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Nutanix IPO filing wraps up big year for storage

Dheeraj Pandey, founder and CEO of Nutanix
Source: Nutanix
Dheeraj Pandey, founder and CEO of Nutanix

Storage isn't the sexiest topic in technology, but with the explosion of data funneling through corporate data centers, there's no shortage of action.

As 2015 comes to a close, storage companies are all over the tech headlines.

Nutanix, a provider of so-called converged storage, filed to go public on Tuesday, with tentative plans to raise $200 million. A day earlier, NetApp agreed to buy flash storage maker SolidFire for $870 million.

And there's daily noise around the mammoth $67 billion Dell-EMC deal, which was announced in October, the same month that flash provider Pure Storage debuted on the stock market. The Hewlett-Packard Enterprise business, which includes storage, is now separate from the computer company's consumer unit.

At the highest level, the $47 billion storage market is being uprooted, because the old systems weren't designed for the types and amount of data that enterprises are now creating and digesting. The proliferation of video, cloud services and smartphones are forcing companies to dramatically expand their storage capabilities but without buying a bunch of bulky, high-priced machines.

"The scale of the data and the computing problems we're seeing today are unlike anything we've seen in the last 20 years," said Andres Rodriguez, CEO of cloud storage vendor Nasuni. The emerging companies "all cater to the fundamental scale problem."

Storage developers are serving up different types of solutions, but the key piece is intelligent proprietary software running on commodity hardware. One approach — flash — replaces the old mechanical discs with technology on a chip, dramatically boosting speed while saving space. EMC and NetApp have acquired their way into the market, while Pure is 100 percent flash and Nimble Storage sells a hybrid model.

Nutanix takes a different approach by combining storage and computing into a single platform that runs on commodity servers. In its prospectus, Nutanix lists EMC and NetApp as competitors in selling centralized storage products as well as companies like Hewlett-Packard and Cisco, which offer integrated systems, and VMware for virtualization.

Nutanix's pitch is that none of those technologies were built to handle the complexities of today's computing environment or, to use an industry buzzword, manage "Web-scale" computing.

According to a Gartner report from last year, 50 percent of global businesses will be utilizing Web-scale IT by 2017, up from 10 percent in 2013.

Amazon.com, Google and Facebook have changed the computing paradigm, and "if enterprises want to keep pace, then they need to emulate the architectures, processes and practices of these exemplary cloud providers," Gartner analyst Cameron Haight wrote in the report.

Of course, as an upstart this all comes at a major cost to Nutanix. Educating the market on new technologies and then selling to customers like Best Buy and Kellogg requires heavy upfront investments, resulting in mountainous losses at least for a while.

Nutanix's revenue in 2015 surged 90 percent to $241.4 million. But sales and marketing costs climbed 74 percent and research and development expenses more than doubled, leaving the San Jose, California-based company with a $126.1 million net loss.

Pure's shares

Pure's finances were an even higher hurdle heading into its IPO, with a net loss for the prior quarter representing two-thirds of revenue. The stock is trading around its initial sale price.

Nasuni's Rodriguez says the real challenge is that while all these companies focus on their software, they're still selling hardware. Contrast that with cloud vendors like Amazon and Microsoft, which build their own machines that customers access via the Web.

"To be a modern storage company, you need to sell more software without putting any more gear in the data center," Rodriguez said. "You have to deliver the value without delivering the gear."