Chris Riegel, the founder, sole owner and CEO of STRATACACHE, kindly took a few minutes Monday to call and brief me on the deal that saw his company acquire controlling interest in software rival Scala.
Riegel says his contact with Scala on a potential deal traces back about three years, and was on and off. But discussions heated up about four months ago, which would have been before the Scala board cleared out most of the executive management team in June.
Now that board has been cleared out, as of Monday, and Riegel is now board chairman and in the process of assembling a new board.
He will be in charge of what he says will be a turbocharged Scala, which will continue as its own brand and also continue to have dedicated development efforts. Riegel says it will be a good problem to have should both the mother ship and Scala be on the short list for software deals.
Here’s a bit of the back and forth I had with Riegel on Monday. He’s in Malvern, PA – the suburban Philly locale of Scala’s main office – this morning.
Q: What does it mean? Apart from the obvious, is Scala going to be a separate brand, or how is all this going to work?
Riegel: Scala will remain a separate brand. We will build further that dealer channel on a global basis. There’s a lot of the parts of the world that we, STRATACACHE, can’t touch effectively, if that makes sense. There’s a lot of value to us in that dealer channel. I can’t afford to replicate the STRATACACHE model in large portions of the world.
That Scala dealer channel to us is highly valuable. It is probably not optimally utilized today and I think there’s a lot of upside there. I think that’s … number one, I think it means growth across the board.
Number two, I think it’s a further point of consolidation.
I read your post this morning. I think there is a difference in the CMS world out there. To your point, any idiot can go out and launch their own CMS tomorrow. There’s very little barrier to entry for that. The barrier for entry is having a robust platform at scale with the services and the capabilities around it that are really critical to succeed. For that mom and pop pizza joint who’s going to put one digital sign up and not change the menu but once a year, the TragicInfos or the LG smart sign. When you have any type of a true commercial application that requires some flexibility, that requires some support, that requires some integration from the various levels.
I’ve admired Scala for years as a competitor. From a platform perspective, they’re always been very solid. You could fault the size of the company, you could fault the profitability of the company, a lot of different things, but the platform worked.
Similarly, in the STRATACACHE environment we’ve obviously got more than two dozen customers, over a 100,000 nodes. There’s a lot of big opportunity out there, where we have proved that we work very well also. This market is scaling out very, very quickly. This type of consolidation allows us to unite to very strong brands.
Arguably for STRATACACHE the real benefit is that global dealer channel, that instant access to global markets. We have offices around the world, but we’ve never had as much traction that Scala has simply because they had a 20-year head start on the global side. It helps to bring us to scale there very quickly.
Q: Do you continue to develop the Scala platform separately?
Riegel: Absolutely, yep.
Q: Does it give you almost like tiered offers where you’re enterprise and Scala is medium small business?
Chris: I think that you could look at it from a tiering perspective but you could also look at it from a scale perspective where Scala has some very big customers. They’re not broadly known though, unless you’re within Scala. They have some absolute blue chip accounts that we’ll speak about those in the coming weeks and months.
I think that the way to look at a Scala solution could be if I’m a client and I’m looking for a certain capability or certain feature set, you want to have multiple products along that spectrum that clients could purchase. Not to say it in the wrong way, but if I look at General Motors I might want to go out and buy an Impala, a Suburban or a Silverado. All of those products are built by GM. They’re different products for different needs. If I like one versus the other based on my past, great. I want to be that source that they can come to for different offers, different capabilities on the platform side but then being able to enable more support, more capabilities around this platform.
Q: Are you done now with buying CMS companies?
Riegel: Not even close.
Q: What else would you be looking for?
Riegel: I think we’d looking for strategic partners that we could work with, if that makes sense. The desire is to build something accretive, so A plus B equals more than C. We want something where we could drive synergy, where we could drive better opportunity in the future. I think that for the bigger market, and I don’t want to overstate it or come off the wrong way, but I think it is now a bit of a scale game.
If I’m a customer of some size and I want to buy into this marketplace for solution side, you can always go the TragicInfo and the freeware-type approach, but when you get into anything of any complexity, it’s flat out not going to work. Everybody knows that. When I start to get into it, I’m going to buy a paid product from a company I’m looking for support behind it, I’m looking for long term relationship.
With STRATACACHE and Scala combined, with the scale that we’re operating at today, we’ve got the financial chops and the backbone to get there. I know in the post you’re skeptical about the $500 million revenue number. It’s real. It’s real in digital signage. The fact that any of our competitors can’t get there, really apologize for them not being able to fight the fight but guys, it is there and it’s there right now. The real deal.
Q: I write about what you tell me and then I get all these emails from people saying, “How the hell are they at that number?” I say, “Well, I don’t know. It’s a private company.”
Riegel: I can give you five clients that get us halfway there. Not to say it the wrong way but this industry has grown up around a lot of small thinking. We’re going to blow that out. The deal is, you know what we do for McDonald’s, you know what we do for Walmart. Those are not tiny companies. You look at the Timmy’s deal that’s on the street. There’s big stuff out there and it’s not, for the guys who just don’t play at this level of game, they’ll just nod their heads and say, “No, no. That’s not possible.”
Guys, I’m telling you, don’t believe us. Talk to the Cineplex guys. They’re hunting some of the same stuff that we are and the numbers are there. You’ve got to win it, you’ve got to fight for it, no question. It’s big risk, big reward, but the size of deals is growing by factors of dollars each year.
Q: Who would you consider your primary competitors now?
Riegel: I think that we would probably look to guys like Adobe, maybe Google. The sector guys like the Four Winds, not really on my radar competitively. Same with EK3, not really on my radar competitively. It’s going to be a bigger fish like Adobe, if they get serious about this marketplace.
Q: I think the last time we talked you also mentioned big consulting companies like the Accentures and so on, that get in the middle of things.
Riegel: Yeah, they’re always poking their toe in it, but let’s be realistic, I think this is probably a $3 billion to $4 billion a year global industry. The consultant guys, I don’t know if it’s big enough for them to Marty Kaan the business yet. The numbers are great, but they’re not House of Lies great.
Q: If I’m working at Scala today, whether I’m in the North America or over in Europe, what does that mean to me?
Riegel: Two big things. Today, we cleared out the board of directors. One of Scala’s great challenges is that there’s not been really clear leadership and there’s not been industry knowledgeable leadership within the business for a very long time. In clearing out that board, we’re bringing in our people. I’m taking control as chairman of the board today. We’re setting a direction as insiders, knowing where the industry is going, coming in to turbocharge that business.
I think Scala has some brilliant people and very, very good, hard-working folks who for the last several years have been just twiddling their thumbs due to lack of direction from management, and the Board. I know the financials around it and the company has not really grown over the last five years.
We at STRATACACHE have exploded in size in the last five years and Scala’s not thus far taken any advantage of that. We’re going to move them into that explosive growth mode and bring the kind of opportunities into the business that are there, that they’ve known about but not been able to act on to a great extent. There’s not an investment in the business. There’s not a willingness to go out and fight.
You know me. I don’t shy away from a street fight. If I saw two guys brawling on the side of the street, I’d say, “Hey, is this a private fight or can anybody join?”
There’s a desire from our perspective to grow the business and in the prior board and the prior approach, they were not tasked that way so we’re going to light the fire and put this thing into overdrive.
Q: There are going to be people at Scala who do the same thing as people at STRATACACHE in accounting and things like that. What happens to them?
Riegel: Great question, don’t know yet. The way Scala’s organized, the work is pretty distributed across the regions. What I think that the greatest opportunity is, if anything, probably growing that base of core engineering, core sales people. I’m headed there. I’ll be up at Scala starting tomorrow morning at 9:00 AM as the new chairman of the board and be able to look through the business and fully wrap our arms around it.
If anything, I see it as a growth opportunity. We did not buy Scala to cut it to great profitability, we bought it to grow, very bluntly. The opportunity is absolutely there. We just have to take out the bureaucracy. Part of the reason I like that Scala hat is that slightly John Wayne-ish American swagger of let’s go and attack, let’s go build the business here. The polite, governed by consent, let’s-not-make-any-waves direction of the company of the last several years is in the past. No, we’re going to make waves. We’re going to go take the hill.
Q: What happens when you have Scala salespeople and STRATACACHE people bumping into each other in the same opportunity?
Riegel: We see that today, but we see it pretty minimally. There’s very little practice overlap but when we do, and I’d love to be in the position that a client releases an RFP and we’re two or three or four of the companies that are selected for the RFP.
Q: The Scala management team was pretty much cleared out in June. Are you going to hire new people into those spots or just run it from Dayton?
Riegel: We’ll bring some new people in, no question but for avoidance of doubt, my hand will be firmly on the control stick in the cockpit.
Q: What you were alluding to before, in a lot of ways, was most of the companies in this industry just haven’t seen the opportunity and gone after it. They’ve behaved like small businesses.
Riegel: Most of the companies in this industry are lifestyle businesses, not scale businesses. They’re nice people who can work when they want and make a subsistence living. I’m not here to do that. I’m here to go to that three comma club, as has been explained before, with sales and we’re going to make that happen.
Q: I assume you can’t tell me what paid for Scala or how that all worked?
Riegel: I can’t tell you what I paid, but in the coming months, I’m sure it will all reveal itself.