From the Too-Little, Too-Late Department
Eyes glazed over at the news that Brocade is buying McData. The Wall Street Journal reported (subscription required), that Brocade CEO Mike Klayko told analysts that “customers are frustrated by equipment that doesn’t work together well.”
Well, duh. Network equipment? Double duh.
The Wages Of Sin
Fibre Channel has never fulfilled its early promise. Partly because it isn’t quite a network – it’s a channel – and mostly because everyone imported storage business tactics. The chief tactic: minimal interoperability with other storage vendors to ensure lock-in.
The problem is that applied to a network, vendor lock-in means you don’t get the advantages of network economics. In a nutshell, the value of the network increases as it grows while the cost of connecting drops. That is why all networks get linked: the interconnection cost cheap compared to what has already been spent, while the benefits are huge. Have you heard of Cisco?
Virtuous Cycle Of Network Economics
A single telephone is worthless. Two connected telephones is more valuable. A billion connected telephones is invaluable. And due to learning curve effects the cost of that billionth telephone is much lower than the first.
Fibre Channel Inflection Point
Consolidation usually occurs in maturing industries, as it has in disk drives, for one or more of several reasons, such as increasing capital intensity (semiconductors), economies of scale (automobiles), or acquiring customers (soft drinks). In this case though it is happening because Fibre Channel is beginning a long decline.
Customers have seen an anemic ROI for their billions in FC investment. Without network economics, FC cannot compete with Ethernet over the long term. And now the long term has arrived.
Can This Technology Be Saved?
Not likely. Ultimately, it is the folks that connect to the network who must decide that compatibility is in their interest. Remember IBM’s very silly anti-Ethernet Token Ring network? IBM pushed it hard and lots of their most trusting customers bought it, only to face a painful migration a few years later. That is how you turn trusting customers into suspicious customers.
Storage vendors do not believe in interoperability, do not support it, and have no interest in encouraging mixed vendor FC infrastructures. So design and management is unnecessarily painful and expensive.
On the ethernet/IP/iSCSI side of the house however, compatibility with the network is the only option. Network and semiconductor economics are implacable. In ten years, Fibre Channel will be one of those legacy technologies used only where niche economics or customer sentiment dictate.
In the vein of ethernet/IP/iSCSI, what’s your opinion of Coraid (http://www.coraid.com/)’s ATA-over-Ethernet stuff?
PJ, I’ve looked at Coraid’s stuff and plan to post about it later this week. Thanks for the pointer.
This came in an email from JM:
I agree with you that the Brocade/McData merger is not strategic, but I don’t agree with your comments on fibre channel in general. The technology has proven extremely useful to many corporations in solving problems connecting storage and has grown into a $2B plus industry. The biggest industry problem is the fibre channel switch vendor’s OEM business model with the top six storage vendors who monopolize 75% of the storage business. Imagine if you could only buy a router or Ethernet switch from the local telephone company. I’m guessing it will take an unusual business transaction, like Cisco buying EMC, Sun or HDS buying Brocade, not a technology innovation, to change the industry.
JM, I probably didn’t make it clear, but I do regard network topologies as useful, and FC is one of those. Yet as the product manager for the industry’s first full FC array, I also think that FC could have been so much more than it has turned out to be.
That’s why I believe FC is in the process of losing to 10Gb Ethernet. Not because of technology, but because the industry has been shortsighted. Ethernet has compelling economics; FC much less so. Those economics are largely the result of the decisions of the players.
Yet this is even bigger than the storage companies. No one smart will buy EMC – they are in the process of putting themselves out of business. Networks are open. Storage is closed. Open will win. Not overnight, but it will. Network economics are driving it.
Robin – If the fibre channel is truly dead/dying, why is Cisco making such a big push in this segment? Also, it looks like the recent actions out of the DoJ do not share your sentiments – they are investigating the merger between Brocade / McData for antitrust concerns.
My opinion is that Brocade/McData lack pricing power in light of who their OEMs are and the fact that Cisco is breathing down their neck. Also, it seems like QLogic is making a push into the director switch segment also. Based on this, I was surprised to see the DoJ request additional information regarding the merger.
Any thoughts on what could be going on here?
Vik,
Good questions all. Here’s my early morning take.
FC is the Monster Cable of high-end storage. It is the high-margin interconnect that makes a great add-on sale. That is the key.
FC is far from dead, yet I see an approaching tipping point. IT hardware is largely consumer (i.e. volume) driven today, a trend storage companies have long resisted even while complaining about it. FC is not a consumer technology, so it is vulnerable. Ethernet is – my little laptop has Gig-E on it – so it has volume and a bunch of folks chasing 10 Gig-E. Plus a rapidly swelling demand for iSCSI that is driving all kinds of investment, especially by customers who are learning about it. So my forecast for FC is, as I said above, a long decline, beginning in 2-5 years, not a collapse.
So why is the DoJ is interested? Well, they’ve scored a mighty big success on the DRAM price-fixing scam, so I think they kind of like storage. FC certainly doesn’t look like it has followed the classic network technology pricing curve – the margins are rich and price declines relatively slow – and there are just a few suppliers and a few OEM buyers, all of whom are well positioned to keep prices and margins artificially high. So if someone is flouting the Sherman Act, this is a good place to look.
Personally I think it is more likely that everyone involved decided that FC would never be a consumer volume technology, so they all independently decided to keep it a lower-volume, higher-margin product. That suits the array vendors, who are also the big FC OEMs, and isn’t a big problem for the large enterprise data centers either, since FC is a small part of their total capex. So the DoJ sees smoke, is thinking fire, and won’t find any.
Robin