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Infrastructure Management

Snapshot: Let 'n' Equal Billions - Lessons from Nest and Nutanix

The recession can still be seen in our wing mirrors but, to paraphrase Prince, Silicon Valley is partying like it’s 1999… harder in fact. Two stories last week highlighted this: the sale of home automation company Nest Labs to Google for $3.2bn, and the raising of $101m in Series D funding for datacentre infrastructure company Nutanix.

Take Nest, a company that looks at the beige boxes of quotidian domestic life and, like Apple, thinks different, making the everyday beautiful. So far, it’s thermostats and smoke detectors; tomorrow, who knows, but you can imagine sleek, smart baby monitors, lighting, security, meters and the like to be made in its halo-like image. This stuff has been talked about for the best part of half a century but applying the miracles of technology to domestic chores has proven a bridge too far. Companies like Sky and Tivo have changed the way we view television, Sonos has changed music, but nobody has managed to dominate the home. Enter Google, already active with Chromecast on the entertainment front and now with the coolest, most brilliant company in the domestic tech field in its pocket. The results, leaning on Google’s wealth and reach to broaden Nest’s speed and integration, should be remarkable.

But the price was startling, equating to well over $2m for every day of Nest’s existence. Why so high? We’ll come to that in a moment.

Nutanix, as B2B as a company can be in technology, raised funds for the fourth time but this visit to the well resulted its biggest splash to date, valuing the company at over $1bn. When I was pre-briefed by company executives last week, VP of marketing Howard Ting was at pains to stress that Nutanix wasn’t making a big deal about a future IPO because it didn’t want to attract “mercenaries”. Frankly, I’m not buying that: I’ve rarely seen a company articulate its valuation and mark its progress towards a float more plainly. Nutanix is emblematic of the new Silicon Valley where the rulebook has been written on how companies construct a narrative, differentiate via R&D, disrupt a high-value market where incumbents have become slothful, gain the support of the right venture funds and hire sales and marketing executives who have done this once, twice or more times in the past. The formula has been bottled and the new generation of disruptors can advance across illuminated space rather than fumbling and making it up as they go along.

What’s remarkable about Nutanix is its velocity. The company, like Nest, is really only getting started after a handful of quarters selling product but it was always standing on the shoulders of giants. Not Newton perhaps, but instead the brilliance of software engineers who created the Google File System and other core technologies that are at the heart of internet giants and are now seeping into the datacentres of enterprises generally bringing leaps-and-bounds in improvements to scalability and speed.

The money that gushes around the Valley today might appear obscene in a world where poverty and lack of education remain stubborn foes but it is only a proxy and representation of the power of transcendent technologies to change business and society. Nutanix is the new Sun Microsystems, Oracle or VMware. It has fulfilled Emerson’s diktat about building a better mousetrap and simply offers a fundamentally better way to operate.

Companies like Nest and Nutanix attract the best talent and retain it until the wonder and innovation go. Large incumbents can almost never compete with them because hunger is almost impossible to build into a wealthy company. Little wonder that a lot of the best people at both startups and giants come from India, China and other countries that have not had the featherbedding that goes with the territory in California. Note how many of the new CEOs in Silicon Valley hail from those countries too. They are truly living the American Dream: “all men are created equal” but there is often a background environmental reason for an elite group to outperform.

Oh, and lest you thought, this was a phenomenon confined to companies beginning with an ‘N’, along came Dropbox on Friday, which, according to the Wall Street Journal, has just closed a $250m funding round valuing the online synchronization and storage startup at $10bn. Nor is this a B2B-only club: Spotify is thought by some observers to be ‘worth’ (whatever that word now constitutes) over $4bn.  

Of course, Nest and Nutanix are not perfect. Nest has released just two products; Nutanix might need to tweak its story to win long-term Wall Street favour and do a better job of explaining how (another possible trump card, this) it can also generate datacenter analytics for customers. But these companies have enjoyed remarkable trajectories because they are the latest installment in a developing tradition where differentiation and excellence are rewarded faster than ever before. Today, as Nokia, BlackBerry and Blockbuster have shown, companies when they fail can fail spectacularly, plummeting like rocks into a canyon. But as others like Netflix and Box have shown, when they succeed, they have the ability to rise like fabulous fireworks exploding across the sky.

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Martin Veitch

Martin Veitch is Contributing Editor for IDG Connect

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