Do you think that industry demand returns to normal levels, or do you still think there’s some pressure on the product side or anything else you want to draw comments on associated with what seems to be conservative buildings guide? Thank you very much.
Ken Xie: Yes, a very good question about SASE. Definitely we want to do both, even more than that. So we definitely see the opportunity changing our go-to-market strategy because a few months ago, we were more dependent on the service provider carrier trying to do a SASE. I helped them do a SASE. Now it’s more go-to-market, direct ourselves, and at the same time working with our service provider, but also more important, really, internal R&D, internal investment in the infrastructure. Like we mentioned, now we have over 150 pub worldwide, probably can match any other competitor, and same kind of function, the innovation, and also put all the SASE in a single OS, and then a lot of functions that are using ASIC will accelerate, and that also make our SASE solution much better, more advantaged compared to other competitors, and also more easy to deploy, more easy to manage.
So we see that’s a huge opportunity for SASE. It’s not just SASE using the traditional cloud approach, but also on-premise SASE, the private SASE. So we see a lot of opportunity for SASE going forward, both on the technology, which we also work at, our innovation, developing technology, and at the same time, the go-to-market strategy, once we focus, we see huge success behind.
Keith Jensen: And just on the guidance, Keith, appreciate the thought after kind of a tough middle of the year last year for us, or for me. I think keep in mind that we do probably have between $150 million and $200 million of headwind related to backlog, or year-over-year comparisons, if you want a backlog impact in the year. I think also in some of the commentary that we provided right before guidance, where we talked about the relative impact, specifically the product revenue, and what you should see from service revenue for the year. You can kind of get a sense of what we’re thinking about for product revenue. I think I do see that some opportunities on the service revenue line with things that come from SecOps and SASE in the year, but I think all-in-all, I think where we’re at right now, in terms of the full year guidance number, is an appropriate number for us.
Keith Bachman: Okay, all right, many thanks. Congratulations, guys.
Operator: Thank you. Our next question will come from the line of Ittai Kidron with Oppenheimer.
Ittai Kidron: Thanks, guys. A couple for me. First, on the comp side, as you move into 2024, can you share a little bit more color on the changes you’re making or have made to the sales comp and what kind of incentives have you laid in place in a way that’s different than 2023? And then on the competitive front, just given where your position on SecOps and SASE, I think you’ve talked about kind of more meat enterprise on the SecOps and more SMB is the largest category in SASE. Can you talk specifically on who do you see more as competition in those categories? Because you don’t seem to kind of stretch the entire customer profile or regions, frankly. So we’d love to get a little bit more color into who do you see more versus less in those categories. Thank you.
Ken Xie: Yes, we kind of keep improving the sales comp plan and also trying to line up what the company goal and what’s the field sales and also how we can move kind of a tie together and success together so that there’s some modification of the comp plan which move towards the company long-term both on the growth and the margin and also reflect more on some kind of a service based kind of model there behind. So that and also kind of keeping investing in the sales force and also kind of making the structure more efficient that’s other area and also training the sales and make sure because there’s a lot of new area whether the SASE and SecOps do need a lot of training that’s also the big enhancement we are kind of going through right now.
Keith Jensen: Yes, I’d probably add to that as well just a couple of things on the comp plan conversation. This is the time of year where comp plans go out and I think every company seems to make some changes. I think the real thing that jumps out at me this year is that I think after the 2023 results the quotas are probably a little bit lower on an individual basis than they have been in the past, and we probably put some things to work in the other direction on it. But to Ken’s point, we really want to make sure that we’re investing in building on the sales team and making the adjustments in the quota for 2024, I think is appropriate. On the SMB and SASE, probably — the SASE and SecOps conversation. And I think it goes back to some of Gabriela’s question before, at this stage, they’re really shaping up in terms of having different customer mixes.
The SMB portion of SASE was about 55% of the business. And we’re not surprised to see us having very, very early success there. We’re pleased with the development and the feedback we’re getting from third parties about the success of the SASE product. But that, together with our SD-WAN customers is the logical place to see success. On the flip side, SecOps is almost the opposite, but large enterprises providing about 55% of the business. And I think the read through to that is all about consolidation. Where you’re really going to have successes and it ties into the mix of repeat customers, i.e., firewall customers are now buying the SecOp product being very, very high. And that’s what we would expect both of those business segments.
Ken Xie: And maybe for all three sales and also sometimes even for a partner, if they sell all 3 solutions, secure networking, SASE and SecOps, they get more comp compared to only sell 1 or 2 solutions. So that’s the additional incentive we offer to the field.
Ittai Kidron: Maybe as a follow-up, Keith, how much of the opportunity here in SecOps and SASE is outside of our customer footprint. Is the vast majority of traction here just with your existing installed base? Or it also pulls you outside.
Keith Jensen: Yes. Given as John pointed out, we have over 500,000 customers. So I’m okay with an installed base, right? And I don’t think that’s anything new for several years. We’ve talked about new logos representing large numbers, hundreds — thousands of new logos, but they’ve never really been more than 10% of the business. So I don’t think that this is really going to change with that. I expect that — the firewall is such a compelling product because the price of performance advantage because of how more and more security have embedded into the operating system and the ASIC empowers that, that I’m not a salesperson if I was, I’m probably looking for those opportunities in the white space accounts. And then you want them like any other enterprise company to come back and sell more into that company. And that’s really what you’re seeing with the SecOps and SASE products that Ken and John have been talking about.
Ittai Kidron: Thank you.
Operator: Thank you. Our next question will come from the line of Adam Tindle with Raymond James.
Adam Tindle: Okay. Let me see if I can get everybody involved here. So Ken, I wanted to start with SASE and SecOps was obviously a key pivot point on the last call. As you focus on that more internally, could you summarize your competitive advantage technologically in those areas? And John, logistics from a sales perspective, I know it’s been kind of kicked around a percent of quota retirement might be related to those areas. What did you land on for logistics? And lastly, for Keith, expectations for sales productivity as a result of that pivot towards SASE and SecOps. Just wondering your early observations on what you’ve seen because it looks like you do expect total margins down, but I think it’s somewhat related to gross margin, not much efficiency drain. So it’s just what you’re seeing from a sales productivity perspective as you pivot to those areas. Thank you.
Ken Xie: Yes. For SASE, we are the only company, we believe, has all the SASE function, SD-WAN, all the CASB, web service, all in a single operating system can be deployed on our premise [ph] using ASIC [indiscernible] or in a cloud form there. So that’s a huge advantage, both for the customer, for the service provider. I think on the SecureOps side, we also most the product we internally develop whether from endpoint or from all these different like e-mail application, web, all this is because when we internally develop it integrate, automate much better than other competitor, more comp acquisition, which is a separate product that’s more difficult to integrate, automate together. So that’s the two huge advantage we have. We usually call the SecureOps more like a fabric approach.
I’ve been doing that for 10 years, which is pretty successful, but now we have the same time which customer wants to hear is the SecureOp, which they see the huge advantage that drives a huge growth going forward and also the field training and also kind of help a lot. So that’s the advantage we have, whether the SASE single OS approach can use as AC [ph] to accelerate and then the secure app is integrated automate together much better than other competitors gave us huge advantage.
John Whittle: In terms of the quota retirement question, Keith may have additional comments on that, but there’s really no change there.
Keith Jensen: Yes. I think OTE and numbers targets are very much the same. I think on sales productivity in terms of what we saw in 2023, as we move through the year, obviously, productivity kind of came down. It seems to have leveled off now as we exit 2023. And I think that the modeling, if you will, is pretty much a similar expectation for 2024 in terms of where we exited 2023. On the — there’s a part of that I think in terms of what SASE and SecOps dramatically changed those numbers. I kind of go back to the earlier conversation about contract term share at some level if the mix shifts and becomes 50-50 or 60-40 to get the direction, then we probably have something to talk about, although I’d probably be talking a lot more about the fantastic growth in the SecOps and SASE than the fact that they had to pay salespeople to make that growth happen.
