Scale Computing CEO Jeff Ready: ‘As Goes Symantec, So Goes VMware’

‘How many times have they seen a big company that says, ‘Oh, yes. We have a history of selling direct to enterprises and Fortune 500 accounts, but don’t worry, we love the channel.’ Right. That is a story as old as the channel,’ Scale Computing CEO Jeff Ready says.

Ready For Battle

Scale Computing CEO Jeff Ready compares competing against VMware to trying to dethrone Coca-Cola as the most popular soft drink.

“People say who’s your No. 1 competitor? I always say VMware,” Ready said. “It’s effectively the incumbent. When Red Bull came out, the main competitor was Coke. Now of course, everyone has an energy drink, but the point was you had to get someone to stop drinking Coke and to drink the Red Bull.”

With the news two weeks ago that Broadcom is moving to acquire VMware in a $61 billion bid to boost its software business, Ready believes the market is about to ride the bull, and Scale Computing will look preferable to New Coke.

“All the other folks that compete with VMware in some capacity, or for that matter, folks who keep up with Broadcom in some capacity are going to be coming up with statements and positioning and doing different kinds of programs to try and capitalize, on this deal,” Ready said. “The one thing I can say about Scale is my message doesn’t have to change. I’ve been telling you that VMware is old, overpriced stuff for a long time, right? And now, it’s going to be older and more overpriced.”

VMware partners have responded critically to news of the deal, while even some VMware executives have said they understand the market’s concern given Broadcom’s history following acquisitions. But President of Broadcom Software Thomas Krause said he is ready to “embrace the channel” along with spending big on research and development.

Ready said the deal is going to be a windfall for Scale Computing, and his position in the market, as he expects flights of users to leave VMware if a deal with Broadcom goes through.

Click through the slideshow to read more of what Ready had to say.

Were you surprised when you heard about the deal?

I know I’m not the only one who said it, but if you gave me 100 guesses to say who was going to buy VMware, I probably still would not have come up with Broadcom. When I think about the channel, if I’m a channel partner who sells a lot of VMware, I’m looking at the Broadcom thing, and I probably am already feeling like, OK, there wasn’t a lot new happening right with VMware in recent years, certainly in comparison to maybe if I had been a partner of VMware 15 years ago, right?

And now VMware is going to become the next Symantec or the next Computer Associates. And I’m probably not filled with excitement as a partner.

Partners will look at other alternatives, and they will look at Scale. If they haven’t been exposed to Scale before, they’re going to be blown away. They’re going to be in a K-car and I’m going to show them a Tesla.

And if they dig deeper, and they see, you know, we are obviously very highly regarded from the channel. And for those that have been around for a long time, I suspect it’s gonna feel a bit like when they were early with VMware. Scale is innovative, obviously, very nimble, and we engage with the channel quite a bit.

In a call with investors, Broadcom said they learned from those deals. Broadcom Software CEO Tom Krause (pictured) said they are ready to embrace the channel, and VMware is going to help us with that. What are your thoughts on that?

My immediate reaction is, well, there’s someone who doesn’t understand how the channel works. I mean, I’m sure that’s what these channel partners are hearing too, right? How many times have they seen a big company that says, ‘Oh, yes. We have a history of selling direct to enterprises and Fortune 500 accounts, but don’t worry, we love the channel.’ Right. That is a story as old as the channel.

Broadcom released a lot of financial information when they published their bid. They put together a number of slides going over what the deal would look like going forward in terms of revenue and profitability. What did you see in there that caught your attention?

What was interesting, I read in the commentary from Broadcom some of their expectations around the profitability of VMware. VMware’s main expense, like pretty much any software company is people. Right? So when they’re talking about this, there’s a significant jump in profitability and ultimately cashflow. (Broadcom has vowed to increase VMware profits from $4.7 billion to $8.5 billion)

The revenue they are talking about is really more of a revenue recognition problem than it is just a sales thing, right? Because if you sell a subscription, and somebody commits to that three years, you have to recognize that revenue, more or less over the three years, right versus in a traditional sale, you would just recognize it all at once. I don’t have the numbers in front of me, but like a doubling or more of profitability, right?

Well, you know, as a CEO, I’m looking at that I’m like, ‘They’re gonna lay off like tens of thousands of people.’ That’s what’s going to happen. That’s your cost. Right? They’re not talking about tripling VMware’s sales. Their biggest costs are people and office space.

So if you are at VMware are you polishing up your resume?

In this case, when I’m reading it, I’m like to me all the writing on the wall says they’re going to make cuts. And -- just speculation again -- but probably substantial cuts.

Not just ‘OK. We’ve got an overlapping finance department, and so we don’t need all the same people. There’s always that in a merger. But when I see they’re going to increase EBITDA, I mean it’s a cliché right? Everyone always says, ‘They’re going to milk it for all the cash’ I don’t think it’s quite that draconian, but a simple way to put it is they’re going to optimize the business for profitability.

Do you think that will come at the expense of innovation? We’ve heard a number of partnerssay that they are afraid of that.

So there’s always the balance. That’s part of the strategy. When I read the Broadcom strategy independent of any of the comments about VMware. The Broadcom strategy to me looks like maximize cash flow. Right? It reads like a private equity company.

Which is going to be completely different than, if you just read the VMware strategy, or certainly Scale’s strategy. Obviously, I’m trying to optimize the business, but we do a ton of investing in R&D.

I’m trying to define new markets, right and create products for things that are evolving. Broadcom is trying to optimize cash flow in existing businesses.

It’s easy to paint these pictures in hindsight, and all businesses go through this back and forth, but you know, Broadcom appears from their own words to be in the cash optimization business. I’m sorry, but a Steve Jobs is not going to pop out of that.

Broadcom in their first call talked about the excitement they had around putting their hardware and VMware software together. You said you buy hardware from Broadcom, and you’re a vocal VMware competitor. Is it possible that Scale Computing could buy a Broadcom product that has VMware inside?

I don’t know. I would doubt it. Right. That wouldn’t be my intent. I don’t know where they’ll head with things. There’s been some speculation like OK, Broadcom, has had some things in, not quite squarely edge computing, but like IoT-type stuff. You know, they’ve had a couple of fits and starts there. I think that some of these product synergy type of discussions. I don’t think that’s what this is about.

What is it about do you think?

There was not a discussion at Broadcom that said, ‘Hey, we think the world is headed this direction. And we’re really missing a key piece of software technology and VMware has it.’ I I doubt it. Right. I mean, I am just looking at their history, right, like Broadcom didn’t have a discussion that resulted in ‘Hey, the magic software solution was Computer Associates, or Symantec.’ Right? These were opportunistic acquisitions that fit with their stated mission.

So do you see this as more of a branding opportunity for them?

A lot of it feels sort of private equity. Like a roll-up. And it’s not the products where you’re going to get these shared synergies, it’s basically sales and operations and administration. Right. Like, that’s where they’re trying to get synergies.

So they’re going to have a playbook. This is what private equity would call a playbook. This is how we do things a certain way. And they’re going to run all of these functions of VMware through the Broadcom playbook. So the best indicator of how it’s going to be, is to look at the company that Broadcom has done this with before and see how it went to see exactly what’s going to happen.

So ‘as goes Symantec, so goes VMware.’?

And you can be like, ‘Well, that sounds horrible.’ Right? But look at Broadcom’s financial statements. They clearly are making money with those things. So from their perspective, they have a system that works and it makes money and more power to it.

Now, you may be the channel partner who built a big part of your business on Symantec. And now you’re like, ‘Well, now I’ve got like the crummiest products and the worst support, and I got to look for something else.’ And so that’s why, I think that you have to look at that as the indicator as to what’s likely to happen.

Right, again, ‘As goes Symantec, so goes VMware.’

With all this seemingly headed in your favor, how could Scale mess this up? What could the company do to drop the ball given this opportunity?

It’s a funny question. Like, how can we mess it up? You know, I don’t know.

My banner to the world for over 10 years has been, ‘There’s an alternative to VMware, right? I mean, people say ‘Who is your No. 1 competitor? I always say VMware. It’s not always VMware, right? It could be VMware in different flavors, and there’s other competitors. It’s not just them.

But the reason I always say the competitor is VMware is because that’s sort of the standard traditional way to do things. It’s effectively the incumbent, right?

When Red Bull came out, like the main competitor was Coke, right? I mean, now, of course, it’s all going to energy drinks, but you had to get somebody to stop drinking Coke or drink the Red Bull. Right? Like, that’s the main thing.

In the end, I’m like, OK, just put VMware down for a second, right? And look at Scale.

If there’s a way we could botch it, it would be that we don’t get people to look. Like somehow, despite me saying it all the time, we end up overlooked by these channel partners, but hopefully not.

My message has been consistent. All the other folks that compete with VMware in some capacity, or for that matter, folks who keep up with Broadcom in some capacity, right are going to be coming up with statements and positioning and doing different programs to try and capitalize on this deal. One thing I can say about Scale is my message doesn’t have to change. I’ve been telling you that VMware is old, overpriced stuff for a long time, right? And now, you know, it’s going to be older and more overpriced.