Despite the economic downturn, the past four years have been good to Egenera Inc. Founded in March 2000 by Vern Brownell, former chief technology officer at The Goldman Sachs Group Inc., the Marlboro, Mass., company has seen business grow as its stateless blade servers—no disks, just a processor and memory—and virtualization software have gained traction, first in the financial-services arena and later in other high-end computing spaces.
Egenera in February turned to Robert Dutkowsky, ex-CEO at J.D. Edwards & Co. and former executive at IBM and EMC Corp., to continue the momentum and help guide the company through an anticipated IPO (initial public offering) later this year. Dutkowsky recently sat down with eWEEK Senior Editor Jeffrey Burt to talk about his decision to come to the company.
When you were introduced as Egeneras new CEO, I heard someone ask what a hardware guy like yourself was doing at a software company.
Thats an interesting question, since I spent 20 years at IBM and four years at EMC. When I went to J.D. Edwards, everybody said, Whats a hardware guy doing going to a software company?
My view is that Im neither a hardware guy nor a software guy nor a services guy. Im more of a customer guy. What Ive learned in 25 years in this industry is that customers dont want to buy hardware nor software. They want to solve business problems, and all IT does is help enterprises solve business problems.
Its a combination of hardware components and software components that are optimized to solve peoples problems. My experience in the industry has shown me all sides of that. I was in the RS/6000 at IBM—hardware—and in EMC storage hardware, EMC software, J.D. Edwards software. Ive kind of seen the whole industry from all sides.
The critical component is that Ive never sat with the CEO of a company who said, Please sell me some hardware and software. I need more hardware and software. What they say is, I need competitive advantage, I need efficiency, I need to reduce my cost structure, I need to develop products faster, get them to market quicker. Thats what IT does for them. Thats the perspective I bring to Egenera: How are we going to take this wonderful combination of products that Egenera sells—both hardware and software—and get it into the hands of customers to realize that advantage?
Why this company? Im sure you had other options.
A couple of reasons. You know my background, the biggest company in the industry, IBM, for 20 years. When I joined EMC, its revenues were a little under $2 billion. When I left, it was $9 billion. A really fast-growing, dynamic technology company.
J.D. Edwards, when I joined it, had lost money a bunch of quarters in a row, and we turned it around and made it make money. So Ive seen this corporate job from a lot of different perspectives, and one of the things I wanted to do next was take a company that was positioned for growth and a company that I thought was a category-killer.
I wouldnt want to go work for just another company that had a product, that was in the marketplace. I wanted to go to a company that was going to redefine the market. Theres no question that Egenera is positioned as a category-killer. Theres nobody else in the market that does what Egenera does today.
How is Egenera a category-killer?
Theres a couple of dynamics happening in the industry today. One is the whole focus on open-source software and Linux, and customers are very much interested in this whole phenomena that Linux brings to the market—free software that allows them to break from the bonds of the Microsoft [Corp. Windows] operating system.
The other dynamic is that customers are trying to figure out how to get more productivity out of the capital goods that they purchase. If you look at a typical customer, they usually have on average 50 to 75 percent too much computing capacity in their environment because of the way that hardware has evolved over the years. You connect disparate pieces of hardware together, and each piece gets a little less efficient.
So, youll hear in the market this trend toward virtualization. How do you get more performance out of the hardware capacity that you have? Linux. Virtualization. Those are the two forces that Egenera brings to the marketplace. We bring the most leading-edge virtualization technology, we help the customer get more productivity out of their processing environment, out of their storage environment, out of their networking environment, and we bring Linux to the market.
Its really a dynamically positioned company being that its catching both these waves in the industry at the same time, and we believe were pushing them forward. Now, today, I believe Egenera has more mission-critical Linux applications out there than any other hardware platform.
When youre talking about Linux, youre talking about virtualization. IBM with on-demand, [Sun Microsystems Inc.s] N1, [Hewlett-Packard Co.s] Adaptive Enterprise, theres one huge difference: Were delivering it, theyre talking about it. We have customers like … Goldman Sachs, [America Online Inc.], Credit Suisse First Boston [LLC], that are running 24-by-7 mission-critical applications with Linux in a virtualized world on Egenera. Go ask IBM for that reference, or Sun for that reference, or HP for that reference. They dont have them.
Might not have them yet …
How old will I be when they get them? The industrys not going to wait. Remember, the drivers behind this are productivity, cost reduction, performance. The industry doesnt wait for IBM to innovate.
But a few months down the road, they will have those customers. What does Egenera do to try to stay ahead of the curve?
Customers tell us we have an 18- to 24-month lead on the other players in this space, so were already ahead, way ahead, and 24 months in the IT industry is like centuries in other industries. The industry is going to change a lot of different times in there, so were already way in front.
But we have one other unique dynamic in our favor, and that is, we dont have to go into a legacy-installed base and convince them that theres a different way to do it. When we walk in the door, the customer looks for us to change the game. Thats the difference. Were a category-creator, a category-definer. And the defined category is Linux in a virtualized world.
The other guys are already Windows or Unix or mainframes. Theyve already got a footprint, and the customers already invested in their infrastructure. We can come in and change the game. If you look at the IT industry over the past 25 years, all the major innovation has happened at companies like Egenera. Tell me the last innovation that IBM or HP made. You wont think of one. IBM didnt invent the desktop operating system. IBM had the idea for it. Then they turned to this guy in Seattle named Bill Gates, and Bill Gates built Windows.
IBMs and HPs dont innovate at the customer level because theres so much baggage from the legacies in their installed base. All the innovations happen at companies like Egenera. Who innovated the storage area network technology? IBM? IBM holds the patent on spinning disks, but they couldnt break out of the old paradigm. EMC did it. Network Appliance [Inc.] did it.
Small, entrepreneurial companies without the encumbrance of legacy-installed bases are the ones that make breakout innovation happen in the IT industry. Thats what this company is. So, thats what I saw when I looked at this company.
Maybe a company like IBM isnt the innovator, but they certainly can take over a market.
Give me an example.
Blades. RLX Technologies Inc. came out with the first blade servers more than two years ago, but now IBM and HP are one and two in the blade-server market. So, if Egenera is ahead of them, how do you stay ahead of them?
Its interesting, because you havent heard me say the word blade once. I dont think that we do blades. We deliver the value out of a blade platform, but we dont have to use blades to deliver value. Thats critical in this conversation. Youre exactly right. What did IBM and HP do? They came into the market and said, Were going to change the game. Were going to sell you a blade architecture.
Whats their blade? Its a PC in a different form factor. It has a disk. It has a state to it. Our blades have no disks. Theyre stateless. Theyre a radically different architecture than what the HPs and the Dell [Inc.s] and the IBMs call their blades. If you take an IBM blade and an IBM PC, its just a different form factor.
You take an Egenera blade, it has no disk. Its just a processor and memory, and it gets its personality based on the workload. Its the virtualization concept. Its a very different way to deploy the technology, only it is a game-changer. IBM cant do it today, HP cannot do it that way, Sun cannot deliver a diskless blade today, because they have to retrofit their old technology to the new requirements of the customer.
When Cisco [Systems Inc.] came into the marketplace with routers, they changed the game. When EMC came into the marketplace with low-cost storage, the changed the game again. IBM adjusts, HP adjusts, Dell adjusts, it takes them years. And in that time, they lost the market. Cisco dominated the networking market. EMC dominated the storage market. Microsoft dominated the desktop market. I think the same opportunity exists for Egenera.
Egenera can get itself into the dominant position in the Linux virtualization space to change the way customers view computing in their enterprise. And we have the architecture and the technology—and the hardware and software—to deliver on that promise. Whats the size of that market? I dont know. [International Data Corp.] would say its in the $40 billion-a-year range. Its a huge market. So, is there enough room there for HP to continue to sell and IBM to continue to sell and Dell to continue to sell and Egenera to come into that space? Absolutely.
Right now, Egenera seems to be focused on the high end and such verticals as financial institutions. In what directions do you see the company growing?
Youre right, weve started out in financial services, because our founder was the CTO of Goldman Sachs. Thats where he internalized this problem statement of the complexity of cobbling together all the hardware and software components. He hired a team of engineers, and they built the Egenera architecture and solved the problems.
So, the way that we started was with a knowledge of financial services. Also, financial services was one of the earlier adopters of Linux. It was the logical place for Egenera to go. But today, four years later, our largest customer is not a financial-services customer—its actually AOL. Weve had success outside the financial services—in telcos [telephone companies], in the Internet service providers, in health care, in government. And if you look, all of those are early adopters of Linux.
Those are places where Egenera has been successful and will continue to stay focused. When the Linux adoption begins to take place, then Egeneras value proposition becomes much more obvious. The other place where we do very well is where network-attached storage is being deployed. And storage area networks [SANs].
When we attach into those environments, we dramatically reduce the cost the customer sees. The customer has an SAN attached, he puts a server in, he has to buy a host-bus adapter to attach the storage [and] to attach the server. And each server requires more hardware. When you put in an Egenera BladeFrame in, you only attach one time. All of that infrastructure hardware cost comes down dramatically, and a customers challenges of managing all that hardware and managing all those connections are reduced because youve merely attached that SAN to the BladeFrame. Our virtualization software takes over from there and makes it very simple for the customer to add multiple servers attached to their storage environment.
So, if you find a customer that has this advanced storage deployment and is moving toward Linux, Egenera has a resounding value proposition in that environment over a Sun server or an HP Unix [system].
Is Egenera Proprietary
In software, your competitors—again, IBM, HP, etc. —are moving toward a more open environment, where Egeneras appears more proprietary. Can you talk about that?
Nothing is more proprietary than Unix. Nothings less open than Unix. So, to stick a proprietary label on Egenera really doesnt make a lot of sense. If you want proprietary, look for Unix or look for mainframe operating systems. Nothings more proprietary than that. And really, two Unixes really arent even the same. We use the Linux from Red Hat [Inc.] and [Novell Inc.s] SuSE. We dont touch the Linux. Its pure open-source software.
Personally, Ive never heard a customer say Egenera is proprietary. Not even close to that. Its totally the opposite, that were totally open and that we run a totally open operating system, so were as open as you get.
But your virtualization software is proprietary.
Yeah, but thats like saying Cisco is proprietary. Think of it as middleware. Its an enabling layer of software that takes the complexity out of operating at the enterprise level.
IBM, HP and others talk about getting to the point where their management software can manage other vendors environments. Is that in Egeneras future? Do you see a time when Egeneras software will be able to manage hardware from your competitors?
You can look out into the future and see Egenera software being deployed differently than it is today. But today, a customer can use [Computer Associates International Inc.] or [IBMs] Tivoli to manage an Egenera BladeFrame. So, whatever infrastructure a customer has, we just look like another component that fits into that environment.
What directions can we expect you to take Egenera in?
The most important thing for Egenera is to continue to grow as aggressively as we have. Last year, our revenues grew more than 200 percent. That made us the fastest-growing technology company that we could find in its first four years of existence—faster than Sun, faster than Network Appliance, faster than Brocade [Communications Systems Inc.], faster than McData [Corp.], faster than Siebel [Systems Inc.]. Priority No. 1 for Egenera is to continue to grow because what that growth equates to is new customers. The more new customers we have, the more new footprints we have and the more were able to continue to grow. Growth begets growth.
And another key thing is, were getting all the good ideas about where we need to go next from our customers. … Well just continue to work with our customers, and our customers will describe to us that, now that they have our technology, this is what else they can do with it, this is where else they can take it. As long as we continue to listen and stay connected to our customers, well continue to stay ahead. … Were able to put all of our energy into what our customers want us to do.
What are the customers telling you? Bigger. Now that they have Egenera installed, they see the value it brings, so they want us to make it bigger.
By bigger, do you mean more processors? Yeah, be able to put more blades, more processors, into their infrastructure. We can attach them together so that they can get that Egenera software value and that simplistic management system deployed over more processing capability. More applications. Customers tell us, Now that youre running some applications, I have my accounting from an ISV—PeopleSoft [Inc.] or SAP [AG]—and Id like to be able to run those applications on the Egenera infrastructure.
So, youll see us bring out more applications for it. More partnerships. We have strong partnerships with companies like Microsoft and EMC and Red Hat, and youll continue to see us get more partnerships so that customers know that our technology fits in with their existing infrastructures. The next near-term step for the company would be something like an IPO, where we would go public and tap the public markets funds to that we can continue to fuel our growth.
And youre still on track for an IPO this year? Yeah, thats the way its looking. At some point this year. Thats all targeted at having the funds available to continue to aggressively grow.