Earnings Call: Check Point - Let's Revisit the 4 P's

The wonderful thing about the blogosphere is that you can pretty much have anything show up in your feed reader. So it seems that there is a fellow out there that publishes earnings call transcripts among other things on the Software Stock Blog (http://softwarestockblog.com). Lo and behold, Check Point's earnings call transcript showed up in my reader (http://softwarestockblog.com/article/9410) and it was very interesting.

Now I'll admit, I haven't been kind to Check Point of late. I think their strategy is non-existent and having to back out of the Sourcefire deal was a big blow to momentum. They had pre-announced a weak quarter (relative to expectations anyway) and in their earnings call they had an opportunity to talk more about the strategy and why they are going to recover. Needless to say I was underwhelmed.

There was weakness, but they positioned it as a hangover from a big Q4. They are also moving from a perpetual licensing model to annual subscriptions, but that is a very minor part of the business. They believe that customers do want integrated security solutions (which I agree with), but that adoption has been slower than they anticipated. It seems the real issue is customers are not embracing Check Point's integrated security story and not upgrading their point products. Not to Check Point stuff anyway.

Just check out this quote from Jerry Ungermann on the call:

We continue to get very positive feedback regarding our new direction and new products and while interests in activity are high, it appears that it’s taking customers longer than we had originally thought to replace their various point products with our newer integrated technologies. They like the direction and the implications associated with the Unified Security Architecture and what they perceive to be better security at a lower total cost of ownership, but it will take them more time to transition from today’s installed product to a more complete Check Point solution.

While we have talked about a general softness we’re experiencing in the market today, I believe security is still a very important area of investment, and our challenge is on the execution side to ensure we can enable our customers to get to tomorrow sooner. In this regard, we have a number of new initiatives we are working on and we will be making announcements about it in the near future to help make it easier and cost effective for our customers to buy our expanded solutions set sooner rather than later. This will include things like packaging, positioning, pricing, and promotions.

So, let me get this straight. Check Point is going to address the issue of their customers not upgrading their stuff through the use of the 4 P's?!?! I guess Jerry bought one of the Trout/Ries marketing books over the weekend and is all raring to go. Come on now. This is real business, not an MBA program. Even if that's what you are doing, don't tell anyone. It makes them seem amateurish.

I personally believe that two things are a work here, first is Check Point's lack of strategy is hurting them in the channel. There are lots of options out there for resellers to push, so they are going to go with the most exciting option. Sure, lots of the resellers are lazy and will only drop by to pick up their Check Point renewal, but customers will push for integrated solutions and Check Point has not made it clear why it should be theirs, as opposed to a Crossbeam or Fortinet. Websense also announced a weak quarter, and I think a lot of the same issues are at work. If the channel doesn't see a compelling strategy, they move on to the next thing.

So, Check Point's mission is clear. They have to figure out how to get their existing customers to upgrade to the new stuff and buy into Check Point's more integrated suite of products. Candidly, it's going to be an uphill battle. They don't have a compelling NAC story like Cisco to push upgrades of their installed base. They are under siege from both big and little UTM boxes that provide much better price/performance. And the US Government has made it clear Check Point is not going to be able to acquire new stuff to accelerate the strategy (like RSA did).

To be clear, Check Point is still a cash machine. Their margins remain tremendous and they've got a ton of customers. But as I've said before, they need a strategy to remain relevant moving forward. Smaller companies can bring niche products to market and do well. They don't need a big story because they solve a specific problem. That is not Check Point anymore, but that is how they continue to act. Their window of relevance is closing, so they better move fast.

Check Point customers have some decisions to make. A lot of Firewall-1 and VPN-1 will renew this year, or not. Do you buy into the next wave of Check Point's product or do you swap it out? I believe that without a compelling strategy from Check Point many customers are going to be looking at alternatives.