Originating Author: David Vellante
In his closing remarks at the NetApp analyst briefing, CEO Dan Warmenhoven suggested that NetApp essentially believes the storage industry is segmenting along more focused lines of competition, and the pure plays are going to win.
One could take this argument to the extreme and posit that the marginal economics of hardware (60% gross margin), software (90+% gross margin) and services (30%) are so different that competition along those lines will emerge and further segment the business leading to a highly dis-integrated(1) storage business dominated by ‘pure plays’ in a business model sense. In such a theory, Symantec, et al, would have the advantage in storage software, folks like NetApp and EMC in storage hardware, and IBM in storage services.
It’s doubtful this is what Dan meant because he’s a CEO and not prone to comments that weaken his argument for world domination by his own company. So if by ‘pure plays’ Dan means companies focused solely on storage, does that suggest for example that, all things being equal, 3PAR as a pure play has a higher chance of success than say EqualLogic, because the latter company is now part of a server (or distribution) business model? This sounds like a stretch.
One could observe that the storage business has reached a kind of business model equilibrium where previously, independent business models such as EMC’s totally destroyed the highly vertically integrated models of IBM, Digital, HP, Fujitsu, and Hitachi. And we’ve evolved to a business where within a market segment like storage, certain rules of competition are clear: Don’t make your own disk drives (Hitachi notwithstanding) but rather blend requisite and synergistic businesses (hardware, software and services) necessary to compete and service enterprise customers to achieve competitive advantage. This means server vendors like IBM, HP, Sun and Dell, while not as storage-centric as EMC and NetApp aren’t at a business model disadvantage because what they lack in storage focus they can offset with complimentary server and services leverage.
Focused business models in and of themselves aren’t likely to change this dynamic. This means that companies like NetApp had better continue to invest in services to compete in the enterprise, despite the economic differences in business models.
What will change this balance? Perhaps the consumerization of IT and the Google File System. This discussion sounds academic, but don’t think John Akers, Bill Gates, and Andy Grove would necessarily agree.
Action Item: Since the advent of microprocessor-based computing, the dis-integrated structure of the IT business has changed subtly. Competition still largely occurs along focused and segmented lines. While the Internet has loosened Microsoft's and Intel's monopolies, the real story is Google's domination, which is centered on consumerization and is poised to impact the traditional enterprise space. Suppliers and customers alike must consider the consumerization of IT, what it means to their businesses and respond accordingly.
Footnotes: (1)Author David Moschella popularized the notion of a dis-integrated IT industry in the 1980's, a concept that is now widely recognized as the fundamental explanation of the transference of IBM's monopoly power to Intel and Microsoft.
