The current turmoil caused by plummeting cloud storage costs, new entrants sporting modern architectures and the forced re-architecting due to flash and upcoming NV memories is a perfect storm for legacy vendors. Some are handling it better than others, but some, like IBM and NetApp, appear to be sinking.
NetApp is signalling that their 2015 sales may not reach expected levels – not a surprise – and that more layoffs – on top of the ≈1500 in the last couple of years – could come soon.
The latest troubling sign from NetApp is the failure of their FlashRay project to ship a competitive product. The VP in charge, Brian Pawlowski, left NetApp for Pure Storagelast month and the company folded the development effort into the ONTAP team.
According to press reports, the FlashRay project started almost 3 years ago, but has yet to ship a competitive product, despite the efforts of 100+ engineers. Given that there’s nothing FlashRay was supposed to do that was terribly novel, the problems are likely political than technical, a conclusion reinforced by placing FlashRay under the ONTAP team.
NetApp has well-known problems integrating acquisitions into their products. Now it seems they have problems developing new products as well. Not promising, given the threatening secular trends pinching their core business.
The secular trends include:
File server obsolescence. NetApp’s original raison d’etre is no longer state of the art – or all that interesting. File servers were a great idea 25 years – like RAID – but newer technology – object storage – is looking to replace them.
Cloud encroachment. When arrays were the only game in town, customers had to buy another when they needed capacity. But now old and rarely used files are moving to the cloud – and the repeat business with them.
Margin pressure. The combination of object and cloud storage – both much less costly than traditional arrays – is waking up customers and producing buying resistance.
A recent note from a disgruntled NetApp customer highlights this issue [edited for length]:
I’m currently engaged in replacing a FAS3240 going off maintenance with a newer version because Netapp offered a deal I couldn’t refuse. . . . [W]hile the drives and shelves are at least not inflated to ridiculous multiples (Why the heck am I being charged even a penny over retail?) they’ve now instituted a $34/TB surcharge to “license” me to use the very storage hardware I just bought from them.
. . . I am incensed at their audacity to charge me a FAT 60-70% margin on commodity hardware. . . .
The reason that customer feels he is being gouged is that the direct sales model is expensive. You pay for your salesman whether you like him or not – and he’s paid a lot more than your local Best Buy clerk.
The StorageMojo take
Bulk file storage hardware is commoditized. The upstart vendors are virtually all software-only, offering tin-wrapped software through resellers rather than direct sales, which saves a lot of margin dollars.
NetApp is in the position that DEC was in the ’90s, where commodity servers eviscerated the VAX business, aided by supply chain innovations by Dell and others.
Servers became a box to be ordered over the phone, not painstakingly configured with a sales engineer and delivered in a few months. Storage is finally following suit. And it doesn’t look good for NetApp.
Courteous comments welcome, of course.