Pioneers. Bravery. Progress. Combined, these offer what humanity has always wished for: prosperity and a brighter tomorrow. However, today is already an exciting world, as George Kurian tells João Marques Lima in this exclusive interview. The NetApp CEO and twin brother of Google Cloud’s new CEO Thomas Kurian, shares his thoughts on Silicon Valley and the role of future generations, as well as NetApp’s journey to a $17bn market cap.
“I think the technology world today resembles to me very much like the pioneers who went westward and settled the American continent,” shares George Kurian, who shows confidence in a bright future towards humankind.
“That time [of Discovery] was about new visions of the future, new boundaries that had never been crossed, and a group of really brave people set out to do that. Did they always get things right? Probably not.
“But it is in that journey of trying to make progress that humankind achieves its best self. It is in that constant aspiration to do better and make the world better that while we may make mistakes, over the long term, the good in humankind allows us to make progress.”
A heartfelt message from Kurian, who has been at the helm of the hybrid cloud data services and data management company headquartered in Sunnyvale, California, since June 2015.
A veteran of the Valley, Kurian delves into the ins and outs of the world’s tech capital and how NetApp (NASDAQ:NTAP) has been transforming itself and preparing for the next wave of business.
Last time we spoke about CEOs behaviour in Silicon Valley, and at the time we were going through the Me-Too movement and so on. You said back then that sometimes, perhaps, some CEOs behave less appropriately than they should. Do you think that with everything that has happened in the last two years, the Valley is a better place than it was?
I’m not sure that we’ve seen the fundamental transformation of the Valley yet. It will take multiple years for us to become the proper responsible stewards of the technology that we create. But the conversation is certainly helping that narrative.
If you look at the long arc of history, we are the generation that builds the tools of the information era. The things that the tool builder generation is often blind to is the proper use of those tools.
We sort of fall in love with every tool that we create, and it is usually if you look back historically,the generation that comes 30 years to 50 years after the generation that built the tools, has an objective perspective on the value and the harms of the tools that we create, and actually make it most usefully implemented for society.
While I don’t want to shirk the responsibility of our generation, I just think if you take a long perspective on the information era, I believe that the next generation will be the one that will have the social consciousness. And frankly, an objective view on the tools that we’ve created to make it fundamentally useful for mankind.
Would you have any idea of what the next generation could create with the technologies that we’re creating today with the tools?
There are already amazing things that young people are creating today using these technologies. They are using it to improve the lives of people in less developed parts of the world. They are looking at it as a foundation for improving environment and sustainability, and they are actually starting to talk about addressing the big problems of the universe with these tools, rather than the small ones. That’s encouraging.
Do you think the younger generations actually know how to behave better with these technologies, for example avoiding addiction?
My hope and aspiration is certainly that. We have to let the new generation establish their own norms, and own perspectives so that they can decide what of the things that this generation, our generation, created is of enduring value that they should bring forward, and what of it they feel that they should change.
That is the fundamental nature of progress. It is that any generation seeks for itself how to remake the world for better. And I’m confident that my children, who are amazing people, will probably have a better view of the world that is to come than me. And that’s the hope, and the optimism that I have about the future.
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With all the knowledge that you have of the industry today, what message would you have for your younger self?
I would say imagine the impossible. Take the risks that you want to take. And define your path in the world. Because there are so many opportunities that exist today that never existed even ten years ago. The impossible is a mindset.
Every day in the world you find people doing what someone else thought to be impossible.
On your brother, Thomas Kurian, who has moved to Google after 22 years at Oracle, what was your reaction when your brother told you he was moving to Google?
Both of us are cognizant of the fact that we are extraordinarily fortunate. We grew up in places where the difference between opportunity and lack thereof was essentially defined by which family you were born into. And it was visible, the lack of opportunity for those that were just as talented, just as hard working, and just as ambitious or aspirational in their outlook on the world.
We were fortunate, both of us, to have extraordinary parents who gave us all of life’s opportunities, and taught us how to appreciate them. And so, our responsibility to the next generation is not only to be the best that we can be in the capacity that we serve in, but also to remind them and to remind ourselves every day that we should give back a little bit through both the work that we do, and the work that we enable others to do.
Do you think the efforts made in the technology industry towards gender equality and diversity are enough?
It’s a constant search for improvement. One of the things that I notice about gender equality, meaning the consideration of really embracing all of the talent in the world, is it is fundamentally about building the best company, and the best institution that you can build.
It is about having a true meritocracy of ideas and talent, of looking and feeling like the global customer base that we serve, it will be an ongoing aspiration and an ongoing journey for every institution, including ours. And every day, you got to wake up and challenge yourself to be better the next day on that topic.
UNDERSTANDING NETAPP
What has changed at NetApp in the last 18 months?
We continued to transform NetApp in alignment with where customers are transforming their own businesses, and over the last 18 months, we have been extraordinarily pleased with the progress of our own transformation.
Our newer products, our newer offerings have continued to grow very strongly as a percentage of our total business, and that has returned our business to growth.
Product revenue, which is a key indicator of our overall company health, continues to be in the positive territory with the mix shifted to all of our new offerings such as our solid state storage, the ability to build your own private cloud as well as use advanced data services in the public clouds. And so, we’re pleased about the progress in our business.
Where do you think the next generation of business is heading to?
We think that the next era of business is a digital era, and most importantly, a data driven digital era. And we have been extraordinarily successful over 25 years of helping our customers use data for competitive advantage.
One of the things that we have seen particularly happen over the last 12 to 18 months is that our original vision of customers deploying and managing hybrid multi-cloud IT landscapes together with the underpinnings of an integrated data management strategy, called a data fabric, is now becoming real. In hundreds of customers around the world, we see our ability to work with them substantially expanded because our customers require the deployment of a data fabric.
You often say that hybrid is the future. But is it going as fast as you expected? Do you see a big push now in the marketplace towards hybrid clouds?
We’ve always believed in a pretty balanced approach where customers will know to, either refactor their traditional applications and build private clouds for applications that are required to stay in your data centre for compliance, security, risk management, as well as to leverage the public cloud for where the public cloud is best suited.
That mix and match approach is something that we see accelerating, rather than one particular implementation or the other.
What sort of new trends do you see coming, or are already happening that will maybe not completely transform, but will have an impact on what NetApp is doing?
If I start broadly, customers continue to use data and to use more 360-degree integrated data sets to improve decision making. When we started this journey a few years ago, data environments and customers were still fragmented and segregated by function and system.
For the first time in a long time, we’re starting to see the leading edge companies now integrate data about their customers and about their business from multiple sources to form a coherent foundation on which they can then apply artificial intelligence, machine learning techniques of various types.
Where we see the gaps today is taking those learnings that happen periodically and then using it systematically in the way you deploy front line resources.
So for example, in the credit issuance process in banks, or insurance companies, there are a series of techniques that are deployed in the back office where very large data sets are aggregated using technology like ours, processed with very, very fast computing systems to generate insight about how the price risk, how to underwrite specific types of policies, or kinds of customers better. But then, we don’t yet see. That part of the journey has really come a long way.
What remains is to systematically enhance the capabilities of the front-line agent, for example, with those tools. There are companies at a variety of stages of progress against that objective.
From a technology perspective, there is the need to both continue to increase the speed at which storage and data can be aggregated and processed. And so, you’ve seen over the last year two substantial steps forward.
One is a very, very high performance networking technology called NvME over fabrics come in place, which essentially makes the performance of a network as fast as the performance of the equipment inside a computer.
That allows a customer to essentially make an entire network look like a single computer, which is really advantageous for things like artificial intelligence.
The second is the early stages of a new technology called Persistent Memory, which is between traditional computer memory and flash-based storage in its performance and its cost.
We see those two technology trends becoming much more prevalent in the industry over the next few years as the continued need to aggregate more data and process it in real time to make better business decisions becomes paramount.
How fast do you expect this to really penetrate the market?
They’ll become an important part of the high performance computing environment in our customers over the next three to four years.
We’ve seen the adoption of a technology called Containers, which is essentially a capability to build really modular software and make it really simple to build new applications, grow exponentially over the last year and a half to two years.
It really brings sort of, cloud native application development paradigms to most corporations. And the speed at which that is being adopted is really transformational.
What is NetApp’s take on edge computing?
Edge computing is the idea that information technology capabilities are brought to parts of organisations or consumer premises where it previously didn’t exist, right where historically, they were operational technologies like manufacturing, shop floor technologies, or physical facilities management technologies, or things like mechanical systems in oil rigs and so on.
The idea behind edge computing is that by combining traditional operational technology with information technology, digital information technology, you can build much more agile, adept, easier to manage landscapes.
We are focused on the commercial edge, not the consumer edge. We’re really focused on edge computing landscapes in businesses. And we’ve been part of many of those environments for a long time.
For example, in a variety of military environments, we provide capabilities in what you call the tactical edge, where there are battlefield environments where our technology is used to improve command and communication right at the battle front.
We are also part of many of the energy companies that have large scale production facilities, or retail facilities for distribution where we provide advanced data management capabilities to what essentially is a data centre.
For example, a modern oil rig is essentially a data centre. We provide capabilities now for example, in advanced telemetry in things like autonomous driving environments, where these companies use our technology to bring together a variety of telemetry data about how the system is performing when it’s in the cars driving on the road.
We also cross connect that edge location back to our high performance computing grid where the manufacturer can aggregate the data from multiple cars together to make a better overall autonomous driving experience.
How has the business changed in terms of regions over the last year and a half, especially in continents like Asia?
We continue to see the international business growing as a percentage of our overall business because it reflects GDP growth and consequently, IT market growth.
Our Asia business continues to grow nicely. And it’s a part of the world where our market share is lower than it is relative to other parts of the world.
We are seeing really good growth, and we’re displacing some of the legacy companies that historically have bigger businesses in Asia, but are now shrinking because of the lack of innovation and the lack of capability that they offer.
In Europe, our focus is really on continuing to gain share in the biggest markets. And we’re pleased with the progress.
Our big three countries – UK, France and Germany – continue to be large foundations that we are building upon, and we’ve seen good progress there.
What about places like Africa that is starting to pick up on the cloud front, especially in South Africa, and Latin America with Brazil mainly where we’ve seen quite a lot of cloud and location deals? Are you starting to see some demand growing in those regions?
Clearly there are places in the world where in emerging countries for example, there is an opportunity to leapfrog the traditional IT model with the new model, for example, a cloud based model.
We work with partners around the world in places where we don’t naturally have our own footprint. We both have work that we’re doing with the biggest American hyperscalers like Amazon, Microsoft and Google, where our technology is now part of their offerings that they bring to the market.
We leverage their scale and reach to reach these newer parts of the world, as well as work with traditional partners like Telefonica and others who have reach into the Latin American market.
What we are doing, for example, in India, is we work with a leading public agency, a research institution together with Nvidia to build AI as a service. India is a fast growing global economic power, and it does not have the IT skills in every business to be able to use AI effectively.
What we’ve done is we launched an AI as a service offering to which one of the leading sort of public, private institutions there where businesses can bring their data sets to this private and public, private institution and they are able to help them make sense of the data sets.
It’s a way to scale capability across the economies where every organisation may not have the skillsets of the larger more mature countries.
Would you say that you will be doing the same thing in other countries?
We certainly look for that kind of opportunity to have impact. The work that we’re doing with the big cloud providers brings both reach for us into those markets through a high scale distribution model, but also brings an aggregation of capability in one place that allows a smaller country that perhaps is less developed to leapfrog the traditional IT model where every institution had to have all the skills needed, right to use IT effectively.
In terms of vulnerabilities, what would you say is NetApp’s biggest one in the world right now?
There are many trends that affect everybody in the market and in the economy the same way. I would say that what I tell our teams is that we need to control what we can control, and that is the opportunity to gain market share in the segments we participate in.
We are fortunate to be well positioned for three or four major market transitions that we play into. The displacement of traditional storage with high performance flash based systems, the movement from traditional siloed IT models to private clouds, and then the movement from on premises to public clouds.
We play really well in those market transitions, and we’re seeing growth as a result. The biggest vulnerability that we have is not changing as fast as we need to, to be aligned with customers.
That’s an organisational challenge, and it’s something that every institution faces. It requires motivation. It requires you to constantly push teams to seize the future, versus rest upon the championships of the past.
Your stock was going up throughout 2018, but then around the same place, started coming down slightly. Then it started going up again, and analysts predict it’s going continue to grow at least until beyond 2022. What would you say that sort of drove the stock down for the month of December? And what did you put in place to curb that and really shift the narrative there?
What we saw at the start of the new year, 2019, was a little bit of more caution in our customer base about their spending intentions. That is now more broadly reflected within the data centre technology providers.
More of them have shared the same perspective. It’s hard to diagnose exactly why that is the case.
There was some concern about the macro economic outlook being less rosy than it was in 2018. Some of that concern has abated, but we’re waiting to see whether that amelioration of concern causes a rebound in spending. We haven’t seen that yet.
I also think that customers want flexibility in their data centre environments between on premises and public clouds. And so, we’ve got to work through how to enable that through commercial models for our customers that allow them to have that opportunity to start in their data centre and move to the public cloud with us, or conversely, start in the public cloud and maybe move back to their own data centres.
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What do you have in place to keep customers for the long term rather then letting them move and end the job there?
There are three fundamental principles. First, you have to understand our customers intimately, and where their businesses and consequently, their technology directions are headed.
The second is you need to innovate to continue to deliver value in the places that they’re headed. And the third is you need to deliver on your commitments to customers.
What we’ve been blessed to be part of for the last 26 years is an organisation that is seen by customers as having delivered on all of those three elements.
That’s not something that you gain easily. It’s something that you have to wake up every single day in every part of the world and work really hard to both earn and maintain.
However, that is not easily lost as well. Our customers trust us, because for 26 years, we’ve stood by them and helped them through thick and thin.
Are we going to see NetApp go back to a stock price of about $300 p/share like in 2000? Is that a plan?
We are always looking to improve shareholder value and returns. We do that in a variety of ways. We do that in terms of the technology we deliver to customers and the ability to serve our customers well.
That’s sort of the foundational element of our business. We manage our operating margins so that we can deliver increasing operating profit every year. And that’s a constant exercise in being disciplined about the bets you place, as well as how you run the business.
Finally, translating those operating margins into returns to shareholders through buybacks and dividends. You’ve seen us continue to deliver really good performance on shareholder returns. And so, we continue to remain focused on, and committed to all of those three elements of our business model.
More investors are buying stock from you than selling, which is a good sign. How would you characterise your shareholder of 2019?
We’ve seen a shift in our investor base from a value, or a deep value-oriented investor base to now, a mix of growth and value oriented investors.
As the business model has progressed, there’s more confidence in our outlook, and therefore, more of the longer term growth oriented players have started to invest in our stock.
Do you have any plans for M&A?
We are constantly looking for new ideas and teams that can help us expand the portfolio of our offerings. We are a disciplined acquirer. We take a close look at both cultural fit, technological fit, and strategic and financial fit as we make those decisions.
I continue to believe that relying solely on organic innovation cannot meet the expectations of where customers are. We are pleased with our portfolio. We have extraordinarily good assets.
It’s not like we are having to rely on acquisitions from a place of weakness, but rather we look at it to build upon the position of strength that we have.
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