Azaleos: Simplifying Exchange

Azaleos aims to capitalize on the complexity of Exchange by offering an e-mail appliance and monitoring service that eases customer headaches.

In late 2002, Lee Hudson, technology director at the action sports-focused retailer Zumiez Inc., began an upgrade from Exchange Server 5.5 to Exchange 2000 Server. Although he completed the job with the help of his small IT staff and a couple of local trusted advisors, he was never really satisfied with the results.

"The performance wasn't where we wanted it to be," he says. "And we had reliability issues with the server." Disaster recovery was another issue; if the Exchange Server went down during the night, Hudson's group wouldn't know it until the next morning. And all storage was direct-attached, not on the corporate storage-area network-another reliability problem.

So it wasn't long before the Everett, Wash.-based company started planning another upgrade, to Exchange Server 2003. In late 2004, Hudson and his team sat down with a local VAR and walked through the Exchange and Windows Server environments at Zumiez, talking about configurations for various servers and how to integrate the Cisco Unity Unified Messaging infrastructure that the company would soon install. "It was a little daunting," Hudson says.

Just as he was starting down that path, a mutual contact in the Seattle area introduced him to Azaleos, a Redmond, Wash., startup that was just launching an Exchange appliance and accompanying monitoring service. "We envisioned a lot of our headaches going away, which ended up being the case," Hudson says.

Once the planning was complete, Azaleos installed its OneServer appliance in "a couple of weeks, at most-it was one of the smoothest installs we've done," he says. The install went vastly better than the upgrade to Exchange 2000. "The end users didn't even know it was going on."

Now OneServer supports mailboxes for about 300 Zumiez employees, who collectively receive more than 10,000 e-mails per day and send about 4,500. Many of them are in the corporate office, but as the company grows nationally-it now has more than 225 stores and some 2,500 employees-a number of corporate-level employees work from home or on the road. That means they need to use Outlook Web Access (OWA). Traditionally, OWA was a problem area for Zumiez in terms of reliability and performance. "We just haven't had those issues with Azaleos," Hudson says.

Similarly, Exchange users in the corporate location now rarely complain of e-mail problems. "Exchange was one of the systems we visited the most before we went to Azaleos," Hudson says.

Born over Burgers
Azaleos was the brainchild of Keith McCall, the company's CTO, and Roger Gerdes, who served as CEO for two-and-a-half years until he left the company in October to spend time with his family before starting a new venture. McCall worked at Microsoft for six years, the last few on the Exchange team, working with ISVs, systems integrators and corporate developers. "Talking to customers and partners, it was increasingly evident that there was a huge cost and complexity in running an Exchange organization effectively," McCall says.

In February 2004, Gerdes had just finished up a consulting gig with Network Appliance Inc., helping the storage appliance vendor establish a tighter relationship with Microsoft. The two met on a trip to the Whistler Blackcomb Ski Resort in British Columbia, Canada, through Gerdes' wife, Sarah, a consultant focused on partner development who worked with McCall at Microsoft.

"Over a burger on the ski slopes at Whistler, he talked about his experiences with Network Appliance as a storage appliance. I talked about the cost and complexity of running Exchange," McCall says. "And we said, 'Why couldn't we put Exchange in a box and support it with a set of managed services to potentially allow people to set and forget their e-mail environment?'"
It took just a few months to flesh out a business plan, and McCall left Microsoft that June to start "the adventure." They started building the product in July and had a beta version installed at their first customer, Compass Health of Everett, Wash., in December-less than a year after the idea was conceived. The second and third customers were K2 Sports and Zumiez, respectively. Azaleos officially launched as a company on March 21, 2005-the first day of spring.

Exchange in a Box
The OneServer appliance houses a complete Microsoft Windows and Exchange Server clustered environment, along with third-party anti-virus and anti-spam, archiving and other services. "If an IT professional wanted to get it up and running himself, he'd have about 6,000 pages of documentation to read through," McCall says.

The appliance is built to be managed by the Azaleos OneStop monitoring service, which continually sends data to the Azaleos network operations center on the health of the system. Azaleos alerts the customer's IT department to any problems it detects, along with suggested corrective actions.

Azaleos Corp.

Headquarters: Redmond, Wash.
CEO: Phil Van Etten; leadership also includes Keith McCall, CTO and co-founder
Founded: 2004; emerged from stealth mode March 2005
Line of Business: Microsoft Exchange Server appliance and monitoring service
Microsoft Partner Program Level: Gold Certified
Microsoft Competencies: ISV/Software Solutions, Advanced Infrastructure Solutions
Annual Revenue: Undisclosed
Growth Rate: 100% quarter to quarter for last three quarters
Employees: 27
Customer Base: All industries; various-size companies; sweet spot is 250 seats and up
Clients: Allegheny Technologies, Inc., Coinstar Inc., K2 Sports, Zumiez, Inc.
www.azaleos.com

Through its Azaleos Certified Experts program, the company trains its partners on how to appropriately configure the customer environment, including the Active Directory infrastructure, and install the appliance. Prospective partners go through a small amount of on-the-job training with an Azaleos engineer before becoming certified.

Azaleos also has an automated provisioning system that enables its partners to fill out a simple Web form with IP addresses, domain names and other configuration information. The form generates an XML file that can be put on a USB key and used from a laptop to completely deploy an Exchange server on the appliance. "We can bring a complete clustered solution up in under an hour," McCall says.

After that, the value proposition Azaleos brings to its partners lies largely in the OneStop monitoring service. "Before, if [the service provider] wanted to roll their own Exchange solution, they'd get the black eye of being woken up at 2 a.m. when Exchange inevitably failed. And they'd have to reallocate resources from another project to fix Exchange," McCall says. With Azaleos, once the installation is complete, the partner's work is done: Any trouble calls come in to the Azaleos network-operating center.

Additionally, partners can sell value-added products and services on top of Exchange, such as customer relationship management, unified messaging, collaboration and line-of-business applications.

OneStop also provides a recurring revenue stream that Azaleos shares with its partners, who typically get about 5 percent of the service subscription price, plus 20 percent to 30 percent of the appliance price, depending on volume.

The recurring revenue stream was a factor in Azaleos' ability to secure $640,000 in seed funding in August 2004 from the Seattle boutique investment firm Second Avenue Partners, whose founding partners include two ex-Microsoft executives, Mike Slade and Pete Higgins. In June 2005, the company secured an additional $6 million in funding from Ignition Partners of Bellevue, Wash. That round, plus a $1.5 million bridge loan, should be enough to fuel rapid growth into 2008 before the company has to look at another round of financing, McCall says.

A Bullish Outlook
Microsoft's Exchange roadmap is also fueling growth at Azaleos. Each new version of Exchange, along with the end of support for earlier versions, creates what McCall calls a "discontinuity." Customers must decide whether to continue investing in the current version or to upgrade. Part of the upgrade decision involves considering an outsourced or managed-services model.

Azaleos offers customers a seamless migration from one Exchange version to another. Customers must buy licenses for the new version, but it can run on the same Azaleos appliance. "We think we offer an excellent way of placing the Exchange 2003 product and future-proofing them from 2007 or any other release," McCall says, noting that the appliance will support the 64-bit version of Exchange Server 2007.

And he is most definitely looking forward to that next release. "The discontinuities introduced by Exchange 2007 actually give us an enormous opportunity to capitalize on the 140 million Exchange seats that are currently out there," McCall says. "So I am very bullish on the prospects for the company. If we could get 10 percent of those 140 million seats, I'd be extraordinarily happy."

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