UCG Technologies Takes Off To The Great White North
December 13, 2017 Timothy Prickett Morgan
For those of you who have never tried to build a business and employ people before, it is a hell of a lot harder to do than it may look. But it is an invaluable experience, and a way of life that some people cannot do without. Just ask Jim Kandrac, one of the most vocal and ebullient members of the IBM i community, and he will tell you all about it.
We had a chat with Kandrac last week just as the company was celebrating its 30th anniversary in business, which is a long time for any IT company to be in business, even in the IBM midrange where companies sometimes have heritages that stretch back five decades. It is probably not a coincidence that UCG Technologies, which for the longest time was known as United Computer Group and which is probably best known for its VAULT400 cloud backup software, is based in Independence, Ohio, outside of the former industrial center of Cleveland, which still has a lot of manufacturing these days but has filled in its rusty areas with a burgeoning medical services and research sector.
If you live anywhere along the Great Lakes, and you run a business of any kind, you can’t help but look to the Great White North. The Canadian Maritimes have more in common with New England than they do with other parts of Canada, and similarly, Ontario has more in common with parts of upstate New York, the little sliver of Pennsylvania where Erie is located, Ohio, Indiana, Illinois, Iowa, Michigan, Wisconsin, and Minnesota. Around here at IT Jungle, we call that the Big Ten, and the University of Buffalo should be part of it as far as we are concerned to complete the league. (New Jersey, Maryland, and Nebraska are debatable, mind you, but they do tend to hang together and have some common culture and all were centers of manufacturing, like the Greater Toronto Area.
UCG does business in 31 states in the United States, across Europe, and in the Caribbean, and has also been doing a fair piece of business in Toronto, Montreal, and Vancouver for some time. But when you are doing cloud backup for a living and data sovereignty becomes an issue and there is a certain amount of fear, uncertainty, and doubt being sown by indigenous Canuck competitors about having data stored in facilities located south of the border in the wake of the Patriot Act being enacted under the Bush Administration, then you have to do something about it. And so, Kandrac hired lawyers and spent nine months setting up an independent UCG Technologies based in Mississauga, Ontario and set up redundant datacenters in the country to serve its current and future Canadian subsidiary.
“We started the managed services business 13 years ago, and we thought where we are at today would only take three years,” Kandrac says with a laugh. And you have to laugh along if you have run a business because if you have, we all know what that feels like. (I sure as heck do.) “With the backup, with the disaster recovery, with the cloud, and that took time because of acceptance, explaining it to customers, and then gaining market share because we were the first to the gate to do this. So we are in a really good place with clients. But some of them were asking to have their data stored locally because they were concerned about doing their own fiduciary duties in the extremely unlikely event that the U.S. would ask for access to their data. The other thing is that nobody is really doing what we are doing in Canada. They are IBM partners, sure, but they are using older mechanisms like VTL, and our solution is much more efficient and less costly. So we had enough customers and enough prospects to see that it was a deal killer not to be up there.”
Before making the final decision, UCG Technologies had to talk to its existing Canadian customers about what these changes, which were more than just setting up local, redundant datacenters for housing their information. (By the way, the new Power8-based systems in that datacenter will soon scale to over 100,000 aggregate CPWs of raw computing performance.)
For one thing, the Canadian looney costs, depending on the economic situation between the two countries, somewhere between 25 percent and 30 percent more than the U.S. greenback. Customers said they didn’t mind paying that premium. Then Kandrac told them that in the state of Ohio, where the parent company is located, these backup and recovery services are exempt from state taxes, and similarly there are no U.S. Federal taxes on these services. But in Canada, the kinds of managed services that UCG Technologies sells would be subject to the 13 percent Harmonized Sales Tax, which is a combined Federal and provincial value added sales tax. Customers didn’t balk, says Kandrac, even though it would be around a 40 percent price hike to go local.
Local matters to people.
To goose its Canadian business, UCG Technologies has identified over 3,000 businesses that are IBM i shops in the country. There are some interesting statistics in this group of companies. The number one place where the progeny of the AS/400 can be found running in companies is in the Greater Toronto Area, followed by Montreal, and then the province of Alberta. The province of British Columbia, which has Vancouver as its corporate and industrial center, is a distant fourth. Here’s the funny bit. 88 percent of the IBM i shops are in those first three areas, and across all of those sites, 90 percent on the list that Kandrac has put together are within a 90 minute drive of the border with the United States. That latter bit stands to reason, given that the vast majority (90 percent, according to the Canadian government) of the 23 million people in that country living within 100 miles of the US border. AS/400s have always been where people live and work; hyperscale datacenters are at nexus points where latencies are balanced between cast geographical areas (like outside of Washington, DC) or where the power is cheap and the people are few.
Just for a compare and contrast, Kandrac has built a database of over 25,000 IBM i shops in the United States, and while UCG Technologies does business in 31 states, the ten target markets for the platform are the regional areas around New York City, Chicago, Los Angeles and then the states of Florida, Georgia, and Texas. The area around New Orleans – which those in the disaster recovery business call Hurricane Alley – is also a hotspot for IBM i installations, and then you follow that up through Oklahoma all the way to Missouri and that is Tornado Alley. The plains states – the big square ones – are like IBM i ghost towns, according to Kandrac.
In its managed services businesses in particular in the past thirteen years in the United States, there are more entrants and more diverse kinds of solutions and there is more competition. “The business is definitely tougher to come by,” says Kandrac, while also pointing out that UCG Technologies has managed to grow its revenues by 20 percent per year for many years, and do so organically and not having to resort to major acquisitions like other companies in the IBM midrange.
“I like to say that we win in the long run because of our focus and our execution and the value proposition we put together,” Kandrac says, and as a case in point, he points to the security and training services that the company has set up in partnership with KnowBe4, and as a customer of the VAULT400 products, customers get continually tested for phishing attacks and email security exposure plus over 20 modules of security training for up to 25 users at the company installing VAULT400.
“Our backup and recovery is protecting the front door and the back door, but the bad guys are still getting in through the side door and the windows,” explains Kandrac as to why these services are integrated. “We installed at a large retailer, and we saw that 48 percent of people at the company clicked on something that they should not have, and 15 percent of them went on and entered user ID and login information. And we have shown that over nine to twelve months, with proper training, we can reduce that to negligible single digits or eliminated. We love this because we provide added value at no extra cost, and it makes our customers stickier.”
The biggest challenge is, oddly enough, finding out who is in charge of security at IBM i shops.