Exclusive Interview With Sujal Patel, CEO of Isilon

  Sujal Patel, 35, is president, CEO and
founder of Isilon Systems since October 2007, replacing Steve Goldman. He is recognized as a pioneer in
clustered storage. He served as Isilon’s CTO from 2001 to March 2008 and as
president and CEO from the founding of the company in 2001 until August 2003.
From 1996 to 2001, he served in various engineering roles at RealNetworks, in
part as chief architect behind the company’s second-generation core media
delivery system. Patel holds a number of patents and pending patents, including
those for Isilon’s OneFS distributed file system. He holds a bachelor’s degree
in computer science from the University of Maryland at College Park.

StorageNewsletter: Now that this business is settled with the SEC, can you explain to me
what exactly happened, and why the SEC investigated Isilon?

Sujal Patel: That particular matter, being a legal matter, we disclosed in our public
filing, we can’t talk about much. What I can tell you that through the entire
process is that Isilon settled with the SEC, no monetary penalty, and we didn’t
admit any guilt in anything, and the SEC’s affairs with former members of our
executive team are not in our hands anymore. But we were very pleased to see it
resolved with no impact on our business.

Who was responsible, then?

Responsible for…

The financial errors…

Well, it’s not my place to place responsibility. Certainly the SEC has –
it’s public record the SEC charged our former CFO, Stuart Fuhlendorf, who left
the company the same day I took over as CEO.

Which means CEO Steve Goldman was also replaced…

Yes. The same day, we replaced both…

So both of them had some connection to the mistakes?

You know, for us as a company, mistakes aside, I think that the
leadership transition for us was more about getting the company’s growth
trajectory on track. 2007 was a disappointing year for us, it was a year where very
interesting things happened in our business, where our company began to sell
into larger enterprise companies, but the company itself wasn’t ready and
didn’t have all of the pieces in place to be able to do what we’re doing today.
So the leadership transition was largely about getting the leadership in place
to set the company in the right direction to create the kind of company that
can grow from $100 million to $500 million.

How much did this affair ultimately cost Isilon?

In our filings, we have disclosed various pieces of that, and it’s
millions of dollars.

And there was a class-action suit, what’s going on with that?

We announced recenly that we settled that class-action lawsuit. The
shareholder class actions all get consolidated into a single action, and we’ve
resolved that.

Isilon will contribute $2 million of the to tal, and your insurers will
take care of the balance. So you were insured?

Yes, all public companies for the most part carry insurance to cover
against this kind of thing.

I don’t think Isilon ever had quarterly net income. Why is that, since
revenues have generally been growing, and at a fast rate?

That’s true. The reason is that like most technology companies, most
technology companies are in growth-mode, and some grow for three or four years
and turn a profit, some grow for 20 years and then start turning a profit. It
really depends on the dynamics of the market. We participate in a very
competitive market where there’s a high intellectual property barrier to get a
product built and out the door, so if you look at what we’ve spent, we’ve spent
over $100 million on software research and development alone in our products
and technology, and it takes a significant amount of scale before you can turn
the profitability corner, and that’s no different for lots of tech company.
Systems companies…

Still, it seemed like when you had your IPO, you might turn profitable…

And I will tell you, we’re certainly on a good trend now, so if you look
at our revenue from last quarter, which we posted in July and look at it,
compared to two years ago, revenue is up 40% and we’re spending less money than
we did two years ago, and so that’s an incredibly positive trend. Another one
is that as of last quarter, the business was cash-flow positive year to year,
so our cash balance grew, and we didn’t use any cash from operations, so that’s
obviously an end result, because cash is everything…

When will the company be profitable?

We updated our guidance last quarter that we will be profitable some
time next year, that’s the specificity we gave.

How many customers?

As of our last reporting in July, we have over 1000 customers.

The largest is still Kodak?

Kodak is among our largest customers, they probably are still the
largest, but we have a number that are almost as large, with 8-figure business.

With how many systems?

The exact count and exact number of petabytes is information that only
they’re privy to, but it’s in the over-10PB range.

Do you still have an OEM agreement with Kodak?

Yes. That’s separate, two different pieces of Kodak.

What about with Harris and Schlumberger?

Yes

What’s the percentage of systems with IB vs. Ethernet?

So all of our systems use Infiniband today.

Why do you need an accelerator for better performance, although only for
Ethernet?

Infiniband is purely something we use as a backplane for our nodes to
communicate with each other. So the communication to the customer’s network is GbE from that, so the accelerator gives us 10Gbit capability and
certain workflows to accelerate that.

Whom do you work with for IB?

Mellanox.

And Ethernet?

It depends on our product line, and we don’t talk about which ones,
there are very few of them.

So for does the backup accelerator work with tape or disks?

We have two different products, there’s an Accelerator X which is built
for high-speed access into the cluster, over 10 Gb through that, there’s
another product called the Backup Accelerator, which has 4-5 channel links, and
is purely for accelerating backups to tape, but a similar looking box.

Which tape company do you work with?

We work with all of them, whether it’s Sun, or Quantum or any of the
others.

Where do you buy HDDs?

Largely our product line uses Hitachi Data Systems, but we do also work
with Seagate, Western Digital and others as well.

What’s the percentage of SATA vs. SAS?

We use both SATA and SAS stripes, and we don’t break out the product mix
between the two.

From which countries do your revenues come from?

The United States – here’s the way we break it down in our financial
filing, so roughly North America accounts for two thirds of our business, so
one third is international, and roughly the international business is split
evenly between Europe and Japan. And Europe is growing phenomenally.

And within Europe?

It depends from quarter to quarter. We don’t break that out,
unfortunately.

In term of industries, is media and entertainment still to be the largest
sector for you? What %? And then?

It’s still the largest sector, but it’s no longer the majority. It’s
fallen to 35%-40%. And the rest of the business has diversified dramatically.
One of the fastest growing areas was life sciences. In Q1 of 2008, it was just
1 or 2% of the business, in the first half of this year, it was more than 10%
of our business. So we have lot of other growth areas that have been fueling
the growth of our business.

Average price per deal?

The average price per deal for us is in the low six figures, U.S.

You can’t be a little more specific?

150-ish.

Who is your main competitor: EMC or NetApp?

NetApp first. NetApp is our primary competitor, then EMC second.

That explains why you recruit so many executives from NetApp.

NetApp is, one, a company that’s closest in terms of what we sell, and a
company with a very similar culture and mentality, one that we respect a lot,
so it’s a great target for getting employees.

How many are currently at Isilon?

In the company, a lot. In leadership positions, there are three in
particular, our head of WW sales [George Bennett], our head of WW channel partners [Leonard Iventosh] and our head
of Europe [Mark Stevens] are all from NetApp.

Who is your hardware manufacturer?

We design and manufacture our hardware, we use a number of contract
manufactures, we disclose that in our filings, we use Flextronics and Jabil as
our major manufacturers.

Which SSDs do you integrate? From whom?

We don’t in our product line today, we have talked about the fact that
it’s certainly a technology we will adopt in the future.

Why not today?

The reason why is that with the software technology that we have, we’re
able to get a lot more performance out of the disk drive than you can get out a
traditional architecture like NetApp’s. So our SATA drives can compete at
speeds where only their FC drives work. Our SAS drives can surpass the speeds
of what their FC drives can do. So our customer base hasn’t gotten to the point
where they really need the SSD capability, and it’s not price-effective at the
price point.

When do you intend to integrate SSDs?

We haven’t set a timeline on that.

How many people are working for you in Russia and what are they doing?

We currently don’t have any offices in Russia. We have three major
development centers, there’s one in Seattle, one in San Jose and there’s one in
Minneapolis. All in the U.S.

When does Isilon plan to release its first NFS 4.1 implementation, notably
with support for pNFS (Parallel NFS)?

Both of those are things that are on our roadmap, but we don’t publicly
talk about things that are future, as a company, we only talk publicly about
things that are backwards.

How do you see the evolution of HPC and highly demanding environments
such as media and video for storage needs?

How do I see those environments evolving? I think that one of the most
exciting thing that we see in the market today is the fact that more and more
of the enterprise data center looks like a high-performance computing
environment. Applications are taking advantage of lots of compute power on
cheap servers, you’ve got technologies like Infiniband and 10-Gbit Ethernet,
which are making networking very cheap and you have technologies like
virtualization that now enable the compute power to be used more effectively.
The thing that’s really fueling our business in large enterprises is the fact
that more and more, the bottleneck is becoming storage in these larger
file-based environments because of the fact that things that were HPC
principles ten years ago are now making their way into traditional enterprise
data centers.

How can Isilon counter the price/performance ratio achieved by open
source development such as that of Hadoop, Haystack or even Google File System?
These solutions replaced, were chosen and implemented in very large configurations
far beyond 144 nodes?

So, that’s fine. If you generally look at what we do as a company, our
company is all about providing customers with data management, data protection
technologies at scale in an easy to use system. And so when we look at what we
focus on in the market, we take the middle 80% of what we’re going after, and
we look for customers that value the fact that we have a wide software range of
features and functionalities, we’ve spent over $100 million on software
R&D, and those are things you can’t say about those open-source products.
What you have on that fringe, outside of that core 80% that we’re focused on is
on one end, you have commercial and open-source products that are focused on
super high performance or super scale that are only applicable to a small
number of customers, and their requirements are the same as that core 80% where
all the money is, and at the other end, there are build-it-yourself very cheap
solutions that are really complex and hard to manage. So our goal is to focus
on large enterprise customers, and focus on requirements for business
continuance, for security, you have to interoperate with data center
applications, none of these technologies do that. So where we see open-source
technology is applicable is in web environments, or environments where there’s
a very focused and finite application, and only one application. And we’ll
continue to compete in those areas, they’re good markets, but there are certain
price points, certain technologies in open source that might be able to service
some subset of those needs, while our goal is to continue to grow in other
areas of the enterprise where we can provide higher value.

I’m thinking for example, where Facebook replaced its NetApp back-end
for its photo repository with Haystack.

Hm.

How is adoption on the backup appliance so far? How is it being received
by traditional backup provider?

The uptake on that product has been very good. One, we had a lot of
existing customers who wanted it immediately to add to their clusters, but
we’re selling them a lot with new clusters, because customers want to be able
to leverage their tape infrastructure effectively. We have a good relationship
with all of the backup providers, we’re certified with all five of the major
providers.

You work with Ocarina and Storwize for primary de-duplication – is there
any plan in-house to implement your own technology ?

As I said before, we don’t go into details of the roadmap, so
de-duplication and compression are both strategies for implementing data
reduction, and data reduction is an important strategy for us.

But are you currently investing R&D money into your own technology?

We don’t talk about what is on the roadmap, but I will tell you that
both of those are on the roadmap, we will build both of those things.

Another question about the roadmap: What will come with the sixth
generation of OneFS?

We definitely don’t talk about the future of the roadmap, but I can tell
you there are three major tracks. There’s bigger, better, faster. There is
continued innovation in developing new functions and data management techniques
that no other products have, we have features in our products today and will
continue to do that, and then there’s a lot of effort going into filling in
features that traditional products have, but that don’t work at scale. An
example of that is that today we don’t support all the integration with
databases, like Oracle, but you can expect that over time we will do that, and
we will do that leveraging this architecture that works at much higher scale
than a traditional NetApp or EMC architecture.

To have products that don’t just offer fast transfer rates, but also
offer fast access times?

We have a product that we introduced at the beginning of this year
that’s built for transactional I/O, so with that product, actually leveraging
our 5^th generation of software has really begun to get some traction
in high I/O access time oriented environments.

Are you working on new NAS applications?

The applications that we’re building on our roadmap? We haven’t talked
about the details of that. This year we did revise and introduce the second
version of our replication software, which improved the efficiency and reduced
the data transfer rates and added a lot of features and functions and
applications is an important area in our next 18 months of roadmap.

As far as I can tell, Isilon hasn’t talked about cloud storage?

You mean we didn’t jump on that bandwagon! You know, cloud storage is
just another service provider type of architecture. We certainly have customers
who leverage our technology in cloud storage offerings, we have enterprises which
are trying to roll out utility storage offerings, leveraging our technology,
and certainly things that three or four years ago we supported, applications on
the internet, they were basically storage service providers before there was
the word ‘cloud storage’ for it. Cloud in general, which I would define more
broadly as the movement of applications from physical infrastructure that you
own to physical infrastructure that someone else owns. And that someone else
might be a different company, or it might be a different arm of your company,
but that trend is an important trend, and it’s an important trend to help
reduce the cost of IT relative to the output, and as that happens, I think that
storage buyers shift around, but I think that we have a very good technology
for a lot of cloud applications.

For example, do you have a lot of customers using your system, companies
that are online backup providers?

Yes. I mean one example would be LifeOffice, which does email archiving
as a service. They’re as SaaS company, and that entire platform is based on
Isilon storage.

PERSONAL QUESTIONS

Why did you left your position as CEO of the company in August 2003,
only to return in October 2007, to replace Steve Goldman?

I think the answer’s very simple. I founded Isilon when I was 26 years
old. And the one thing I was smart enough to know at 26 was that I probably
needed to bring in an experienced CEO. And we brought in Steve, and Steve did a
great job for us for a number years, growing the company from a few million of revenue
to just under 70, and leading us through an IPO. I grew a lot as well during
that time, grew some gray hair and lost some hair, and come 2007. The company
really needed to move its strategy and execution to the next level, to be able
to compete in a much harder, but 
much more lucrative larger enterprise environment, larger enterprise
space, and the board chose me to come back to really refine the company’s
strategy, but also to completely upgrade our executive team and get the
company’s services support capabilities, the products and frankly every aspect
of the company at a higher level to be able to deal with much larger enterprise
customers and much more mission-critical environments. And that’s frankly why I
came back. I was still a member of the management team through this whole time,
I was still a member of the board, this is a company I’ve been working at for a
decade, and it was the natural point for me to come back and take the company
to the next level, and we’ve accomplished a lot in that time, we’ve moved past
the 1000 customer milestone, we’ve released the fifth generation of our
product…

Are you the only founder of Isilon?

No, there were two of us initially who were founders, one of our
founders was around for the first five or so years of the company’s life. His
name is Paul Mikesell, and he has gone off to be a CEO of another company [Clustrix] in
the Silicon Valley. 

On your board, I saw the name of Peter H. van Oppen, the former CEO and
chairman of ADIC before its acquisition by Quantum in August 2006. What’s he working
on now?

Peter is making investments in companies, sitting on boards, no other
executive role right now.

Are you on the board of other companies?

No, I’m not. I have 100% of my time dedicated to Isilon. Isilon and my
kids.

What about hobbies?

My hobbies? Between work and kids, there’s no hobbies left. But when I
had hobbies, I was interested in snow-boarding, hiking, bicycling, loved
outdoor activities. Now it’s work, kids and get to the gym and play squash
whenever I can.

Annual salary?

It’s publicly disclosed in our proxy.

How much is it?

I don’t even remember, it’s there in the proxy. I think my base salary
is 250,000. But the proxy would say for sure.*

How many days of vacation did you have last year?

I had a lot, but I didn’t use them very much. Maybe two or three weeks.
It’s not so bad.

* According to Forbes,
total compensation for Sujal Patel is $729,628 including a salary of $252,884.