Nutanix VP: IT evaluation challenges in the subscription transition zone
Evaluating IT is complex.
As much as the press has something of a love-hate relationship with technology analysts (did somebody say Magic Quadrant?), we do know that enterprise tech market analysis is a long, complex and convoluted process.
One of the biggest issues is the question of metrics.
Just as we’re getting really clinically competent on machine file log data metrics, the higher tiers of the industry itself are (arguably) becoming ever-harder to track… primarily as a result of the industry (and its multifarious platform-level technologies) moving so fast.
The old technology tool metrics just don’t apply anymore.
Vice president of investor relations and corporate communications at Nutanix is Tonya Chin.
Pointing to the way companies like Salesforce came to market with a cloud subscription model, Chin argues that for Salesforce, early growth was a little less striking than some of the traditional enterprise software firms saw when they were startups.
“They [Salesforce] started by seeing rapid adoption of their subscription model and the company then worked to develop a ‘land and expand’ dynamism. This meant that Salesforce could grow steadily, without worrying about the troughs (that inevitably come along with the spikes) of the traditional software sales and deployment model,” said Chin.
New KPIs, please
Nutanix’s Chin asserts that today, in the Hyperconverged Infrastructure (HCI) sector, we need a new set of Key Performance Indicators (KPIs) and ways to unravel the confusion caused by a complex IT world. She notes that some companies still prefer to deploy software and hardware on-premises — and pay upfront for it. Other customers wish to adopt the cloud as their default choice and pay via a subscription model. What is clear is nearly all customers would like the flexibility of doing both, allowing them to put workloads where they are best suited and pay for them how they choose.
“To serve customers, companies like Nutanix are moving from selling hardware to software. This is perhaps not such a revolutionary change; for many years, makers of appliances only wrapped their software in ‘tin’ for the convenience of buyers or to get a higher revenue number. But the hardware-to-software metamorphosis has certainly affected how influential industry analysts understand what’s going on,” said Chin.
As with moving from traditional software to cloud applications, moving from selling boxes to selling software can cloud (pun intended) what’s really going on.
Splintering the spikes
In short, just like Salesforce, Nutanix knows that it (increasingly) won’t get as many of the big revenue spikes large deals will cause, because the new model is based on providing customers with the flexibility of shorter contract durations, which means enterprise software organisations and their partners receive less revenue up front, but have the opportunity to expand over the life of the customer relationship so long as customers are happy.
“Making the transition from hardware takes time for analysts to register the change — and it becomes harder for watchers that aren’t immersed in what has happened in the enterprise software space to see the wood for the trees. Just as annual recurring revenue (ARR) came to be a big indicator of cloud service success, analysts need to see annual contract value (ACV) as the critical KPI of companies like Nutanix during times of transition, rather than focusing on billings and revenue growth in the near term. As the company completes its transition, traditional software metrics, including ARR, will also be important indicators of commercial success,” said Chin.
Nutanix’s Chin notes that Adobe has shown how to pull off a software-to-cloud transition. She also notes that Microsoft, under Satya Nadella, is doing something similar as part of a broader reinvention of its brand and, being such a closely watched company, the tech sector analyst community has picked up on that very quickly.
“But these things can take time. Remember, it’s not so long ago that some analysts considered Amazon to be a disaster in the making because it trades off profitability for growth. Today, it’s recognised as one of the world’s most valuable companies,” said Chin.
The Computer Weekly Developer Network spoke to Nutanix’s Tonya Chin to get her VP-level-view on how we need to look at the longer-term signs of value and move away from short-termism in our quest to gain a 20:20 perspective on the way the market is going to move next.