 from the Wynn Resort in Las Vegas. It's theCUBE, covering .NEXT Conference 2016. Brought to you by Nutanix. Now, here are your hosts, Dave Vellante and Stu Miniman. Welcome back, everybody. The man, D. Raj Pandey is here. He's the CEO of Nutanix. Great to see you. Congratulations on this year's. My pleasure. .NEXT, really awesome conference. Double in size, we know all the stats. We've been spilling them all week. You got to feel good. Customers are psyched. Party last night was awesome. Absolutely, absolutely. In fact, Mark Leslie was talking to me yesterday, and he taught me a new Yiddish word, which is kavel, spelled as K-V-E-L-L. And kavel, he was like, it means you take a step back and just feel the joy. Like, you know, he's like, do you feel the joy? Because he and I met like six years ago in August of 2010. He was just stepping out of the NetApp board. And I was trying to convince him that he should work with us. And it's been six years working with him. And he's like, you know, I look back at the two people company that I was talking to back then. It's 2,000 people now. So we've come along with you. Lots of kavel this week. It's better, because most of the IT industry are kaveling, all the time, complaining. Better to kavel than kavel. So big fan of Simon Sinek. People don't buy what you do. They buy why you do it. Why did you start this company? The idea of building systems is obviously in the minds of all the nerds. They want to build the best, most reliable systems and use commodity hardware, put software on top. But then really complemented with the ease of use part was where the real innovation lay. We said, look, if you can really put the consumer-grade design on top. Basically, what we heard from the Slack chief architect yesterday, that you have to humanize clusters. So I love the word humanize. And it brought some of the things that I always had believed in to the fore as well. And the rest of the company, there's a ton of people that you'd think were nerds, but they had this humanization sort of skill in them. And I think we've just gone and humanized clusters, which were very difficult to deploy and manage. And businesses were lumpy. You couldn't sell it through the channel and things like that. Because when you build distributed systems, they tend to be complex. And I think we changed the game on distributed systems actually. I thought Mark Leslie's talk this morning nailed it. He's showing the arc of companies' life cycles and he showed Oracle and Amazon and some others. But he made the point that these companies made big bets at a certain period of time. Early on in the life of Nutanix, you guys made a bet about OEMing VMware, right? Well, we didn't OEM VMware, but they were not OEMing. Not OEMing. Whether or not to do so. So what was that discussion like? I mean, was it a no-brainer for you? Or was it a little tense? Because we are a nondescript product. Like, who are we? Are we a server company? Are we a storage company? Nobody knew how to really classify us, right? So VMware basically thought that, look, we are a server-side company. So we must be like HP's blades, or Dell's blades, or IBM blades, or whatever. So all server companies OEM VMware. So we should be doing the same. And we said, look, we're not a server company. They're like, who are you? We're not a storage company. So I think the industry went through this kind of internalization of who we are. And we said, look, we're just not going to be able to OEM someone else's software. Because we are primarily a software company that respects the hardware-software boundary. So we'll package it to the appliance, and we'll unify the experience and consistency of experience itself, you know? So on the stage this morning, you brought up some of the big partners, obviously. The extension of the Dell OEM, hopefully clarifying some of what's happening in the relationship there. Microsoft, Lenovo, that kind of not understanding what Nutanix is. How does that impact the relationships? We look at it, last year Acropolis was announced, and here you've got announced with Microsoft, where Hyper-V is going to be the hypervisor in that environment and your progress as a company. Well, we definitely believe in opinionated design. You need to have opinions for your design. Like Amazon has an opinion on how cloud should be built. Microsoft had an opinion on how every app that Microsoft built should run on Microsoft's windows and Hyper-V and things like that. But then over time you need to know that, especially when you're delivering software to someone else, if it's not your own cloud, where you can have a ton of opinions and nobody cares. But if you're delivering things to someone else, if you want to grow the TAM, you need to actually relax some of the opinions. Which is where we relaxed our super micro opinion. We said, look, if people like Dell, then we want to go and do that as well. We relaxed one more time with Lenovo. And the same thing is true for hyperbiders too, I think. As a platform company, we will have so many opinions. And yet on others, we have to negotiate with the marketplace. There's a give and take. And some people who've never seen AHV, they said, look, I want to actually go and probably do something that's Hyper-V based. But now we're talking to them on AHV as well. And they're like, oh, wow, so there's such a thing that I don't pay for a hypervisor? So it's, all Hyper-V customers are great AHV prospects for the future as well. So you've said, implied anyway, that this data center OS concept is sort of jump ball. Up for grabs, if you will. That's a TAM expansion strategy. What does that mean for your strategy and your future? Well, if you look at operating systems, obviously they need to have multiple services that run on them. Obviously, schedulers, like what Mezos and Kubernetes are talking about is one, like 5% of what an operating system really needs to be for a data center. Scheduling is a part of it. There's obviously, in the old world, you had memory management and the IOS stack, networking, storage, security, APIs, like POSIX APIs and things like that. They all make up an operating system. And then obviously you run apps on top of it. So in the new world, the data center operating system is basically between the bare metal and these Linux and Windows guests or even containers in that sense. So there's this layer of software in the middle that really intermediates between the bare metal and the application OS itself. And that in the last 10 years was a hypervisor, last 15 years was a hypervisor, that said, look, we'll intermediate access between bare metal and Linux and Windows. And in the new world, it has to be a lot more than a hypervisor because the game on storage has changed. The game on networking is changing very rapidly. The game on migration portability is going to be a big one as well. So there's new services that need to be offered that now opens up an opportunity for redefining what a data center operating system really means actually. One of the threats to infrastructure overall is that there's that change in applications today. What's your thoughts about, I mean Oracle owns applications, Microsoft owns applications, Amazon's building a platform for new applications. VMware today doesn't, it's Microsoft, it's Linux and that's a threat to them. If I look at Nutanix, what will that relationship be? And obviously you've got plenty of room for growth and TAM there, but long term, what is the relationship of the applications? Well, you first need to pay your bills, keep the lights on as they say. And Microsoft in 91 was a office productivity software company. By 95, they were desktop operating system company. By 96, they had a browser, an application which they took spyglass and made it their own. By 96, they were also OEMing, SciBases, the database, you know, they're like, we need to get into space. By 98, they had Windows NT and SQL Server in some sense. By 2000, they were competing with Oracle and they had a data center operating system and so on. So I think companies, as Mark was saying, they need to have these arcs of life and so on. And for us in the first five years was to really redefine data management, data services, things like that. Last three years has been really getting to the compute layer and figuring out what does it mean to really manage compute itself? So I think every three, five years as we are able to mine our own exhaust, you know, use the word mine our own exhaust because you need the revenue and the profits from the customers go and invest in R&D as well. But over time you'll see us go higher up the stack, you know, and that would mean things like application performance management and things like that. And from then on, you know, what happens to the apps? I think a big portion of the app ecosystem is being redefined as well. I mean, the Oracle database as an app or Microsoft's apps, they'll also go through a disruption. You know, as people think through, what does it mean to build apps for the cloud? What does it mean to build, I mean this, the cliche term cloud native is something very new and Apache is a great opportunity. So, I mean, there's a lot of stuff going on in open source. You don't need to reinvent the wheel in a lot of these middleware apps themselves, you know. You would rather take those and you've been great with open source in the last six or seven years. I mean, we've taken it to the next level. I mean, we've taken every, I mean think about it. The channel, which could probably never spell distributed systems in the past, is able to go and sell Cassandra and Zookeeper in a box. We've made that work actually. Who could have thought that whatever was happening in Facebook's and Yahoo's and Google's and Amazon's data center could now be packaged together and sold at $50,000. And that idea of making distributed systems much in grade was a great opportunity for us. So, we'll take a ton of Apache and actually figure out what our future looks like. But you know, one step at a time. One step at a time. If VMware were not owned by a hardware company, I've always said it would act much differently in the marketplace. Much more like a pure-paced place software company. And what pure-place software companies generally want out of their relationships with infrastructure providers is they want it to make their software run fast. They want the infrastructure to be as cheap as possible and then eventually they want to suck as much value out of that stack as they possibly can. So, my question is related to your relationship with Microsoft. Clearly, you're helping them run applications faster. You're driving costs down. There's a big gap between what they can provide with services and management services and what you can today. But over time, you would expect they're going to want to try to close that gap. You think about that at all? I mean, I'm sure you do, but what are your thoughts? One thing, Dave, is this company has never lost sleep on competition, ever, ever. I mean, I'll say this one more time, ever. And I truly believe the enemy's not on the outside. Enemy's within. I talked about this yesterday as well, that the paradox of growth basically is about growth creates complexity and complexity is about organizational complexity, product complexity, business complexity. If we just sign these OEM deals and we don't have great one-click, delightful experience for Dell sellers, Lenovo sellers, and so on, that's where the real sort of rubber meets the road, actually. The time that we're going after computing is so, I mean, large. I mean, look at infrastructure spent, 215 billion in CAPEX, software hardware together, between server storage, virtualization, networking compute, all this stuff. Add it all up to 215 billion. There's another 400 billion in OPEX. There's like, there's a ton of OPEX that people just spend in trying to stitch these things together. So the market, that's why Morgan Stanley's report talks about a 700 billion time for Amazon or something. And in that sense, we have never looked at this being a zero sum game. All we need to do is do things honestly. So if Microsoft's new vision, because the old vision of, you know, what they were doing till about two years ago, was using system center as the end all and be all of all things hybrid, and it's changing. You realize that that design point from 15 years ago is not going to work in a world of hybrid cloud where you have WAN and you have distributed systems in both sides and so on. So they're also thinking of what the new design point for managing hybrid clouds looks like and so on. And if we can actually align on some of those goals, then it'll be a win-win. And if we think that, you know, things like Prism are being diluted with some of these things, then we'll sit with them and talk about what that really means and so on. So I think, to me, it's never been a zero sum game ever actually. You, from where I stand, you don't have a TAM problem. You have a big TAM. Your TAM is much, much, much larger than any. It's a red ocean, not the blue ocean. Any valuation you can pick for Nutanix today anyway, not a TAM problem. Which is maybe why, in the analyst meeting on Monday, I thought Matt Eastwood asked a great question about the edge. He didn't say IOT, but, and you didn't really take the bait. But then the next day we see a drone. Basically a data center at the edge. So what about that as an opportunity for Nutanix? Well, we let people tinker. I think it's important that we don't question why they're doing, I mean, because sometimes business is serendipity. Like AHV, which is now looking like it's a big part of our overall offering. Three years ago, three and a half years ago, a couple of people, we just left them to tinker. And there were enough antibodies, people who would be skeptical, but like why would the world need yet another hypervisor? And we said, you know, just don't touch them. They're upon something. There's just two folks actually, and both of them happened to be ex VMware guys. Like, no, no, I think there's something in here that we're gonna go and work on. So the idea of a drone is very similar. I think if we can continue to have people like Richard Arseney and go and tinker with stuff, it might open up doors. There are already a couple of conversations happening. Some of the attendees who happen to be part of their defense organizations of large countries and they're like, look, we need to talk. And this could be a platform for us and so on. Now, obviously we need to think through what it means in terms of battery technology, battery life, things like that. But opportunities galore. I mean, this is what happens in a conference where you don't know everything. It's actually sort of like 10% baked and then you put people in a room and they're like, oh, all these possibilities are possible out there. So in Silicon Valley, business plans, business ideas, they're like screenplays in LA. Everybody has one. But you talked yesterday about the founder and each and every one of us. Expand on that a little bit. I mean, the most people in the world will follow. The some people who lead and the folks who lead, they have a certain kind of a mindset. They don't really get too bogged down by the bureaucracy. They have this insurgent mission and owner's mindset and an obsession for the front line. So I mentioned these three things in my talk yesterday, but you don't need to be a founder of a company to have these three things being nurtured by you. I mean, Richard Arsenian, one of the drone person who came on, I mean, he's somebody who actually is a founder in some sense, you know. The two people I talked about, Greg Smith and Mike Kui, they were the founders of AHV. And great companies nurture a ton of founders. Now, at many other companies, only through acquisitions can you do that. Like, oh, you acquire and you get entrepreneurs and you need to have enough of these folks who create something out of nothing. Because that's basically what great companies do. They give enough to people saying, look, you are known to create something out of nothing. And it doesn't always have to be through acquisitions. So what we're trying to figure out is, can we create a culture? But even if we do an acquisition, we actually compensate our internal folks to say, look, this has to be joint responsibility. So we'll definitely pay the folks we are acquiring and bringing in, we'll actually look at you folks as, what does your next five years look like in this company, if we have this joint goal together and so on. So I think the end goal is to seed a ton of entrepreneurship within the company and then let ideas just simmer and a lot of these sort of sparks actually become firing. Not all of them will, but enough of them will actually become a big fire actually. So would you describe yourself as not a command and control manager? Or maybe the opposite of that actually. Decentralized sort of management. And it's 80-20 actually, and there's always a few things in life where you have to make the calls. And it's not easy, it's not easy, because if you have to make a large company, you have to let go of things. And if you look at people like Larry Ellison, from far, they look like folks who have a lot of control, but if you go deeper, like I've worked Oracle for four and a half years, there's a lot of autonomy, at least in the database group where I was, in thinking through new products, new ideas, why shouldn't we do this kind of stuff. And Oracle Database never acquired anything from the outside. Now think about it, the first acquisition they made was Times 10, which is a caching product in 2005 or so, that was 30 years after the life of Oracle Database. So because there was enough autonomy to go and think and figure out how to continue to be the number one, and that pride is important as well. Right code, not checks, was what Larry used to say, and then he changed it, like you said. He didn't have religion. Yeah, so I think in our company, it's very flat hierarchy and Slack helps us a lot, Yammer helps us a lot. So one of the challenges as you get larger in a company is there's disincentive through risk. We talked to Siddish a little bit about just organizationally, from a software standpoint, you expect that everything's going to fail eventually. Software eventually works, hardware eventually fails. But how do you, as you scale the company, still keep those people trying things, being okay to fail, recovering from those things, and keep the company growing? Yeah, and I think just touched upon that in the entrepreneurial mindset. How do you seed more entrepreneurial mindset within the company? And it just doesn't always have to be acquisitions. It has to be things that you give your subject matter experts to say, look, it's okay for you to fail. And you actually praise and elevate failures as well. Like, you know, I talked about this a couple of times. We had a couple of bad firmware bugs in the LSI controller that were, you know, they were failing randomly. They were like unpredictable, we couldn't really go and reproduce them and so on. And when we actually got out of it, after those four, five, six months, obviously nothing, nobody blinked the business, it was business as usual. But when you got out of it, we actually went and thought through what is it that we learned from here? You know, there was a failure over 4% of our nodes and nobody knew how to really pinpoint what was going on. And we learned a ton. There was no finger pointing, it wasn't like it was your problem. At the end, we were working with Intel, we were working with AMI, the BIOS company, we were working with LSI, we were working with a ton of different players, say whose problem is it? It was great because customers saw this and hmm, at least in the three tier architecture, we finger pointing towards everybody. Here I can just say Nutanix, it's your problem, go figure it out. So we were able to go and moderate all this, coordinate, intermediate all this stuff, but there was no finger pointing. Failure was not a bad thing. And I think it made the organization more robust. I mean, it is a very popular, or at least, I love this concept of anti-fragility. The more shocks the system gets, the stronger it becomes. This is Nesim Telib's work, and he talks about it in Black Swan as well, that you need to have so many shocks given to the system that it just anneals and becomes stronger and stronger and stronger. And that is what we want to go and really elevate. Look people, I think we went from failure to success, and that's what life is all about. And business is no different than life actually. Building up that corporate immune system. I got to ask you, we've been talking all week, so I've sort of taken it for granted, but our audience is going to kill me if I don't start. If I don't ask a couple questions about the IPO, you got the loan from Goldman, 75 million. What are the factors that you and your teams, your advisors are looking at to evaluate the timing of the IPO? Look, I mean, eventually it's all about what's the least dilutive thing for the company, and what mitigates risk, because we have some big ambitions to go and really work on, right? And we didn't want to take the company hostage, and like, well, just because the market is not ready for an IPO doesn't mean that our ambitions have to be delayed or postponed. And the loan was a very simple decision. It was probably even taken in January, not even as late as May or June or something. I mean, the people think it's May or June. It's when the oil crisis happened, when China was happening, all that stuff was happening. He said, look, we've got to be mitigating risk, and you do this when your business is doing so well, as opposed to imagine if 2008 happens one more time or something, you know? And that's the decision we made. Either a loan is like convertible notes that people actually go and raise all the time in the public markets. For us, it was actually better. Yeah, I mean, it's a simple vehicle, yeah, a simple vehicle for us from a known entity, Goldman Sachs, you know, they've been investor, they're advisor to us and so on. And it's no different than, look, I mean, I bought a house, paid all cash, but then I also withdrew a loan to keep it in my bank. Just because you could pay something all cash, just because you have cash, you know, to pay for something doesn't mean that there's an opportunity cost of not having that money in the bank. And that was a simple decision for us about the GS loan itself. So the timing is not, you know, just maximizing the value for your investors and not diluting the company. Yeah, absolutely. Just kind of wait and see. Because, you know, we are a company that also wants to do an IPO in our terms. You know, just the way we talked about on my terms yesterday. And we didn't think the market was ready for the first six months. And you could all see it. There were no IPOs actually, you know? And everybody said Nutanix should be the first one, first one, first one, because you guys should actually open the market up. It would have been a great buy. But again, and to us, and by the way, I'm split on this, I mean, always being about the long-term, you know, be long-term greedy. So people tell me, like, look, if you're long-term greedy anyway, why did the starting price matter? Either we build for the long haul or we'll flatter to deceive and it's no real difference actually, you know? But sometimes it's about, well, timing is also something, you know, at some level. And I was one of the people who said, you know, you never time an IPO. In this case, because we're not desperate for money, like, look, we'll do it when the market feels that they can appreciate our product. Not the Nutanix systems, but the NTNX, the symbol, you know, and that product has specifications, has features, capabilities, which comes in a P&L statements and income statements and balance sheet and all that stuff. Because if you take something to a buyer and they don't appreciate that, then it's worthwhile just waiting. We do this all the time, but some of the large global 500 customers are like, well, maybe you're not ready for us right now. We'll come back to you sometime later. And then all of a sudden, you know, eyes lit up next time you light up and you meet him next time. So I think it's very similar. We are a seller of a new product called NTNX and the buyers have to be ready. And the buyers said, we're not ready. We are running for the hills. Who knows what's going to happen to oil? And I think it's, you know, slowly coming back. You know, I think the pendulum is coming back to the middle and hopefully it'll go a little bit more pro-growth. I mean, we are a company that's built for growth. You know, we are investing a lot of our dollars back into R&D and, you know, investing a lot in sales and marketing as well. So those things are just, you need to have the backbone, the spine to really walk through a crowd that's going to keep pelting stones at you because it thinks you don't deserve it. And that's okay. That's what's called the right of passage of any company that builds. Once you make it, you know, you'll be idle worship. But until then, you'll be witch-hunted, you know. And to me, it's the way life is. It's the way, and that's why it's called the right of passage. And either we're ready for it or we're not, you know. All this is the right of passage when people say the loan, this, that, like, well, five years ago, people used to laugh at our concept of convergence and this and that, they're like, you guys are, this is a school project. Just because these big web-skill companies do it, that doesn't mean that it'll ever seep into the enterprise. And you see what's happened in the last 12, 15 months, actually. So we need to have the conviction that what we're doing in terms of the business design, in terms of what it means to continue to look for things five years out, as opposed to trying to optimize the current quarter. Because we could optimize the current quarter in many ways, many, many ways, actually, you know. By trying to pull all the deferred revenue, pay for the current quarter, make our gap, you know, income look much, much better, make our gross margins look much, much better. Because all the software dollars that we're getting from the OEMs, we're deferring it. Right. But imagine you pulled all of it back, it looked like, wow, awesome, this is a great company, and so on. So at some point, you just have to have the conviction and if you waver too much, maybe you were never meant to be, you know. So I think, and eventually the conviction, especially if you have clarity, and you understand that some of these things are just hard problems, no different than the hard problems of, I mean, we went through Qantas problems four years ago, you know, we tried to move away from Supermicro, went to Qantas, disaster for us. We learned a ton of lessons, we went back to Supermicro and, you know, good things happened. So all these glitches and all these question marks and all these, you guys will never make it, kind of stuff, we've been used to it, you know, and at some point it's just Zen, you know, you kind of lift yourself up from there. I like it. All right, dear Ash Pandey, at the helm, hungry but humble, thank you very much for coming to theCUBE and thanks for having us here. Appreciate it. All right, keep it right there, everybody, we'll be back with our next guest, it's theCUBE, we're live from .next, right back.