Nutanix is hard selling the value of its software.
While the hyper-converged vendor stopped short of re-naming itself Nutanix Software, CEO Dheeraj Pandey used its earnings call last week to emphasize that Nutanix software drives its products. And it’s not just what the software does for customers; Pandey focused on how Nutanix is building its accounting and sales practices around being a software company.
Pandey went back to Nutanix’s roots, explaining why it started selling its software on integrated appliances and how it has slowly moved off that stance.
Nutanix will still sell its appliances, but will recognize revenue only from software and continue its push to sell that software on any x86 vendor’s hardware. That model is working, judging from last quarters’ results. Nutanix revenue of $276 million last quarter increased 46% over last year and beat expectations. The vendor also cut its losses to $65.1 million from $140 million a year ago.
But the Nutanix software transformation dominated the discussion from Pandey and CFO Duston Williams. While it is mostly an accounting move designed to make Nutanix look more attractive to investors, it also accelerates the company’s recent strategy of partnering closely with all major x86 server vendors.
Pandey said when Nutanix came to market in late 2011, the IT world was not ready for a software-only delivery model. That meant Nutanix software needed to ship on a pre-built appliance. It chose Supermicro as its hardware partner.
“Software-defined anything was too abstract for our customers to put their arms around,” Pandey said. “Our only route to market was to take full control of our own destiny. The Nutanix appliance was born.”
Nutanix eventually found OEM partners, beginning with Dell in 2014 and extending to Lenovo and IBM. It also forged partnerships with resellers to install Nutanix software on servers from Cisco and Hewlett-Packard Enterprise so customers can run Nutanix software on any major x86 platform.
“We now have a meaningful competitive advantage in being the most portable operating system built for the enterprise cloud,” Pandey said.
Nutanix will change the way it recognizes revenue, emphasizing software licenses instead of the hardware to raise margins that investors watch closely.
Pandey said 10% of its revenue last quarter came through OEM deals, and 30% of its HCI nodes run on OEM hardware.
CFO Williams added: “Today, we are a software company, more specifically an enterprise cloud operating systems company that up until now has delivered a majority of its software via its own branded appliance and recognize the associated hardware revenue.”
Williams said Nutanix is in a years-long transition, and “will emerge as exactly what it is, an enterprise cloud operating systems company.”
The goal is to do that in a way that there will be “absolutely zero change from what the customer sees,” Williams said. “So that process from a customer standpoint is left intact and exactly the same as it has been in the past.”
The Nutanix software-centric approach resembles the VMware business model. VMware vSAN is Nutanix’s primary hyper-converged software competition, as well as a frequent partner. Nutanix also sells an AHV hypervisor that competes with VMware’s flagship ESX product. VMware’s success has always depended on its relationship with all major server hardware vendors. That is still the case, even now that it is owned by one of those server vendors, Dell.
On VMware’s earnings call Thursday, VMware CEO Pat Gelsinger reported vSAN license bookings grew over 150% year-over-year last quarter.
VMware’s parent is also one of Nutanix’s biggest hardware partners. Dell EMC sells the its XC hyper-converged appliance based on PowerEdge servers through an OEM deal that pre-dates the Dell-EMC merger. Dell EMC also sells VxRail HCI appliances running vSAN on PowerEdge servers.