According to IDC, the worldwide converged systems market grew 12.1% to $2.9 billion in Q2 2016. Hyperconverged sales grew 137.5% to $480.62 million or 16.2% of the converged systems market. Riding on this hypergrowth, SimpliVity (NYSEMKT:SIM) entered the Billion-Dollar Unicorn Club and was recently acquired by Hewlett-Packard Enterprise (NYSE:HPE).
Westborough, Massachusetts,-based SimpliVity was founded in 2009 by Doron Kempel with a mission to simplify IT, especially the modern data center. SimpliVity converges the traditional compute, storage and network switching in an x86 server form factor to provide lots of functionality in a much smaller footprint. This simplifies device management and helps customers achieve economies and ease of scale.
Its flagship OmniCube platform was launched in April 2013. By mid-2015, deployments of SimpliVity's hyperconverged infrastructure totaled more than 2000, with about 550 large and mid-sized enterprise customers, nearly 380% year over year growth.
At the end of 2016, SimpliVity had 750 employees worldwide and had shipped more than 4,000 systems globally since 2013.
SimpliVity's business model was 100% indirect and its solutions and professional services were sold through its network of resellers and distributors. It had a reseller network of more than 1,000 partners in 73 countries, enabling the company to generate 50% of its sales outside of the Americas.
SimpliVity was venture funded with total investments of $276 million from Accel Partners, Charles River Ventures, DFJ Growth, Kleiner Perkins Caufield & Byers, Meritech Capital Partners, Swisscom Ventures, and Waypoint Capital. Their last round of funding for $175 million was held in March 2015 that valued them at about $1 billion.
SimpliVity was reported to have booked more than $95m in sales in its 2016 financial year. Gartner categorized SimpliVity in the leader quadrant of its October 10, 2016, Magic Quadrant For Integrated Systems report. However, it was struggling to secure new funding against the backdrop of the frigid IPO scene and increasing competition in the space following Nutanix's (NASDAQ:NTNX) IPO.
Brian Beeler on StorageReview.com says that
"innovation in the HCI space has stagnated as the smaller HCI vendors realize operating a profitable company after the first 1,000 customers is a lot different than disrupting an industry that's been slow to adopt change."
Nutanix was the only storage startup that has managed to go public. SimpliVity also was looking to go public, but at the right time. That time never came.
Instead, it went through a couple of rounds of layoffs and there were hints that it was not profitable. Early this year, HPE announced that it would be acquiring SimpliVity for $650 million to get a better play in the fast-growing hyperconverged systems market.
With this acquisition, the hyperconverged infrastructure appliance (HCIA) market has become hyper-competitive. The leading players in the market are EMC/Dell and Nutanix followed by the HPE-SimpliVity combination, NetApp and Cisco (NASDAQ:CSCO).
As with most billion-dollar unicorns, it appears that SimpliVity also was overvalued. So, $650 million might be a decent exit for Simplivity, but it remains to be seen if it is a good bargain for HPE. Meanwhile, we might expect more consolidation in the space, probably from Cisco.