integrations, we’ve made our IT Complete suite of solutions even more robust — allowing IT technicians to cut down on wasted time and more efficiently protect and manage their entire IT environment.”
Voccola further explained his strategy is to provide a platform that does four things for MSPs:
#1 Deliver Everything An MSP Needs In One Place To Substantially Reduce Vendor Fatigue
“Our strategy is to provide all the kit that an MSP needs to deliver all the managed services their customers will want as well as run their business. It costs money every time you add a vendor. The average MSP in 2020, I think, had 15 different providers of kit, software, hardware, or whatever. In 2015, it was seven. It’s a lot of license management, support calls … it’s challenging. We want to reduce that.”
#2 Integrate All Of The Products At A Workflow Level
“We integrate with over 240 software companies among all our platform products. We integrate with competitors like ConnectWise, Ninja, and Barracuda. We also integrate with our own kit. We can do our kit at a much deeper level because we own the software. When you own the software, you don’t have to worry about things like version control or release desynchronization or inconsistent security patterns. Say we integrate with Barracuda at such a level where if IT Glue is three months late on a release, there’s no way Barracuda’s going to wait three months to release their product. No two vendors want to be dependent on each other. We solve that problem by going deep. We own both sides of the equation, and we make them integrated, which makes technicians much more efficient. Just like Microsoft Office, if you’re using PowerPoint and you right-click to put a table in, you’re putting in Excel. That’s one product. Now 20 years ago, Lotus 123, Harvard Graphics, and WordPerfect, none of them worked together. With Microsoft, it all works together.”
#3 Provide The Best Solution At The Lowest Price
“We commit to and try to price our products about 30%–40% below all our competitors so MSPs can make more money,” Voccola said. “When we looked at Datto, we saw it as a huge opportunity because they’re awesome.”
#4 Offer A Great Kit From A Great Organization
“Datto has great … amazing software,” Voccola said. “They have an awesome culture. They care about this industry. Austin McChord cares about the business they built and the people. Rob Rae built an awesome customer support organization. The organization’s great. We want that.”
Will Kaseya Continue With Datto’s Products?
Given the perceived redundancy that Kaseya will have with two RMMs (remote monitoring management), two backup offerings, and two PSAs (professional services automation), will they continue to sell and support Datto’s products? “Yes, we have to, and we will continue that for the foreseeable future,” Voccola said. “I measure foreseeable futures in 5–10-year increments. I’m not sitting here saying we’re going to support anything for a certain amount of time because I legally can’t say, but we’ve stated we are supporting all products moving forward.”
Voccola explained that the reasoning behind this decision is that it’s a lot less expensive for a company the size of Kaseya to pay extra to maintain and make better multiple products in the same general areas than it is to “p*ss off” customers and tell them the product they love is gone and they need to use the new one. “That is not why we are spending $6.2 billion buying Datto. We looked at Datto’s great culture. We’re keeping the Datto brand, just like every acquisition we’ve done. There’s no rationale to go shut down Datto offices and change their culture. When we buy companies, they operate as autonomous, stand-alone business groups. That’s not going to change. We’ve done it with ID Agent, RapidFire Tools, Unitrends, Spanning, IT Glue, you name it. We throw a ton of money into them. We have lots of financial resources to juice the product substantially and we’re not going to break what works. Datto has world-class support and world-class customer experience. Their people are great. And that’s what we want.”
Why Does Kaseya Have 3-Year Contracts Knowing That Many MSPs Don’t Like Them?
While MSPs can negotiate better deals with vendors on an individual basis, in general, Voccola says Kaseya’s three-year contracts allow them to price things anywhere from 30%–67% less than what other vendors charge for a similar product. This allows MSPs to make more money. For example, Acronis charges $2.40 for a Office365 backup license per mailbox. On a three-year agreement, Kaseya’s list price is 95 cents. “It’s commercially advantageous to Kaseya, and we try to make it commercially advantageous to our customers,” Voccola said.
“For us to be 67% cheaper or some number like that, and in order for us to say we’ll be 95 cents when Acronis is $2.40 or ConnectWise for RMM or pick your vendor, PSA same thing, we say, ‘Listen, we want you to commit to a three-year transaction with us.’ One, we don’t raise the price at all. The average software vendor raised its price by 27% in 2020. A lot of that’s in the enterprise, but that’s huge, so there’s no risk there. Second, we’re trying to make it beneficial for the MSP. It’s much more profitable for our MSP partners to buy products from Kaseya that are 30%, 50%, 60% less expensive on a three-year commitment when that price will not go up than to buy a competitor’s product that’s 30%, 40%, 50% more expensive, and rising 10%–20% a year. The MSP makes more money.”
Voccola did say they allow one-year or two-year contracts, but those will be a higher price than if MSPs sign a three-year contract. In the example above, instead of 95 cents, the MSP would pay $2.20. “We do one-year transactions. It just doesn’t make good financial sense,” Voccola said. “It’s important for everyone to understand that when you negotiate with your customers, it must be mutually good business. With software, there are no COGS. The hosting costs are nominal, 5%–10% max. So, our gross margins are 90%, 95% depending on the product line. If we lock in our recurring revenue stream, the inflation for software engineers is 33%. We did a 33% bump in our engineering cost-of-living benefit increase this past year. Thirty-three percent.
Everyone wants new features and new functionality. Three-year deals allow companies like Kaseya to invest more to do that. We think three-year deals allow MSPs to make more money, and that’s why we offer them.”
What Would You Say To People Who Are Concerned About All Their Eggs In One Basket?
“The first thing I’ll say is Kaseya is not going out of business,” Voccola said. “There are hundreds and hundreds of options out there,” he said and noted there are competitors of every size in every category. “There are tons and tons of options. We want to earn the business. We believe the value of integration of the kit is to make the software engineer or the technician much more efficient. It’s huge. And as labor costs go up, it becomes more and more important, and we’re getting better at it.”
Is ConnectWise Next?
“ConnectWise is a great company,” Voccola said. “ConnectWise is owned by Thoma Bravo. If you’re lucky enough to be able to invest in a Thoma Bravo fund, do it because you’ll make a ton of money, and I’m sure Jason [Magee] will tell you the same thing. Thomas’ approach to investing is financial engineering. They’ll buy companies. They’re great at it. They’ll reduce costs, they’ll drive EBITDA, and they’ll grow that way.
“Insight Partners, the owner of Kaseya, comes from the venture side. Venture investing is more growth-oriented. Everything’s about growth, not irresponsible growth, like some of the Silicon Valley companies. Datto comes from growth. If you guys know Austin [McChord], it’s about growth, not ‘cut costs and be cheap.’ It’s invest, invest, invest! So, I don’t know if there’d be a good culture fit from that perspective with ConnectWise, but it’s a great company.”
What Is The Cooper Intelligence Engine?
For the first time, Voccola also talked publicly about Kaseya’s innovative new technology, the Cooper Intelligence Engine, which is named after Voccola’s beloved beagle/Pekingese mix, Cooper. (Voccola has a foundation called the Cooper Voccola Family Foundation. Read more about that at the end of the article. Cooper, who has limited use of his hind legs due to an accident, travels with Voccola around the country inspiring disabled veterans.) Under development for several years, Cooper AI is due to be released in June at Kaseya’s Connect IT Global conference in Las Vegas.
“One of the challenges I’ve seen in products and companies I’ve started, and in products we’ve built over the years, is that most users of B2B software don’t get the most out of the software,”
Voccola said. “It doesn’t make the software bad. It’s just the reality. For example, everyone here is using an RMM. I’m sure all the RMMs out there, including Kaseya’s, can spin you on your head and do a million things for you. It can talk in Spanish, Greek, German, and French. But it takes a lot of time to do it, and no one gets the most out of their software. Cooper Intelligence Engine is an AI engine in our platform, IT Complete. The AI can ‘watch’ how a user is using whatever module — RMM, backup, security, whatever they’re using — and tell you if you are using the product properly. It tells you there’s a feature you could be using that would make your life better or simpler.
It also lets you know when you haven’t read the release notes to a new release. The analogy is Iron Man and J.A.R.V.I.S. J.A.R.V.I.S. talked to Iron Man inside his helmet and would tell Tony Stark: ‘Your oxygen levels are running low. Press this button to get more oxygen.’ That’s what Cooper does for the users of our platform. It’s been a long, long time building. It’s been a ‘pet’ project of mine since the first APM company we started, Identify Software. People got their money’s worth, and they loved the product, but they were just scratching the surface of what it can do. We’re super jazzed about it. The Cooper Intelligence Engine is going to be embedded inside of Kaseya, inside all our platforms. It will, in real-time, let your users and let you, as the owners, know if the products are being used properly. It’s not Clippy from Windows. None of that. This is my dog, Cooper. It’s done in a more passive way, and yes, you can shut it off,” Voccola said.
Fred Voccola’s Public Challenge To All MSPs
Despite the strong, emotional feedback from the MSP community, Voccola said in closing he’d much rather have these passionate conversations with business owners who have a stake in the game than with a VP of IT at a big corporation whose “biggest concern is surviving to retirement and can’t move the needle.”
In response to the negative feedback and harsh comments online, Voccola asked that people give Kaseya an opportunity and engage in personal conversations with him and other executives to get their concerns addressed before passing judgment. “I know this group of MSPs, and half of you probably hate me,” Voccola said. “And I wish I could change that, and hopefully, we’ll earn the right to change that. But I spent a lot of time working with enterprise customers, and it’s much more fulfilling to look a business owner in the eye and say, ‘Listen, we’re helping you make money or we’re not.’ … I would just say fear, uncertainty, and doubt are fueled by a lack of information and that goes for anything, not just work. We make a ton of mistakes. I took over Kaseya seven years ago. We’ll make a hundred more mistakes, but we make mistakes trying to move in the direction that I indicated — building a platform that makes technicians much more efficient so inflation, shortage of labor, all the challenges MSPs face, will have less impact.
We want to charge a lot less for the kit. We’ve done it with every deal we’ve done. There’s no reason to think it wouldn’t continue. If the past is the best indicator to the future, that’s what you’ll see.”
He demonstrated his confidence in Kaseya and his commitment to MSPs by offering to put his personal money where his mouth is. In support of St. Jude Children’s Hospital, Voccola issued the following challenge to all MSPs:
“There have been about 200 posts from our 38,000 customers and some vendor posts that said something like, ‘Kaseya’s the place software products go to die,’” Voccola said. “I’d challenge anyone here and I’d put a million bucks of my money against a hundred bucks of your money to St. Jude. I will guarantee you there’s been a 500%–1,000% innovation improvement in every single product we’ve bought. This is public. I’ll do that every day of the week. It doesn’t mean we don’t screw up, and we haven’t screwed up a ton. I encourage people to get the facts, then make decisions. We would love all of you to be Kaseya customers because we think we can really help you. We’re not the evil empire. Just like you with your business, we’re trying every day to be better.”