 Live from New York, it's The Cube, covering Riverbed Disrupt, brought to you by Riverbed. Here are your hosts, Dave Vellante and Stu Miniman. Welcome back to New York City, everybody we here at Riverbed Disrupt. Jerry Cannelly is here, he's the chairman and CEO of Riverbed and founder. Great to see you, thanks for coming on The Cube. So we love having the execs on, the ascendancy of Riverbed is something that people are fairly familiar with, but entering a new chapter, I mean you ascended very, very quickly, got to nearly a billion dollars very fast, high flyer, and then you kind of, you hit this little wall and then you're under the 90 day shot clock and you said, you know what, we're going to change the game again. So, how do you feel? You know, I'm very upbeat today. So we were the true unicorn, right? The original definition of unicorn was a company that hit not a billion dollars in valuation, but a billion dollars in revenue on its own without acquisitions within 10 years or less. And you can count them on two hands, the companies that accomplish that. And Riverbed is one of those companies, right? And we basically shocked the world when we came to market in 2004 with our technology that overcame what people thought was the impossible barrier of the speed of light limit on network transfers across global networks, right? So, you know, we grew like crazy. But, you know, these things are cyclical. We did have a growth slowdown, so we hit a billion and kind of sat there for a year or two and Wall Street doesn't like that. And so we decided to do a reset. We took the company private a year and a half ago and it's been a great year and a half ever since then. We used to joke back in the day when IBM was the dominant player. We used to joke that they had their best people working on solving the speed of light problem. And it's ironic. You guys solved that problem in a big way. It's interesting. People think there's a virtual world. The truth is there's no such thing as the virtual world. There's only a physical world, right? And what people think is virtual is the digital world, which is electrons. Electrons are part of the physical world, right? And so every trip in the physical world has two costs. A cost in time and a cost in dollars. So for me to fly here from San Francisco, I'm a physical being. It cost me five hours of my life. It cost me $1,000 for my ticket for United Airlines. So a packet of the networks is exactly the same thing. Electron has to make that physical trip. It's cost in time is 100 milliseconds, which is the latency of the trip. And the cost in dollars is what I have to pay AT&T for my bandwidth to send that packet across the network. And so we came up with a technology that dramatically reduced both the cost of time and the cost in dollars in a way that the world had never seen before, basically by kind of spoofing the speed of light. You can't beat the speed of light, but we came up with a way to spoof it. And that just revolutionized people's ability to deploy networks globally. Well, and your sales guys had to love this. The ROI was so clear. And then it just glommed onto a penguin's in the water. One goes and then everybody went, right? But at the end of the day, what we did was not mainstream networking. It was on the side of networking, right? And so what we've announced today is our pivot into mainstream global networking with an incredible product, right? So over the years, our approach in the way we were able to spoof the speed of light was by sending packets at layer seven, the application layer. Most traditional routing companies are using layer two and using hardware layers two and three, we're using software layer seven, the application. So our application of where knowledge is very key to this new generation of mainstream networking products, Steel Connect, that will revolutionize the way people deploy branch networks. And so it's a big move for us. It's a fundamental move. It's not just a little move. So we're going to go up again, you know. So we've done a billion dollars, a billion won. So the way I looked at our future before this new product was very good. You know, we're very profitable. We have profit above 30% operating margin. We do a billion dollars in revenue. You know, we do a billion, a billion, one, a billion, two, a billion, three. Now with Steel Connect, now I can start thinking about doing two billion, three billion, four billion. I can now envision Riverbed as a five billion dollar revenue company, something that couldn't envision before thanks to this new product line. And it's big for us. I think, you know, we'll show the world in about 18 to 24 months a company that has double digit revenue growth and profits above 30% operating margin. We will be unique in the world of technology companies. So that new product line, Stu, is much more of an adjacency than I think I realized before, as you're saying. Not really adjacency. It's a fundamental move into mainstream networking and our historical products will plug into it. Because we have this thing called service chaining, right? And so it'll be the core of our offering and what will enrich it versus any competitors who try to come into the SD-WAN market is that in fact, having the visibility of steel central plugged into it, having the optimization of steel head plugged into it will make it stand alone in the marketplace as the premier product against all comers. And no one will be able to touch that position. Great TAM expansion. Jerry, it's both claimed to say, you know, you're going to go into the mainstream networking. Networking's been very entrenched for, you know, a long time now. How much is it that the landscape's changed? I mean, digital transformation is real. Cloud computing is pervasive. We just talked to one of your customers and he's like, oh yeah, I'm using cloud. Amazon, Azure, IBM, Oracle, you know, all of the above there. So, you know, the networking today is not just in the data center. The way in is a big piece of what goes on. Exactly, and those changes, those dynamics are exactly what make our products so necessary, right? To use 1990s technology of routing, you know, we have to sit and write 700 lines of code to deploy a single router or to change it one by one where you may have a thousand routers dispersed all over the world where you're trying to connect your on-premise data center to a branch through MPLS. They have the branch have a WAN backup line to your data center and also go direct to net over the internet to a SaaS provider, direct to net over the internet to a public cloud source, mix and match all those in a hybrid network. Doing that with traditional routing techniques is very cumbersome, very slow, very expensive. So, that complex world that has come and evolved is exactly the reason why our technology is hitting the market exactly the right time. And also a great market window because some of our large competitors have recently announced end of life, end of service for a large part of their install base of old ISR routers. So, it's a perfect time for us to hit the market with this new technology. Yeah, so, I think the recent wave, everybody talked about SDN for like the last five years and a lot of it was like, oh, well, I'm just going to make it into software and therefore hardware is going to be cheap and not matter. This is different. I mean, it's not just a simple change, there's a lot of complexity out there and a lot of pieces, so. So, that's a very good question. It's a very interesting question. One of the advantages of what we're doing is you don't necessarily have to rip and replace your routers. You can use our SDWAN technology as an overlay management system on top of your existing routers, just leaving them as they are but getting the advantages of the centralized orchestration and management. Or you can pull your old ones out and use our device. It's your choice. Either way, it's much simpler. It's more secure for you. And, you know, SDN was really sort of data center oriented, right? And so, to understand the way the world works in terms of unit count, for one data center there may be 500 branches, right? So, would you like to sell one or would you like to sell 500? I like to sell 500. So, it's a good market to be in. And the other thing that's actually changed over time is that the advent of cloud computing, it used to be that you had the corporate headquarters, that was the data center, and then all the branches connected to the corporate headquarters. In the cloud world, the corporate headquarters is just another branch because the data center is somewhere else. It's in the cloud, right? And so, it's just a big branch that you can serve as a branch. So, you actually have the opportunity to address the entire network that way. So, I was struck by what you're saying about your vision of potentially someday becoming a $5 billion company. You can see how to get there. I can see it now, yes. The TAM expansion that you've created. This is a forward looking statement, by the way. So, even though we're private, of course. I'm still maltrained. But what's fascinating to us is this new private equity model, right? It used to be, get rid of the guy up top, bring in our guy, suck all the cash out. Leave the carcass. And private equity has realized, wow, we can turn a $3.6 billion investment into tens of billions of dollars. Why don't you let the VC have all the fun? Well, it's interesting for me because I've done three startups, right? In the startup world, you avoid debt like the plague. You do everything at equity. So, I've been debt adverse my entire life, right? Because you can't fund startup losses with debt because you have to pay it back, right? You fund startup losses with equity because if it works, the equity holders make a lot of money. If it doesn't work, well, rich guys lose their investment, right? But debt, you have bankruptcies. So, I've avoided debt like the plague. But the truth is, debt has its place in the world because it's leverage. We use debt to buy income producing assets. Those assets pay back the debt and increase the equity value of the company. It's called leverage, right? What is it? Archimedes said, give me a lever. Hi, long enough, and I shall lift the world. Well, debt used properly in the right amounts, purchasing even a bearing assets is a lever that increases the value of equity by magnitudes, right? And so, I've come to appreciate the value of debt and the private equity market is very powerful returns for the investors. And it's a great way to build a large corporation, you know, handle the right way. Debt cut can go both ways if you misuse it. But used properly, it's a very powerful tool in increasing the economic value of the enterprise. So a criterion of your acquisitions, is they're accretive, at least from an even up standpoint? At least break even worst case, but generally we go for accretive, right? So, if it produces enough income to pay the debt, the cost of debt to buy it, it's accretive. And we've seen some great examples of private equity making those types of investments. I mean, you're one, in four is another one, you're seeing what Charles Phillips is doing with acquiring companies. I think a blue coat was a great example, I think. They were bought for a billion won, sold after 24 months for 2.5, and the eight months later resold for 4.5 billion, right? So it's an interesting world. So Jerry, most people see kind of the public things. You guys sold off a couple of pieces of the business, and you bought a couple of companies. Can you bring us inside the company to just kind of, we heard from your sales guys, still 90 days. Every 90 days I got to be selling, I got to be growing. But, you know, is there a fundamental change internally as to how the organization is run? You know, we're very careful. So we, in the private equity world, you focus on generating EBITDA, earnings before interest, taxes, depreciation, memorization, right? Because in the private world, companies are bought and sold as multiples of EBITDA, right? Yet, and you don't stay private forever. You stay private for three to five years. There has to be some sort of liquidity event somehow, because that's the point of the whole thing, right? So that's either going to be an IPO or another private event, you know? In our case, it's more likely to be an IPO. So IPO, the greatest value is generated by revenue growth more than just raw profitability. They're both important. And I think I build a company that will have double-digit revenue growth and profitability above 30%. So we'll be almost unique in the IPO market when we go out and get it. I think we can be a hot product. So we are very careful when we do, you know, we were more a bit more adventurous with some of the acquisitions that I sold off because they were best of great technologies, but they were too early. And we were probably the wrong company that owned them. So the company I sold to Brocade is doing great at Brocade. Brocade is the great, the right owner of it. And the market had matured over the years that we owned it by the time we sold it to them. The same thing true of the business I sold the NetApp. The businesses we're buying today were very disciplined that they actually fit directly into the model of what we're selling today. We're not trying to build new pillars of technology. We're supporting the pillars that we already have and creating products that are tuck-ins that fill out a missing hole in our product offering, right? And are bought at the right price and are creative, right? And by doing that, we build the equity value of the company. And expected to work very nicely. So I love this story. So you talked about Archimedes and the Lever before. Another leverage point is the ecosystem. So I wonder if you can talk about that and how that's evolving over the last, you know, 15 months. So you can't really have a platform unless you have partners, right? So your ecosystem is a combination of your technology partners such as Palo Alto Networks, whose technology is ported and plugs into Riverbed with an API. So we have a whole series of the ecosystem of technology partners. Then you have distribution partners such as all the major service providers, AT&T, Verizon, BT, Orange, Dimension Data, and then the large distributors such as Aero and AvDepth. And so you have an ecosystem of distribution, technology, and your own platform that works together. And then your relationships, you know, we've had a long relationship with Microsoft that goes back to the beginning of the company back in 2002. Satya Nadella, the CEO of Microsoft used to sit on the Riverbed Board of Directors before we went private. So we have deep connections with many companies in the Valley, you know, I sit on some other boards and so it's actually kind of a small place to look on Valley. And how has your sales role evolved? I mean, early on, you're evangelist, you got to go out and eat glass and, you know, belly to belly. And how has that changed? Well, you know, it's interesting. So when we started the company, we didn't know we would be competing with the largest networking company in the world, right? And so we were a 100-person company unheard of in a small office in San Francisco, whose competition was the largest technology networking company in the world, whose install base was every single company in the world and whose company name was a brand name known to every investor on the place, pretty entrenched, yeah. And so it turns out that they were a great lead generation machine for us, because at the end of the day, the product counts in technology. The whole history of Silicon Valley is not that the big company wins, is that the best technology can win, doesn't always win, but can win. And we had the best technology. And the interest of this other party in entering our market actually generated a lot of sales leads. Their gigantic sales force would get customers interested in this technology area, which was new, but they didn't have the right product to satisfy the demand of the customer. So they would generate the lead and the customer would come to us and we would make the sale. So it was fantastic for us. How would you describe the culture of Riverbed? Riverbed, it's a work-hard-play-hard company. We take business seriously, we don't try to not take ourselves too seriously. Our culture is not built around, what's the stock price today on Yahoo Finance? We're proud of the success of our customers. We're proud of having best of breed cutting-edge technology. We're proud of customer support and quality. We like a collegial environment where we enjoy working with each other. We try to keep company politics to the barest minimum, identify people who like that, get them out of the company as fast as we can, and we enjoy success. So it's been a very nice run. People like working at Riverbed. You've won some awards to the effect and you personally actually as a leader have been recognized. Thank you. So congratulations for that. Yeah, it's been fun. So I'll give you the last word, disrupt. Very intimate event, great venue. I presume given the aspirations for growth, you're going to take it to new levels in the coming years. I love New York, I went to NYU, just the three blocks from here, that's where I got my MBA many years ago. I started my career at 50th and Broadway, working for Delight & Touche. And that's always good to come home. So, and a great place to launch the new Riverbed, Riverbed 2.0. Well, it's great. Well, thanks very much for having theCUBE here and I really appreciate you coming on. All right guys, thanks. All right, keep it right there. We'll be back with our next guest right after this short break. This is theCUBE, we're live from Riverbed Disrupt in New York City. Right back.