There are two trends right now that are changing the way IT organizations deploy services to their customers: converged/hyper-converged infrastructure and the movement of workloads to the cloud. Both are focused squarely on making IT more efficient in both cost and operational overhead. Nutanix, a pioneer who largely invented the HCI space, continues to share dominance with Dell EMC in the area. The company released its Q2FY18 (which maps to Q4CY17) earnings earlier this month, showing an impressive $286M quarter, up 44% year over year, and 4% quarter over quarter. While Nutanix continues to operate at a loss, it has a healthy war chest of just over $900M in cash, which it is using along with its nicely priced stock (a nearly $8B valuation), to invest in the future. This month Nutanix announced two acquisitions in the cloud application management space that aim to bring added simplicity and consolidated management of compute, storage, and networking to IT.
HCI growing faster than CI
First, some background on HCI and CI. Converged architectures are all about bringing simplicity to data center management. These architectures allow an IT administrator to manage pools of compute, storage, and networking as a single scalable whole. Consolidated management, in turn, eases the administrative burden. It also allows an IT organization to maximize the efficiency of its hardware spend.
There are three basic approaches to deploying converged infrastructure. Reference architectures such as FlexPod (a joint Cisco Systems and NetApp venture), allow IT to gain the benefit of converged infrastructure while leveraging its existing data center hardware. Taking the approach a step further, pre-configured building-blocks, such as the Dell EMC VxBlock series allow a converged solution to be more closely customized to its target workload. In contrast to these approaches, hyperconverged infrastructure (HCI) provides an appliance-like experience, tightly constraining hardware resources under a single management interface. HCI can be deployed either as an appliance or delivered in rack-level units. You can read our thoughts on the Dell EMC rack-level HCI VxBlock here, if interested.
HCI has quickly become the dominant approach to deploying converged infrastructure. According to the latest market share numbers from IDC (from 3Q 2017), HCI grew 68% year over year to a combined $1B quarter—half of which was split between Dell EMC and Nutanix. In contrast, the combination of reference architectures and building-block converged infrastructure systems collectively grew only 1.5%, holding at $1.4B revenue split between the providers.
A critical component in Nutanix’s continuing success and leadership in HCI has been its recognition that going it alone as a combined hardware/software solution will not bring the market growth demanded of a public company. Instead, Nutanix began its reinvention as an HCI software provider, and today is selling much of its product through hardware partners.
Every tier-one OEM in the compute and storage markets offers an HCI solution. More critically, with the notable exception of Hewlett Packard Enterprise (who continues to struggle with its Simplivity offering), most tier-one OEMs offer an HCI solution based on software from Nutanix. This list includes IBM Corporation, Dell EMC, and Lenovo . Notably, while Dell EMC has a proprietary solution, reportedly nearly half of its $220M quarterly HCI revenue in 2Q 2017 was generated by Dell EMC XC series appliances with Nutanix installed. This sort of sell-through skews IDC’s market share numbers, but financial analysts believe that Nutanix actually leads Dell EMC in HCI revenue share by over 10 points. It will become even harder to track Nutanix’s actual market share as its sell-through relationships with Lenovo, IBM, and others gain traction over the course of 2018.
As mentioned earlier, the deployment of workloads to cloud computing, whether public or private, continues to be a trend in IT. This makes sense, given the flexibility and cost containment benefits that cloud can provide. How significant a trend remains a question, but most IT surveys show that above 50 percent of enterprises have a hybrid-cloud plan and deployment in process. It’s a big market, and adoption is occurring.
Adopting and managing a hybrid-cloud environment can be challenging. My colleague Patrick Moorhead wrote about these difficulties in a recent article, describing how data is escaping from the data center. While migrating application workloads is a straight-forward problem with well-understood solutions, managing that cloud data afterwords is a problem crying out for intelligent tools. Datasets can be large and unwieldy, making it expensive and time-consuming to move around. Positioning data to where it can best feed the applications that consume it is both a logistical and technology problem. Every storage vendor is working on a hybrid cloud solution.
Nutanix has learned a lot about how to simplify infrastructure management from HCI, and is now applying those learnings to the cloud and hybrid-cloud space. Nutanix has a blend of offerings to create and deploy private cloud infrastructure and manage applications running across its private cloud and cloud deployments. While these cloud offerings are relatively nascent and it is too early to gauge adoption, Nutanix continues to invest in the space with new strategic acquisitions such as the two from this past month.
First, the company acquired Minjar Inc., the maker of a product called Botmetric which serves to provide IT teams with cost control and applications insights for applications running on a private cloud. This was very quickly followed by the acquisition of Netsil Inc., which focuses on application discovery and operations of workloads running on both private and public clouds. Both of these acquisitions will make substantial, useful additions to the Nutanix portfolio.
Outlook for Nutanix
Enterprise hardware is a challenging market to grow in. It is a market dominated by giants, each with competing agendas. It makes sense that Nutanix first approached the HCI market with an integrated solution—after all, the company needed to prove both its worth and IT’s willingness to deploy HCI. It is encouraging to see the industry’s recognition that the time for proprietary hardware has passed and that a different approach is now warranted.
Nutanix sells the most attractive of values: simplicity. As a software company, it boasts an impressive portfolio of unique technology and a healthy stable of both enterprise and OEM customers. This evolution sees Nutanix taking what it has learned from its time in the HCI market and applying it to cloud and hybrid cloud. It’s a smart move. If Nutanix can maintain its OEM relationships, and continue to elicit delight from end-customers, then it has a healthy future in front of it.