a16z Podcast - a16z Podcast: Mobile Invades the Data Center

Episode Date: July 31, 2014

There is a shift in enterprise hardware from expensive, proprietary hardware to cheap components plucked directly from the consumer hardware supply chain. While that trend has been underway for some time thanks to companies like Google, Facebook and Amazon rolling their own data centers, the next wave of enterprise IT is taking its cues from the mobile supply chain’s collection of components -- the stuff that your mobile phone is made of. That includes everything from power-sipping ARM chips to flash-based memory. Andreessen Horowitz’s Peter Levine is joined by Coho Data CEO Ramana Jonnala and Cumulus Networks CEO JR Rivers for a discussion about the consumerization of the datacenter. Where is the hardware coming from? How will software make it all work? What does it mean for incumbent hardware and software vendors? And how will customers buy all this data center muscle? The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.

The content here is for informational purposes only, should not be taken as legal business tax or investment advice or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com slash disclosures. Hello, this is Peter Levine from Andresen Horowitz and I'm here with Romana and J.R. Ramana is the CEO of Coho Data and JR is the CEO of Cumulus. Welcome, guys. What I'd love to chat about is the future of the data center and specifically the consumerization of enterprise hardware and what that means for the data center and how you guys think about that. So I've gone out and I've talked about sort of this, you know, this notion of the mobile supply chain eating the data center.

And, you know, I have this big belief that mobile, the components of mobile phones will become the basis of the next generation data center, really, really inexpensive, sort of, you know, cheap components that require a lot less power, floor space, cooling. but all of that stuff being sort of connected and propagated together with sophisticated software. And so I'd love to maybe get your guy's opinion on this and maybe describe what's happening now in the data center. You know, kind of is it an incremental change? Is it a wholesale change? What are you seeing out there and how are you seeing some of the trends? I'm going to maybe start with you and then JR you can jump in.

Absolutely. Thanks, Peter. Great to be here. Definitely there's a lot of consumerization. I'd like to call it sort of the breaking down of the data center. I come from a storage perspective, right? And the past 30 years, storage purchases have roughly been the same, which is it's like buying a car. It's a lifestyle choice. You know, you want performance. Then you go buy a high-end storage device or a low-end storage device. You silo yourself and then you complain about utilization. I think that's all breaking apart. What's happening? is instead of people trying to buy for like three to five years in advance, they are thinking about let me buy what I need right now. You can't do that in the traditional model. That's where first it's breaking down. The refrigerators full of discs are breaking down into smaller components. People are saying, hey, you know, I have visibility into my business for the next year, so I'll buy like storage for the next year. It's up to you. It's incumbent on you as a vendor to make it easier for me to scale from there. Add another box. Add another box. This is where

the value is not as much in hardware customizations anymore. It's about commodity components and letting the software be capable of orchestrating ease of management and ease of scale. It's incumbent on software. And the other thing

which is catalyzing this is open source. And when you have commoditization of hardware and you're talking about the consumerization, you have a lot devices, you have a lot of endpoints and you also have a lot of, you know, like on the server side buses and disks and flash and so forth. And it's almost impossible for anybody to have for a single entity to develop device drivers and stacks and everything for that. It's actually a spread-out development model and open source is key to that. Every company is contributing

to open source and keeping a platform, a software platform on which you can build more value ads, they're contributing to it as a result of which innovation is just taking over. Yeah. Kind of bullying on what Ramanus was saying is, I don't know that I 100% agree with you that the components in the cell phone or the mobile devices are going to drive the data center in the future, but I think a lot of the tenants that allow those to exist hold true. So give me some examples. Yeah, exactly. So, I mean, some of the really key pieces are, as Ramanus said, looking forward and buying for my business over the next three to five years what we understand is you know if you look at cell phone technologies a lot of kind of modern technologies

around iatee uh there are a lot of industry standard or well known industry mechanisms an x86 processor or an arm processor or flash memory and disk these things are well understood so people can put these together and again in well understood ways kind of again to romano's point around open source it's it's kind of the whole industry at large moving it different rates with each other, putting things together at this moment and time, recognizing that two years from now, it's going to come together a little bit differently. So this allows customers, you know, both, you know, web scale type, you know, or web facing businesses as well as enterprises to acquire and consume that technology on an as needed basis. And recognizing that I can

get, you know, effectively what I need today, it all comes together. What I need in five years is going to be very different. Yeah, yeah, that's, that's interesting. And when I talk about just for clarity here, like armchips and flash, to me, are innovations that really started in the mobile world and are moving over to the enterprise world. It's not unlike, you know, we saw many years ago the shift from mainframe to PC, right? Mainframes were in the data center. PCs were on the desk at someone's house. Well, the PC innovations and revolution eventually took over the data center. And I think that it's the innovation.

It's not that you're physically going to have a mobile phone in a data center. You'll have components that have been influenced by the development of mobile phones that I think, really, it's already transforming. I mean, storage as an example, using flash. Like, you don't have a spinning disk in your cell phone, right? But I think what's kind of slightly counter to that, or not under the counter, it's aligned but not 100% directly aligned is the fact that I agree with you around the fact that the the proprietary systems that exist in today's dentist center will open up much like the mainframe PCPC took off because it was a grossly open architecture everybody understood generally how it worked

and people could innovate it on it on it at scale yeah whereas if I was IBM and I did the mainframe guess who got to innovate on the on the IBM main room IBM right yeah well and not only did it lock customers in which is bad for the customer but it also locked up innovation it didn't allow the industry to move it industry pays. You know, one of the most interesting things that I find now is, you know, IBM DB2, which was the reason you bought an IBM mainframe, now runs on every processor architecture across every operating system, and it performs better on Linux X86 than it does on the IBM mainframe today in terms of transactions per second.

Yeah. And the other thing is well, right, which is when you talk about consumerization, right, people say, hey, I can't trust my cell phone to be my next server because it's going to fail. Exactly. That's what people said about PCs. Exactly. That they're going to fail. But the beauty of innovation is that you will innovate accounting for failure. Right. I mean, so if you're going to build a big system, you break it down into 20 components, now you will just assume that six of them are going to fail and you'll try to figure out how best to recover from it. Yeah, but this is a C change. I got to cut you off right here because like the fundamental problem with that these

is you can't drop the mainframe in the toilet. Yeah. Like your cell phone, the reason your cell phone fails, your cell phone is actually a pretty reliable device. It's got very few moving parts. Almost everything is integrated. A cell phone operating in a reasonably static, stable environment,

I bet you find the MTBF there is better than a mainframe. The reason your cell phone fails is because you throw it at your kid or you drop it in the water or something else like that. Yeah, I mean, from my part of you right, I mean, if you see Flash, Flash actually fails more than a disc. Disc has been around for 50 years. Flash actually fails quite a lot. Now, when you design a system, right, these days, you think about how do you just,

you just account for it and you account for it in software and you become more innovative, right? I mean, in terms of how to make sure that I can very quickly build something that is super reliant by using scale to your advantage rather than making, this, it goes back, you know, tightly couple versus loosely couple. Lusely couple is just better because you can then, you don't get, sort of obsessed with a single component failure. So it sounds like we all believe that open components, both hardware and software, will change, kind of are changing the data center. More openness, enables for more innovation.

What do you think this means for incumbent vendors? And like, you know, hey, it's obvious. Hey, you guys are telling the world here that, you know, open components and open software. So what does this mean for incumbents and like what, you know, what's going to happen in your mind? I think the landscape changes. The way I think about it, which may not necessarily be the way others do, is it's kind of, we'll call them thinner business models. People that are able, you know, like what we do at Cumulus, right? We're a networking company. We have a reasonably thin, you know, super operationally efficient model where we leverage open source and provide, you know,

great networking solutions to our customers. Some of our competitors, which are kind of very large incumbents invest tremendous amounts of money trying to protect their value ad. And we kind of go out about the whole problem the other way around. We strip away and leave only the things that matter to customers and get rid of the kind of excess value ad. And then that leaves a space for the supply chain, meaning the resellers, system integrators and those people to kind of come along and provide value added services that really make all of this new technology consumable by customers and you know you might ask yourself you know what's different about that as opposed to going to a great big incumbent to build by an existing system the difference is

it keeps everything very loosely coupled we innovate at our pace all of the other people that come together to make a solution all innovate at their own paces and the solution providers that that integrate it and deliver to customers are able to kind of have this continuum of offerings that make sense again to the customers, creating competition, and effectively, you know, focusing all of us on the necessary elements and avoiding all the craft. Mm-hmm. Mm-hmm. Ramana, maybe, you know, you can certainly comment on that.

But how is this new trend different from what's happened in the past? I mean, I've, look, we've all been around, I've known you guys for a long time. You know, we've all been around, hey, open is good. And like, this whole notion of open has been around for a long time. that promises great innovation. Why is this? It feels like there's a real inflection point in data center design and sort of what's happening now into the future

relative to sort of what's happened in the past. What do you think the difference is now? Yeah, so I call this, you know, if you looked at like stacks of applications, this is commoditization sort of moving up. What open source does is that it actually takes a lot of your sort of the lower end layers the things that work with hardware

and just makes it commoditized as an open platform for everybody So it's just available right out of it. It's just available for everybody who wants to innovate and it's in the interest of hardware vendors to contribute and keep that platform robust and growing.

That wasn't the case 10 years ago. 10 years ago, proprietary system still held some value. There was this belief, right? Going back to JR's point, which is what has happened is DB2 is just better on a Linux platform on an x86 hardware. And that sort of a commoditization of the core, you know,

platform is what is driving and innovation goes to like the higher and higher levels, which is making this possible. It also brings costs down too, which is the overall cost of putting the solution together. Once it moves from proprietary to open source, not only is it easier to innovate. It also brings in like cost pressures on what was, you know, traditionally proprietary and makes it open and available to a lot of folks. And for example, it was, you know, to think of some things like OpenStack, getting the level of, you know, OpenStack Summit this year had 4,000 attendees, 5,000 more than doubling from the past year,

it's going to become the next VM world, to tell you the truth, because that is going to be the platform for, you know, cloud innovation or an application innovation and so on and so forth. The reason is, again, nobody's tied in. in to anything proprietary there. So, you know, that's the direction. That's the direction these things are going anyways. That combined with hardware platforms just makes it, you know, that's the data center.

The innovation radically increases. And I think the inflection point is less dramatic than you think, only because you're looking at it from the outside, not the inside. You know, having kind of helped make the sausage some of the incumbent networking providers, you know, long, long time ago, people would, you know, you built. the operating system, you built all the A6, you manufactured it downstairs, you did everything. And then pretty soon you started outsourcing the manufacturing. You started using industry standard components. I don't call them a commodity because they're not necessarily

always commodity, meaning there's 65 suppliers, but they'll call them industry standard components. Intel will love you. Yeah. They hate commodity. They like industry standard. Right. But I mean, which just means well understood and broadly available to all comers, right? That's kind of the moral equivalent of that. But the other thing that happened it's been occurring over a long period of time is these incumbent providers are using a ton of open source. You know, if you look at a Cisco, for instance, a Cisco operating system, and XOS is their data center class operating system, a phenomenally high percentage of that code is open source. They just don't tell you that's that. It is Linux, but it's like some super old

version of Linux. They don't have a good hygiene around what it means to be a good consumer of open source. So, like, it's really hard to get access to their patches. You know, it's really super old. So they, and they keep it a secret because they want to say, hey, we're the ones that provide the value ad. We control the customer. We can control everything. And that's the part that's kind of inflecting. As customers are starting to recognize it, hey, wait a minute, NXOS is Linux. And I'm not getting the benefits of that. Because, you know, Heartbleed is a great example. Heartbleed came out. Cumulus Linux. We do a, you know, network operating system focused on data center. We had all the patches and all the new binaries up in about three hours from the

time that we found out about heart bleed. Cisco took about three weeks to get it up for an XOS because they had to backport it to their antiquated version of every open source package that they were using and they weren't telling people about. So they're kind of in this really weird spot where they're using this stuff. They don't want to tell anybody because it kind of it kind of takes all the gold off of the outside of the whole thing. But then their customers suffer because they're trying to maintain that customer mind share. And guess what? To your point, right, which is the next Cisco, VMware, that's open source too. I mean, literally, if you looked at how much of ESX is based on open source, it's just that, you know, they probably don't come

out and claim it right off the bat, right? But it's very, I mean, we come from the Zen world. That's our DNA. So we know exactly how much of ESX. is actually open source, which is good and, you know, good, and that's the direction that things are going. That's an interesting observation about using open source and sort of hiding behind it as opposed to being transparent about it and the downstream sort of benefits of being transparent to customers as opposed to hiding behind it, because customers now, this heartbleed example is an excellent example of how, you know, hey, like, we can fix this in a day because, like, we're very transparent that it is open source. you can use what's out there and innovation therefore increases and customers kind of get you know cycle

times get reduced relative to new features and adoption curves and all of that yeah it's that that kind of parallel undirected innovation which is kind of the general thesis around open source or effectively open elements when you can granimal things together to create solutions it allows you to you know each piece to innovate at scale people have really great ideas you know the the coolest thing for me, you know, as a CEO, is when a customer gets a hold of our software, puts it on some hardware, and they go through and say, well, how would you operationalize this? And we give them, this is our set of recipes. And then, you know, they call back and say, hey, guess what? Your recipes were okay? But look what we did. And you look at it and you're going, holy God, this is

really, really cool. So this customer renovated, took it at a whole different direction we ever would have thought. And, you know, that's kind of what makes the whole world go around now. Yeah. Interesting. Maybe, you know, let's shift to some of the business challenges and opportunities that you guys are seeing relative to data center. And I'll characterize that, you know, in a data center world, it's often as a young company, it's hard to crack into the data center stack, right? It's got, you know, one incumbent stacked on top of another, you know, all the way up through databases and above. And as a young company, to get inside of that very controlled stack is a non-trivial problem. So I'm just sort of curious, like, you guys are running phenomenal companies right now,

and you intend to become part of the next sort of data center of the future. How do you see, is it different now? Do you still have to fit into the existing stack, or is there something else going on? okay i'll go first to quote ben um you know ben horowitz's blog right enterprise sales is still the same as it was 10 years ago so you bring the new technologies and you bring everything but it's still you go you know the best chance you have is new apps new developments and in greenfield environments especially for us because we come from the storage side of things which is probably the most conservative it's people's data right i mean they don't they don't move things that easily

But having said that, I think this notion of, you know, like cloud-inspired architecture, everybody's cloud-inspired now, which is fundamentally changing the data center. There are three elements. I mean, when I describe cloud inspiration, right, there are three things to it, which is scale on demand. Don't sell me what you are telling me I'll need for five years. Sell me what I need for the next year, right? Then pay as you grow kind of goes into that, which is make it super. simple for me to add one more component 12 months from now when my business is growing and it's up to you to make sure that everything is just worked seamlessly. So I want to be able to scale on demand.

The second thing is to be able to perform on demand. This is a big deal in storage, which is like as you added capacity performance tapered off. That's the income. That's how things are. That's how things have been for a long time. It's to perform on demand. And the third thing is multi-tenancy, which is, you know, in the old days, again, going back to my car analogy, which is your important apps, you bought expensive storage, connected those two. For home directories, you bought cheap and cheerful storage, and you created these silos. The whole notion of cloud breaks through silos. It's like, I want to run both my IAP hungry app as well as my lazy app.

On the same storage, it's up to you to figure out where each of these apps goes, whether it gets flash or this. These are, so fundamentally, right, people are thinking that way anyway. So for newbies like us who are going into the enterprise, we are able to, you know, that message sticks around a lot of the CIOs in the enterprise are, you know, they use Google Mail, their Facebook and all that. And they do know that that infrastructure is not built on, you know, the way data centers are built. They know that. But still, we, you know, we do go into new environments, new apps.

That's where we get the most traction. Yeah. And I believe what appears. of time it's not going to be right on you know next tomorrow but over a period of time you would see this new architecture take over yeah jara what are you seeing and sort of on the networking side uh we're i mean we don't have people's data so if someone loses a packet most pretty much every protocol these days we'll recover from it so we're a slightly better off place but it's it's kind of weird because the the behavior i noticed not only around network

in storage as well as uh customers have dealt with the existing incumbents and the existing incumbents were not perfect. Not like they woke up in the morning, they delivered perfect product and have never tripped and fell. It's actually quite the contrary. The customers have had lots and lots of problems with the existing incumbents. And so through that set of problems and resolution, they've not only come to trust the incumbent, which is fair, but they've also become to rely and fear not having the incumbent. Like, oh my God, what happens if company X goes away? You know, something bad might happen, right? And there's people lurking under my bed. What do I do? So what we're seeing now is enterprises, you know, and actually even, even the, also all the mega scales to, you know, actually all the mega scales that I know of right now have made the decision the existing incumbents don't provide very much value.

So they're all transitioning away one way or the other kind of contrary to what Cisco says in their X number of big data centers in the world use Cisco gear, you know, BS. Let's let's go. Let's stand up the customers and talk about it, right? And so what's happening now is the enterprises are saying, wait a minute, a lot of these megascales are actually moving away and they're going here or there. So maybe the boogeyman isn't as bad, but yeah, they're still a boogeyman. I don't understand it. Right. And so now they're starting to feel it out and sniff and understand, A, you know, maybe there is. Maybe their applications weren't that kind of relationship or maybe not.

But now they're trying to explore and figure out what's going on. So I think there's a lot more willingness. now to try some new things based on that? I think there's a lot more willingness to look at new things. The try shows up when, you know, inevitably someone looks at it and says, you know what, I need to try. And like in our case, we see, you know, some of the enterprises trying this just to make the incumbents kind of kick themselves in the head.

And the response is actually the most telling part, right? When we're up against an incumbent in a deal, you know, now we're still pretty young. Oftentimes the incumbent will come in and win. but when they win, they're winning on our message. They're not winning on the message that they want to drive to the customer. They're coming in and saying, hey, we can do everything Cumulus can do and we can get close to their price points. And you've been using us for years, so just please keep using us.

Yeah. Maybe one more just quickly to wrap up here. The war between public and private cloud. Do you guys have any sort of thoughts on that? Sure. So, you know, it's actually two years ago that, you know, there were a whole bunch of folks and this happens with new technology all the time people just go to the extreme

and they say it's all public club everybody's moving everywhere there why bother ever buying a disc but the reality things settle somewhere in the middle and I think the argument now is not as much about whether it's going to be public

private what percentage but the next generation admin the next generation admin is growing up thinking about cloud that's how they think I mean, they grow up using, you know, iPhones. They grow up pushing their, you know, pictures out somewhere to the cloud and being, you know, all that access. And pay as you grow.

Pay as you grow economics. I mean, they're inspired by these. So the next generation data center is going to look like a cloud, whether it's on-prem or public and how, what's the percentage of that? Depends on the industry, how big the customer is, so on and so forth. But every data center is going to look like a cloud. That's a cloud-inspired data center. Yeah, one of the observations that I have, and it's just an observation trying to watch and understand is everybody that's been successful in offering up a public cloud, you know, the Amazon's, the Microsofts, now the Googles, they actually have a real business that pays for their infrastructure. And I would venture to guess, except for perhaps in the case of Amazon, because they're so big right now, if you got rid of their cloud component, they'd still be profitable.

If you just chopped it off tomorrow and said, you get no cloud revenue, they're whole. Yeah. So this premise that public cloud is this ever-growing, never-ceasing resource, I think is a bit flawed. There has to be some underlying fundamental that allows a company to build that stuff out. And if that thesis is true, there is likely some math behind it that says the public part of your infrastructure offering can only get to X percent of your total infrastructure. And let's say for the sake of argument is 50 percent, right? So if it's 50 percent and Microsoft says, okay, I have X number of millions of companies. computers that run 50% of my business, my real stuff, then I can only have that same amount

that I use for kind of generic public cloud offerings at most. And I think there really is a golden ratio there that makes sense. Yeah. Interesting. Well, thank you both. Romana and JR. Thanks for being part of this. And of course, we'll see what happens. I'll let you know in 10 years from now. Thanks, Peter.