Rescale Vies With HPE, Dell In $28B High-Performance Computing Market

Qualified IT specialist Danny Rotscher checks the operating system of the High Performance Computing and Storage Complex II (HRSK-II) during the official opening of the new data center of the Lehmann Center (LZR) of the Dresden University of Technology in Dresden, eastern Germany, Wednesday, May 13, 2015.  (AP Photo/Jens Meyer)

Would you rather buy a supercomputer to solve your complex mathematical modeling problems or rent your high performance computing from the cloud?

More companies with complex modeling problems are deciding that renting a service is a better way to go.

And that could be bad news for box makers like HPE, Dell and IBM. But it’s good news for Rescale, a fast-growing San Francisco-based startup that just raised $32 million.

Before getting into that, what is high performance computing (HPC) and why should you care about it? HPC is the market for the most powerful computers and cloud services that rent out applications that run on them.

It’s a big market — for 2017, the total HPC market (including servers) came to $24.3 billion in 2017 and is expected to reach $38.4 billion by 2022, according to Hyperion Research.

Industry server revenues totaled $12.3 billion (up from $11.2B in 2016) broken down by supercomputers ($4.8 billion); divisional ($2.3 billion); and departmental ($3.4 billion) systems.

There are also substantial HPC markets for storage and software. High performance storage revenues continued to grow faster than the server market, up 10.3% to $4.7 billion in 2017 sales, while HPC software applications sales totaled $4 billion.

If you’re a shareholder in Hewlett Packard Enterprise or IBM, you ought to care because HPC revenues are an important part of their businesses. In 2017, HPE led the HPC server market with $4.2 billion in HPC systems sales; ahead of Dell EMC’s $2.3 billion; Lenovo’s $870 million and IBM’s $575 million, up 17% from 2016, according to Hyperion Research.

The market for renting HPC applications via the cloud is getting bigger. As Hyperion executive Earl Joseph said, “The cloud portion is lifting the market, too. When you can do more HPC, which really is doing more R&D in general, you’re more successful. And organizations and governments tend to give you more money. We generally are seeing the cloud lifting the market as a whole and bringing more money and expenditures into organizations.”

One of the leaders in the HPC cloud is Rescale which provides a “hybrid multi-cloud platform to help executives, IT leaders, engineers, and scientists securely manage their product innovation. Rescale partners with the four largest cloud service providers, has over 125 Global 2000 enterprise customers including four of top five largest global automotive manufacturers and two of top three largest global aerospace and defense companies,” according to the company.

On July 24 Rescale announced that it had raised a $32 million Series B investment led by Initialized Capital, Keen Venture Partners and SineWave Ventures — bringing its total capital raised $52 million. Previous investors included luminaries such as “Sam Altman, Jeff Bezos, Richard Branson, Paul Graham, Ron Conway, Chris Dixon, and Peter Thiel,” according to TechCrunch.

Ben Verwaayen, Partner at Keen Venture Partners, said Keen invested because Rescale is  “disrupting the high performance computing market. The market is currently 95% on-premise, and Rescale supports customers as they move to hybrid and eventually to a fully cloud native solution — letting them optimize IT resources and enable meaningful productivity and cost improvements.”

CEO and co-founder Joris Poort told me how Rescale came to be. As he said in a July 23 interview, “I have a technical background and learned to code at Next Computer. My parents were academics and I earned a degree in mechanical engineering and math from the University of Michigan and entered the Master’s and PhD program at the University of Washington. I was passionate about applying math to design and went to work on designing the Boeing 787 [about which I wrote in my book, You Can’t Order Change]. I left before getting my dissertation. I then went to Harvard Business School, worked for McKinsey and started Rescale in 2011.”

Rescale was conceived as a way to cut the time it would take to model design changes at Boeing. As Poort said, “We had a 787 design that was too heavy and I had an idea to improve the design using an algorithm. Using all of our high performance computing resources, it was projected that it would take three years to get an answer. Doing machine learning I thought we could get the answer in 48 hours over the weekend. My design took 150 pounds off the 787 wing.”

Since Boeing was not interested in commercializing the software Poort had developed, he decided to found Rescale — but in 2011 investors were interested in social, local, and mobile startups. “Since we were none of these, it was hard to raise money.”

But Poort developed the prototype and “started getting customer feedback from two private aerospace companies that were early adopters [I am guessing SpaceX and Blue Origin]. We targeted early adopters that were on the bleeding edge and got our first customer in 2012 — Boom Supersonic. We were charging on a pay-per-use basis in the six or seven figure range while HPE and Dell charged $5 million to $10 million for on-premise systems.”

Rescale has 80 people — 50 of whom are in San Francisco. It also has an office in Tokyo that works with the automotive industry. The company’s field sales people work with the chief information office and vice president of engineering at potential clients and do paid pilot demonstrations to get customers engaged quickly.

Rescale’s organization structure has evolved over time. As Poort explained, “We had an all-engineering organization during our Series A and B rounds as we worked on product/market fit. 2017 was an inflection point as we worked on our distribution and go-to-market — achieving 30% month-on-month growth through direct sales and partnerships. Now we are 50% on-premise and 50% in the cloud.”

Rescale has changed the kinds of people and processes it needs as it grows. “From 0$ to $10 million we needed different skills and a different organization than from $10 million to $100 million. When we were smaller we gave people the opportunity to step in and reinvent the company. But with our enormous growth in 2017, we need more process and a different philosophy,” he said.

Given that much of its revenue comes from companies that use its service on their own computers, Rescale could be helping the hardware vendors in the near-term. But as they shift more to the cloud, HPE, Dell and the others could suffer an HPC revenue decline.

I wonder whether one of these hardware makers will acquire Rescale.

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