Recently, key members of IBM's tape line of business, including Cindy Grossman who runs the tape P&L, visited Wikibon's offices in Marlborough, MA. The visit was part of IBM's annual outreach to the analyst community and Wikibon was pleased to host the team and learn more about IBM's tape business operations, it's tier 3 strategy, areas of investment, future direction and opportunities for growth.
We have several initial observations about tape in general and IBM's business in particular:
- Tape has been relegated to the data center and the very high end of the SMB market;
- Nonetheless, according to figures from IDC, Freeman and Horison, worldwide tape spending is still large at approximately $4.0 - $4.5B annually. The market is flat to slightly up and IBM is the leader with about one third share of the market. STK appears to have dropped to third spot in this market behind HP;
- IBM's tape line of business P&L also includes IBM products sold through OEM channels (which are excluded in the above numbers) and a partial rollup of IBM's archive business which also reports to Grossman; putting this business well over $1B and closer to $1.5B by our estimates.
- IBM is growing through share gains of the last several years. In the most recent quarter ending June of 2007, IBM's tape revenue grew 19% annually. While not sustainable, this growth rate underscores IBM's strategy to re-capture lost customer footprint and grow the business;
- IBM appears to be aggressively investing in tape and in our view is taking a strong (and much needed) leadership position in the business. Key areas of investment are encryption, increased capacities, virtualization, de-duplication, software/microcode function and archiving. As well, IBM is demonstrating time-to-market leadership in critical areas such as LTO-4;
- Tape gets lost in IBM's large and diversified business. While IBM's services-led approach has its benefits to the tape division, of far greater concern right now is the aggessive marketing of savvy and vocal disk players including EMC and NetApp which espouse a tape is dead scenario with customers. The question remains, can tape industry marketing respond?
In our view, IBM is executing on many of the critical success factors needed for tape to compete effectively. These involve the development of compelling marketing messages and associated actions, which include:
- Tape is green - indeed 95% of all data on tape consumes no power and tape is the greenest of IT technologies (see chart);
- For a variety of reasons (e.g. removability, media life, etc.) tape's strengths are its applicability and cost-effectiveness in many areas including archiving, compliance and disaster recovery-- especially for all but the largest shops which can afford 3-Node Disaster Recovery;
- A response to data de-duplication from disk vendors with the virtualization of tape. Tape companies need to promote the notion that virtual tape without tape is an empty message-- IBM promises such a response before the summer of 2008.
IBM's tape business can point to many firsts and dozens of innovations dating back to the 1950's. IBM's 8TB tape demonstration, focus on encryption and archiving, excellent execution in drives, breadth in automation and experience in virtualization are key examples of its leadership in tape. However we'd like to see even more aggressive leadership from IBM to include a stronger vision of where and how it sees T2/T3 coming together, innovation in products like MAID, use of lower cost SATA devices and faster time-to-market in automation and VTL.
In our view, the old cliche applies to IBM's tape business...its biggest challenge is IBM itself. In the mid 1990's when Lou Gerstner, IBM's then CEO decided to drastically change the company's direction and become a services leader, he made a decision that, while by all accounts was the right one, hurt product-centric businesses within IBM like tape. Specifically, at IBM, it's services first products second. In a time when the tape industry has lost its last pure play innovator in the data center (STK) and needs clear R&D and marketing leadership, this structural edict is an impediment to market domination and will remain IBM's Achilles heel.
Action Item: The economics of tape for many applications are compelling. At the same time, the future of tape includes disk providing performance for more active data and the economy of tape for larger amounts of archival information. This enables data movement directly from disk to tape without taxing server or appliance resources. Tape users and vendors must develop strategies to bring together tier 2 and tier 3 storage capabilities, borrowing HSM concepts, software capabilities and processes from the mainframe world and aggressively applying them where appropriate to open systems.
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