Egenera CEO stresses openness in competing with 'Cisco, Cisco, Cisco'

CEO Pete Manca says dramatic transition to software focus keeps Egenera in data center sweet spot

Egenera CEO Pete Manca says the company was 10 years ahead of its time in targeting the converged data center infrastructure, but its smooth transition from a hardware-focused company to a software-oriented one in recent years has enabled it to stay in the thick of what's now a booming market pursued aggressively by Cisco, HP and others. As part of our ongoing IDG Enterprise CEO Interview Series, IDGE Chief Content Officer John Gallant spoke recently with Manca about Egenera's strategic shift, its partners and competitors, and a big new product announcement. 

PRODUCT ANNOUNCEMENT: Egenera jumps into cloud management

John Gallant: What's Egenera's mission today?

Pete Manca: The mission from day one, and now we're 12 years old, has been to simplify the data center, and we do that through converged infrastructure. 12 years ago when we were pushing converged infrastructure, everybody kind of scratched their head and said, "What do you mean? What is it?" Now with products like Cisco's UCS [Read Network World's review of UCS], IBM's PureFlex and HP's Matrix there are a lot of examples in the market. But it's really the technology that we invented 12 years ago, and very simply, what it is is the combining of resources connected to a common networking fabric. In our case it's Ethernet, which is really the case for most places now, most vendors. And it's the pooling of storage, networking and server resources so they can be dynamically assembled at the time when you need them. You do that by inventorying your resources with a little magic of virtualization, and not necessarily server virtualization like VMware, but I/O virtualization, really virtualizing the fabric so you can piece together those resources when you need them. It reduces your costs significantly from a hardware point of view, you need less resources, less port counts. It reduces your admin costs significantly because you need fewer people to manage these machines. And it gives you a much more dynamic environment. So our vision, really, is delivering converged infrastructure to the market, helping the customer simplify their data center. The real differentiator for Egenera is we are really the only open converged infrastructure player in the market.

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Gallant: Open meaning what?

Manca: We run on everybody's hardware: IBM, HP, Dell, NEC and Fujitsu. We apply our converged infrastructure management software to those platforms and we can turn those into a converged environment.

Gallant: Let's take a step back, because I think people who know Egenera from the beginning know it was essentially a hardware company. How has that mission evolved, and did you drive that change?

Manca: One of the things that I did, my main goal when I came in here, was to transition us from hardware to a software company. We had been a hardware company for the first nine years of our lives and were very successful. We had several hundred customers, we ramped the business very quickly to $100 million, but we could never attain profitability. We couldn't get the business model correct. As other vendors got into the market and blades became more of a commodity, it became even more difficult for Egenera as a hardware company to get the business model to work correctly. So we had to change something dramatically. That was my job when I took over as CEO two and a half years ago. What we did is we took the core IP of the company, which was PAN Manager software, which ran on our proprietary systems, and we poured it into open systems. We started with Dell and added Fujitsu, then we added HP, NEC, then IBM. So now we've been able to take that, really the crown jewels of the company, and provide that capability on open platforms. Since then I'm very happy to be able to say that we've been profitable for the last two years. We've got the business model corrected. We're generating cash, profit, and now we're looking to really extend the functionality.

Gallant: How were you successful in getting all of these companies to embrace this software? Don't they have competitive offerings of their own?

Manca: They do. I think there were a couple main drivers. The first was Cisco. Cisco coming in with Cisco UCS [Unified Computing System] and the VCE initiative really became a major competitive threat to these companies. Cisco has an enterprise sales force, they understand very well how to sell this product and they did something that the other vendors didn't do, only Egenera did, which is they started from scratch. It's very difficult to create a converged infrastructure product when you're piecing together components that are either homegrown or from acquisitions, and then you try to put that together under an umbrella and call it converged infrastructure. The whole benefit of converged infrastructure is simplicity. In some cases, some of these vendors are creating a more complex environment by piecing together components that were really never meant to work together. Cisco, like Egenera, developed from scratch and did a nice job doing it. Some would say they copied our model. We were certainly a very good solution for them to do that. We have probably the most advanced high availability and disaster recovery capabilities on the market and some of the other vendors don't offer those capabilities.

Gallant: I want to go in some depth about how PAN works, but let's stay at the industry level for a second. Who do you compete with on this?

Manca: Cisco, Cisco, Cisco. Cisco number one, Cisco number two, Cisco number three.

Gallant: What is it about UCS that you compete with though? What does Cisco bring at the software level that competes with what you're offering in PAN?

Manca: It goes back to the simplicity and starting from scratch. They bring a set of functionality that works well together and it's integrated from a single vendor, which is a good strategy; obviously, it's one that we chose. And they're everywhere. They have a very good enterprise sales force. That maybe is one of the main differentiators. If you look at some of the other vendors, some of them grew up as box vendors.

CISCO SUBNET: An independent Cisco community

I don't want to sound derogatory in any way, but they're used to selling boxes, not solutions, not software. Cisco had a different mindset. They understood how to go into the data center and sell a high-end solution. That put a lot of pressure on some of these vendors.

Gallant: So in terms of competitive differentiation versus Cisco, what do you help these partners bring to the table that they don't have right now?

Manca: Certainly openness. That doesn't necessarily benefit each individual partner, but it benefits the channel, it benefits the end user customer because they now have a choice. Cisco certainly is almost back to the future for us. They look like what we did 10-12 years ago, proprietary stack of hardware and software. So that's a real differentiator. The other is we have very enhanced high-availability disaster recovery capabilities, where we can automatically failover any resource that fails locally and remotely. That's patented technology. It would be very difficult for somebody to replicate that since we do own the patents on that. When we get into talking about some of the future stuff, we'll talk about some other areas that we're going to be differentiated in as well.

Gallant: In terms of the types of customers that these solutions are geared toward, is there a different set for Cisco and a different set for Egenera?

Manca: I don't think so. These types of solutions work very well for service providers. They work very well for mid-enterprise, SME, all the way up to just below the large enterprise, because those are the folks that struggle the most with resources. If you go to a large Wall Street bank and they have 1,500 engineers working on IT, a lot of times they'll try to cobble this kind of stuff together themselves. If you go down a tier, the $1 billion-$5 billion range, and these folks maybe have a handful of people in their IT department, they don't have time to be cobbling things together. They want a solution that you can wheel in, turn it on and be up and running within hours, and that's what PAN Manager provides them. So we find a lot of success in that market. Service providers I mentioned, and we're seeing a lot in health care.

Gallant: So are there other competitors? You're talking about I/O virtualization and I know of companies like Fusion-io. Is that too small a piece of the pie?

Manca: Yeah, a different market. It's solving a different problem. There really are no other competitors for this other than Cisco, and of course some of the vendors' homegrown technologies that we bump into every once in a while.

Gallant: Are initiatives like OpenStack or CloudStack trying to achieve the same goals?

Manca: They're higher layers in the stack. We sit below that. In fact, an OpenStack, CloudStack might sit right on top of our product and get the benefit from our I/O virtualization and our management capabilities underneath the cloud management solution.

Gallant: I want to talk a little bit more about partners before we shift to the technology. You mentioned a lot of partners and they're all the big names in the industry. Who are the key partners though?

Manca: Right now it's HP and Fujitsu, but I expect that to shift over time. IBM just came online last week. NEC [general availability] is next month, so they really haven't hit the market yet. We have global partners like HP, IBM, Dell, and then we have more regionalized partners like Fujitsu who is very strong in EMEA, through Fujitsu Siemens, the previous incarnation. And we have NEC who is actually the No. 1 Intel server vendor in Japan.

Gallant: Are there people out there that you're still trying to bring into the partner fold?

Manca: We are talking to one or two more, but I'd say they're at very early stages. I would think of them more as regional players.

Gallant: Do you use them as your channel partners or do you also have a channel of your own?

Manca: Fujitsu and NEC resell our product regionally. NEC has a global agreement but they're really a regional player, they're really Japan. For the most part we've built out a channel program ourselves. We're not relying on these vendors to be our channel. About a year and a half ago, we started a channel program and we're just starting to see the fruits of it. We have a substantial list of channel partners in very large companies like SHI. We've got regional channels as well, and we're starting to see leads come in.

Gallant: So can you give us some perspective of growth? I mean, how is this strategy doing, how is it changing the company's direction?

Manca: Software growth has been very, very rapid. We just closed 2011 and grew 407% year over year in the software business. Q1 just completed; it was a record quarter for us and we grew 100% compared to Q1 of 2011. So the growth continues even as the numbers are starting to get bigger now. You could argue before maybe it was the power of small numbers. Now the numbers are getting bigger and yet the growth is still there.

Gallant: How does that growth fall? What percentage is service provider vs. enterprise?

Manca: We're about 35% service provider. The rest is split between healthcare, finance and government. Government may be No. 2 at around 30%.

Gallant: Are you seeing different growth rates in the service provider vs. enterprise segments?

Manca: Service provider is growing faster. What we're seeing though, is a tremendous push for private cloud more so than public cloud. And that's because of the nature of our solution. We don't typically go sell to Amazon or the large public clouds, that's not our focus. So maybe that's a self-fulfilling prophecy, but we are seeing a big push for private clouds, folks that want the benefit of the cloud but want to own the resources in-house or host them at an ISP, but still have control over their own resources, not being shared.

Gallant: OK. So this is primarily a private cloud kind of solution?

Manca: It is. It can be hosted or be inside the data center, inside the enterprise.

Gallant: So Pete, go into more depth about PAN. How does it work?

Manca: PAN Manager has three major buckets of capability. The first is discovery and provisioning and what that is, is the ability to go out and discover other resources that are on the fabric, dynamically provision them -- and this is where some of the I/O virtualization comes into play. Do multi-tenancy, so you can share those resources across different end users, layer that with security and charge back. A typical management capability that allows the customer to provision and build out a data center. Then from there you can add high availability, which gives you the ability for any resource that fails to fail over dynamically, whether it be a server, a link to a disk, a network link, it doesn't matter. Then the third bucket is the disaster recovery, which is taking high availability and extending it to a remote site. We can take an entire PAN environment and within a matter of minutes replicate that in a remote site across the world and have the customer up and running.

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