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Nutanix .NEXT 2018: CEO Pandey talks Xi, Cisco, multi-cloud

Nutanix CEO Dheeraj Pandey discusses why Xi Cloud Services are taking so long to deliver, blames Nutanix No. 1 HCI market share loss on 'funky accounting.'

NEW ORLEANS -- After launching Flow software-defined networking at Nutanix .NEXT 2018, Nutanix CEO Dheeraj Pandey...

declared the company's next big challenge is to solve multi-cloud management.

"We're going to talk about a lot of hard things," he said. "Things that take time to build and evolve as the industry evolves. Multi-cloud is a really hard problem."

Pandey used his Nutanix .NEXT 2018 keynote Wednesday to lay out the vendor's vision for extending its hyper-converged infrastructure (HCI) technology to fill the multi-cloud void. He called it a multiple year journey.

In an exclusive interview at Nutanix .NEXT 2018, Pandey expanded on his multi-cloud strategy. He also talked about why Xi Cloud Services are taking longer than expected, the threat from Microsoft Azure Stack, Nutanix's relationship with Cisco, and its commitment to continue to sell branded appliances on Super Micro hardware despite its new software-centric business model.

Nutanix CEO Dheeraj PandeyDheeraj Pandey

With Nutanix Flow, you incorporate software-defined networking and microsegmentation in your HCI stack. What's left to be done to complete your goal of hyper-converging the cloud?

Dheeraj Pandey: The biggest one is the quantum leap in consumption model. The first part is obviously done in software. The other part is Xi. How do you go and change the consumption model for the company as the products go from appliance to software and from software to subscription? I think if we do that well in the coming 18 months, I think it will get a lot easier. Because then you have a foundation and you can build on top of the foundation.

Speaking of Xi, that was your big 2017 announcement and we're still waiting for it? What's the status?

Pandey: It was obviously harder than we thought -- this idea of harmonizing public and private clouds. It's never been done before, by the way. Anybody who says they've done it, they're probably fooling themselves. At the same time, there's light at the end of the tunnel. There's an early tech preview coming this summer and broader access by the end of the year. 2018 is the year of Xi.

The other big news last year was the Google Public Cloud (GPC) partnership. What's happening there?

This idea of harmonizing public and private clouds ... anybody who says they've done it, they're probably fooling themselves.
Dheeraj PandeyCEO, Nutanix

Pandey: It's a three-prong approach as we said last year. One is Kubernetes, which is containers. The second one is around this idea of connecting to the data centers so our customers can leverage their platforms as services. The third one is being able to integrate with the identity engine, billing systems and things of that nature that will make it look like one enterprise cloud. And Beam will go a long way. GPC will be part of Beam. Calm is part of GPC as well. I think we are finding all the entry points where GPC becomes a first class citizen next to AWS and Microsoft Azure.

Microsoft Azure Stack is considered a threat to HCI. Do you see it as a threat to Nutanix?

Pandey: Anything in infrastructure needs soak time. Azure Stack needs its soak time. It cannot short-circuit that. I think they are where we were in 2012 in terms of readiness. In terms of what it means to support and build highly reliable highly available systems that are also fast, and can support all workloads. It's a rite of passage. I tell people, you can't just grow diamonds within the ground. Coal has to really grow beyond the pressure and a lot of heat, then over time coal becomes diamonds.

During your keynote, you several times referred to a need to 'blur the lines' between on prem and off prem. How will Nutanix do that?

Pandey: If you go back 15 years, what did VMware really do? It blurred the line between two servers. They said 'I can move a running application from this server to this server,' and it virtualized the server. That's exactly what the new world will ask for. People say 'how can you virtualize the cloud, where we can drag and drop running applications?' We demonstrated onstage the cutover of SQL Server from off prem to on prem. That's blurring the lines. It's as if we took it from one server and put it on another server while it's running, with minimum to zero downtime. I think we need to do that pretty much with every aspect of an application.

When you can move the network, move security, move firewall rules, move load balancing rules ... a lot of those things need to move around, and then we can say comfortably we've blurred the lines. Like VMware DRS, Storage vMotion, High Availability, all those features that were true between servers need to be true across clouds. And that is a cloud operating system. It's the hypervisor of hypervisors.

You say around 35% of Nutanix customers are using your AHV hypervisor. When do you think will most of your customers be on AHV?

Pandey: There's a lot of customer love for AHV. Not just because they don't have to pay for it. It's also because they don't have to learn it. It's simple.

I would wager a guess -- and to predict is perilous -- but I would say in a couple of years most of our customers will use AHV.

Speaking of perhaps perilous predictions, Nutanix predicts $3 billion in billings by 2021, coming mostly from current customers. That's nearly four times your 2017 revenue. Why do you believe that?

Pandey: Because we believe in the ecosystem. We believe in a bigger goal, which is independent of the components and our products. Do we understand repeat business? Do we understand how existing customers pay us over time? We don't look at this product or that product, Beam versus AHV. It's whatever it takes to make them happy. Customers don't have to use all our products to become successful.

You've gone to a software-centric model, but will you always have a Nutanix-branded appliance option?

Pandey: I think we'll still have a good amount of [branded] appliances in the market, we just won't recognize it as revenue on our books. Therefore, it's not a software-only model, it's software-defined.

There's a reverse backlash that we didn't expect, in a good way. Customers say "please continue to support Super Micro because we love your support and we love a single throat to choke." There's no finger-pointing. A lot of customers who are custodians of that business model say keep it the way it is. And we have to listen to them.

Your OEM partners Dell and Lenovo say they are happy with your partnerships and selling well. You also sell your software with Cisco and Hewlett Packard Enterprise servers through channel partners. How is your relationship with Cisco and HPE now?

Pandey: We still sell mostly through customers and sales people in the channel on Cisco and HPE. That's because Cisco and HPE still believe that HCI is about hardware. We believe it's about software. Their HCI only runs on their hardware. Our HCI runs on anyone's hardware. It's really about the operating system.

Cisco's not among your first hardware partners supporting Flow, your new software-defined networking piece.

Pandey: They'll come. It will happen.

What will get them there?

Pandey: Customers. They're all powerful. Go back in time, SAP-Oracle, VMware-Oracle, Google-Apple. There were tension-filled years. As we grow to become an adolescent, some of these things are bound to happen. Xi gives us so much control, that at some point we'll have enough customers where Cisco will want to talk to us. If they want us to sell their switches, we'd love that.

Will it hurt you in the beginning that they're not a partner for Flow?

Pandey: Arista is doing great. Arista is making Cisco take a step back and think of about their partnership practices and their philosophies around what is more important, the customer or Cisco?

During the keynote, you showed the Gartner Magic Quadrant that listed Nutanix in the top spot. You didn't show the IDC numbers that said Dell and VMware have passed you in hardware and software HCI revenue.

Pandey: There's too much funky accounting going on there.

(At this point in the interview, Nutanix vice president of investor relations and corporate communications Tonya Chin broke in to give the vendor's view on how research firms recognize HCI revenue.)

Tonya Chin: Gartner and IDC are still attaching the hardware to software. They don't have a view that just includes software, although IDC's just starting to. But they're still not giving us full credit for our software. If you look in our 10Q [financial filing], the percentage of the dollar value that [we] give to software is not what IDC is giving us credit for. They don't move that quickly. It takes them a couple of quarters to change their process. As we shed the hardware business, I think we'll see that get a lot less complicated.

So you think you should be No. 1 in software?

Pandey: I don't look at it as No. 1 or No. 2. The enemy's not outside. I just look at it as, are we getting more from our current customers, are we building trust for them and are we getting enough new customers? We have to look at how we use our existing customers and existing technology to our advantage rather than who's calling who No. 1.

We cannot bundle our way into customers. We don't have a [massive] existing customer base. We have to win each customer. Just like Amazon's doing. Amazon cannot bundle its way into cloud spend. We can't bundle, we don't have all this funky accounting. If you count all our [free] Community Edition downloads, we'd have way more customers than VMware claims for vSAN.

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