Moderator: David Vellante
Analyst: Nick Allen
Early last week, NetApp unveiled a new look, a new name, and a new emphasis on gaining share in a total available storage market it estimates at $84B. NetApp believes it serves half of that market and, in a page out of Jack Welch’s legacy, has a stated goal of becoming #1 or #2 in that space. With a projected $4B in FY ’09 revenue, the company appears well on its way. Furthermore, in the largest segment of the market, networked storage hardware, NetApp’s CEO Dan Warmenhoven shared IDC data that demonstrates that on a manufactured basis NetApp is poised to surpass Hitachi for the number 2 position, still approximately 20 points behind EMC’s leading 34% share.
NetApp’s operational plan to achieve and measure this goal is to increase brand awareness and feet on the street to penetrate what it calls the Storage 5000, a proprietary list NetApp has compiled of the world’s 5,000 largest storage consumers. Amazingly, despite its 14-year history, strong reputation, and excellent products, NetApp does no business with 73% of the Storage 5000 and is only deep into 10% of accounts on the list. NetApp’s immediate opportunity is to further penetrate the remaining 17% of this base that does only modest amounts of business with the company.
What is NetApp’s fundamental go to market strategy? The premise of NetApp’s value proposition is dead simple and extremely powerful: Storage is growing at 50% per annum, and budgets are flat to down…so help customers store more for less. NetApp is claiming that up to 75% reduction in storage capacity is possible. The company’s strategy assumes that efficiency wins and is placing its bets squarely on the following investments:
- Storage for server virtualization. NetApp claims to have added storage support for what Wikibon believes is more than 5,000 VMware server instances this year alone and is aggressively pursuing a VMware land grab strategy;
- Breadth of offering to include storage virtualization, thin provisioning (FlexVol), data de-duplication, file consolidation, disk-based recovery, remote replication, cloning, ATA support, and multiple connectivity choices, all in a single, unified platform;
- Add 1,000 feet on the street and enable the channel by transferring intellectual property, including services capabilities to the channel to broaden support, strengthen awareness, and better service customers.
What is NetApp’s vision for what storage will look like in the future? Fundamentally, NetApp is committed to reducing the amount of storage users require. As a stated strategy, this is unique in the storage business and supports a compelling vision. Today’s applications are largely supported by vertically stovepiped infrastructures optimized at the behest of application heads. While this will continue for the most demanding applications, increasingly customers are looking to put in place more efficient (horizontal) platforms that can flexibly support a wider variety of applications. What is authentic about this vision is that instead of laying out a scenario where ALL applications standardize on NetApp infrastructure, this view acknowledges that there will be 'zones' of infrastructure established to do the job most effectively. In essence, it underscores the fact that there's an opportunity to clean up big chunks of inefficiency in the data center while certain applications will continue to require best-of-breed optimization for performance, recovery, security, and business resilience and will be tuned vertically within the infrastructure stack.
The implications of this approach for storage architects and admins is a more services-oriented view where storage provides re-usable services across a variety of applications and is optimized for efficiency by reducing suppliers, standardizing on service offerings, and, while limiting the choice of application heads, dramatically simplifies storage procurement, installation, provisioning, migration, and retirement.
Will NetApp’s strategy work? In pursuing this strategy, NetApp has created a strong portfolio of excellent capabilities that Wikibon believes collectively represents a suite of offerings that is unmatched in a single product architecture. Combined with the company’s emphasis on simplicity, this is a powerful mix that, if marketed more aggressively, will help NetApp continue to grow ahead of the industry average. On balance, the Wikibon community is impressed with NetApp’s approach but believes that, to be effective, its branding campaign, which adds two points to OPEX, must be consistently pursued over a multi-year period. To the extent that NetApp’s investments don’t allow it to grow back to its business model by the second half of FY ‘09 (i.e. OPEX as a percent of revenue settles at 45%), the plan faces risks.
In addition, the NetApp analyst event highlighted several “don’t haves” that NetApp must address in the near-to-intermediate term. First and most obvious is the fulfillment of a goal to increase sales headcount by roughly 1,000 (for a total of 3,000). Scalability remains a concern for NetApp customers as ONTAP 8 (or beyond) is eagerly awaited to support more than a two-node cluster, and few details were provided as to when this capability is expected and what form it will take. This will also have implications for the company’s remote replication strategy, which, while competitive with offerings from modular array companies, continues to be perceived as substantially less robust than offerings from EMC, IBM, and Hitachi, although admittedly Wikibon needs to do more research in this area. Finally, NetApp paid little or no mention to storage for so-called Cloud Computing and does not appear to be going after consumer markets at this time.
Despite this white space, Wikibon believes NetApp’s value proposition is compelling and attractive for users and we expect the company to continue to grow at a rate faster than the marketplace.
Action Item: Users that are large NetApp customers have enjoyed the benefits of simplicity and cost effectiveness for quite some time. Non-NetApp users should consider NetApp solutions but be aware that while the company has a comprehensive suite of storage offerings, the most demanding Tier 1 capabilities must be found elsewhere. Users that have modest experience with NetApp are in the best position to leverage a soon-to-be-released bevy of free SE services that NetApp will deploy to move these customers from light to heavy NetApp users.