Enterprise cloud OS leader, Nutanix (NASDAQ: NTNX), last month confirmed that its Australia and New Zealand (AN/Z) operations continue to see solid growth, driven by an increase in large enterprise and government deals.
The news came as Nutanix unveiled its new flagship Sydney-based office. Fifth Quadrant attended an opening event at the office last month and heard from Jamie Humphrey, Country Manager of Nutanix’s business in AN/Z, Nutanix CFO Duston Williams, Senior Vice President Asia Pacific/Japan (APJ) Matt Young, and Vice President for Marketing APJ Jordan Reizes.
They spoke about Nutanix success in A/NZ, and some of the challenges the company faces, particularly with regards to its recent pivot towards a subscription-based model.
Nutanix says it has been doubling down on its strategy recently by building on its hyper-converged infrastructure (HCI) offering with expanded value-added services and solutions. The company is now driving hybrid cloud adoption across A/NZ, providing customers with a comprehensive portfolio of solutions.
The strategy is paying off. Nutanix’s robust public sector credentials have allowed it to secure agreements with 30 government agencies as well as a number of the region’s largest financial institutions and other leading enterprises.
“Although other regions such as North America and Europe, the Middle East and Africa (EMEA) are larger, APJ is growing faster in terms of customers,” Williams says. “Really interesting things are happening and we continue to support the region with new offices and increasing headcount.”
The Netflix of HCI
Williams says that it is also a particularly interesting time for the company, which has recently been transitioning to a subscription-based business.
Nutanix first announced the transition in November 2017 in its Q1 fiscal 2018 results.
“Over the coming quarters we will thoughtfully adopt a software-centric strategy,” Dheeraj Pandey, Chairman, Founder and CEO of Nutanix said then. “Customers will continue to experience the same simple purchasing process and high-quality customer service.”
Speaking at the new office launch in Sydney almost two years later, Williams says that that transition hasn’t all been smooth sailing.
“We’ve had pretty good success on Wall Street [since listing in 2016] from an investor perspective but the transition has added a little friction to the process.”
The move is not unlike the transition Netflix made a decade ago when it famously went from posting out DVDs to streaming videos online for a monthly fee. But for a closer analogy, Nutanix points to Adobe.
“Most companies that have undergone a transition to a subscription model such as Adobe or Tableau, but when they come out the other side they build a really interesting company.”
It isn’t a coincidence that Pandey also sits on the Board of Adobe, a company which is clearly a model for its transition.
Adobe launched its subscription-based Creative Cloud in 2012 and after an initial plunge in its revenue and profits, has enjoyed great success. The results are reflected in the company’s stock price, which has risen approximately 630% to $278 since 2013.
Young says that A/NZ is probably the most mature market in the APJ region.
“There was very much a ‘cloud first’ thinking here several years ago,” he says. “I think now what is really driving our growth – obviously we have this new office that can hold up to 175 people and we’ve seen 100% year on year growth – is that a lot of customers have tried the cloud and they like it but would rather see it in a hybrid environment.”
In addition to Nutanix’s success with government agencies and large enterprises, Young also highlights the opportunity for winning the business of smaller customers and the flexibility of the company’s offering.
“We’re all about customers the choice of hardware platform, whether it's on our existing Supermicro platform or HPE, Fujitsu or Dell,” he says. “It has resonated here and we’re looking forward to continuing to expand and grow.”
Humphrey says that from a local perspective, Nutanix aims to build a customer-centric organisation that is underpinned by its partners as well as its team members.
“We want to make sure that we are going to market with that single voice,” he says. “I think that’s worked really well as a strategy so far. The team over the last three years has doubled and that’s a tribute to the facilities we are in now which not only cater for today but also look to tomorrow’s growth.”
Disrupt or be disrupted
Reizes notes that when Nutanix talks to executives, a key concern is the question of whether or not a company will be disrupted or the disruptor.
“I think it’s one of the challenges companies face because technology now is allowing new services to come out of left field that are obviously challenging traditional markets and that has created a lot of paranoia.”
As a pioneer in the HCI space that is now forging a new path into a subscription-based model, Nutanix is more of a disruptor.
Last month, Pandey told ITWeb on the sidelines of Nutanix NEXT 2019 conference that the company believes an ‘asset-light’ business model may be the next big thing in cloud computing
“Windows was the asset-light version of PCs, and Android was the asset-light version of handsets,” he said. “What’s the asset-light version of cloud? That’s going to make the market ten times larger. And it’s going to come down to software,” he said.
Pandey said the cloud too can have an ‘asset-light’ version similar to Uber or Airbnb in which the operating system company doesn’t own the asset.
“The cloud world is ripe for innovation of this kind,” he said. “It will happen. This is what Amazon did to Walmart.”
Completing the transition
For now, Nutanix is focusing on completing that transition to a subscription-based model.
“Last quarter, about 71% of our billings was subscription-based so that’s come up rapidly,” Williams says. “The company has always been pretty bold and everything that we have done as a company has been focused on five or more years. This is really hard work and we didn’t have to do it, and it is a little disruptive in the process here, but it’s the right thing ultimately for the longer term.”
Nutanix achieved revenue of $299.9 million in the fourth quarter ended July 31 2019, down from $303.7 million year on year, citing “the ongoing transition to subscription” as a key factor in revenue compression.
“We are encouraged by our record gross margins, strengthening pipeline, progress in sales hiring, and recent large customer wins,” Pandey said in the results announcement. “We have a strong set of tenured sales leaders in place and continue to lead the industry as an innovator with technology at the forefront of hybrid cloud transformation.”
The opening of the new Sydney office reflects Nutanix acknowledgement of the growing importance of the APJ region to its continuing success.
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