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Nutanix software transition tops new CEO's to-do list

Nutanix software licenses account for most of its revenue. The HCI pioneer hired CEO Rajiv Ramaswami away from VMware, which alleges breach of contract.

Nutanix and VMware are dueling heavyweights in hyper-converged infrastructure software. No one better illustrates the fierce competition than new Nutanix CEO Rajiv Ramaswami, who until December was VMware's chief operating officer and the spearhead of its cloud strategy.

That made Ramaswami just the person Nutanix was looking for to lead a transition from hardware-based HCI to a SaaS-based software approach. The 55-year-old Ramaswami replaces the retiring Dheeraj Pandey, one of Nutanix's cofounders.

The Nutanix-VMware rivalry only figures to get more contentious. VMWare has filed a civil suit against Ramaswami alleging breach of contract. Among the allegations is that Ramaswami secretly met with Nutanix while he continued to participate in strategic planning meetings at VMware. Nutanix called the legal action a "misguided" response to "losing a deeply valued and respected member" of its leadership team.

As the legal maneuvers play out, Ramaswami will try to steer Nutanix to the cloud in much the same way that he did at VMware. Nutanix positions its Acropolis hypervisor as a direct alternative to cost-conscious VMware vSphere license-holders. The change is reflected in Nutanix's recent earnings. Nutanix software sales accounted for a 14% jump in annual contract billings last quarter, although overall earnings remained flat at $346 million as customers adapted to the changing delivery model and the impact of COVID-19.

Dell Technologies and Nutanix combined for nearly 62% of global HCI software sales last quarter, according to analyst firm IDC. Dell, which owns VMware, controls nearly 39% of the HCI market and Nutanix has 23%. (In sales of integrated HCI systems, IDC ranks Dell and Hewlett Packard Enterprise No. 1 and No. 2). Ramaswami touched on the VMware allegations during a recent interview with SearchStorage, along with his strategy to increase Nutanix's HCI market share and plans for a $750 million investment by Bain Capital Private Equity.

VMware alleges in its civil suit against you that you secretly met with Nutanix execs without informing VMware of a potential conflict of interest. What is your reaction?

Rajiv RamaswamiRajiv Ramaswami

Rajiv Ramaswami: VMware's contention is that it's not [proper] to interview for a new job without first informing your current employer. We don't believe that is correct and feel very good about our position. But I'm not focusing on litigation -- I am focused on running Nutanix, planning innovation and helping our customers.

Dell EMC and VMware combine to hold the top spot in HCI software sales. How do you think your VMware experience will inform your job duties at Nutanix?

Ramaswami: The first part of our strategy is to focus on making things simple for the customer. The second part is to provide a platform where you can run any workload, either on-prem or in the cloud. We are a hybrid cloud platform. That means not just supporting virtual desktops. It means enabling you to very efficiently run the most mission-critical databases. The third part is providing data services for storage management. We added Nutanix Files and Nutanix Objects, which lets you tier data directly to the public cloud. We recently added disaster recovery with ransomware protection. All these things are focused so you can operate in the cloud or tier to the cloud.

Just like VMware vSAN, Nutanix software is sold through OEM deals with server makers. What portion of your business comes from Nutanix-branded hardware?

Ramaswami: When it comes to hardware, customers have a lot of choice. Recently, for example, they're able to run Nutanix on HPE servers. We have continuing relationships with Dell and with Lenovo. Increasingly, customers are making the choice -- they buy our software and run it on the hardware of their choice. Hardware sales are not [a major] part of any of our revenue anymore, at least not directly sold by Nutanix.

VMware has been selling software licenses since its start. Nutanix's software-only license is a fairly new approach. How will your experience leading VMware's cloud transition help you lead Nutanix?

Moving to a subscription model is a natural transition, not just for us, but across the entire industry.
Rajiv RamaswamiCEO, Nutanix

Ramaswami: Moving to a subscription model is a natural transition, not just for us, but across the entire industry. Nutanix was founded around selling a complete appliance, and now we are well along the journey of completely transforming to a subscription-based model. We have transitioned our sales force to quotas based on annual contract value, which drives better discipline and better deal economies. As we sell these contracts and drive customer adoption, renewals can be done more efficiently. We think that model will lead to solid, predictable growth and allow us to be cash-positive.

Like other startups, Nutanix tends to burn through cash as it plows money into research and development. Bain Capital Private Equity provided $750 million to Nutanix to fund growth last year. Does the Bain financing come with strings attached? How concerned are you that Bain may use its financial leverage to suggest budget cuts?

Ramaswami: Not at all. Actually, it's quite the opposite. Bain is very committed to driving growth for us. They look at this as an investment in a growth company and they see the opportunities we have to drive growth with our subscription model, which we think will automatically drive profitability over time.

How soon do you expect to show a positive cash flow and/or profit?

Ramaswami: We have told our investors that we will lay out a model by June 22 of a timeline for profitability. We are in the process of still building that model, predicated on our software subscription. The other thing I will say is that we are not just a storage company. We consider ourselves a cloud platform company. Object storage is a key component, but not the only component. Our fundamental is around bringing compute, storage, networking, management and operations delivered a complete stack that is available both on premises and in the public cloud.

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