Back in May 2011, commenting on a financial quarter that had seen sales increase 11% to $1.3 billion, NetApp CEO Thomas Georgens was in a bullish mood.
Asked by an investment analyst whether the launch of rival storage provider EMC’s new VNX midrange offering posed a challenge to the company, he said “nothing’s really changed here”. “I think what it … does is it actually creates separation of us and EMC from the rest of the pack,” he said. “Such is the cadence of [EMC and NetApp] that it’s going to be more and more difficult for the rest of the storage industry to keep pace.”
This portrayal of the storage sector as a two horse race was one that NetApp’s UK managing director Dave Allen is happy to indulge. “HP and Dell are the biggest marker share losers in this space,” he says. “[Market research company] IDC have them losing double digits against the market.”
He sees recent storage acquisitions by the likes of HP (3PAR etc.) and Dell (Compellent etc.) as last-ditch attempts to stem their market share decline, attempts that are “not working”.
EMC is less convinced. “We have a number of competitors in all the various storage markets,” says UK MD James Petter.
IDC’s latest figures from the external disk systems subset of the storage market, published after Information Age spoke to NetApp’s Allen, support EMC’s view. NetApp’s share fell from 13.5% in the second quarter of last year to 12.8% this year. Meanwhile, IBM grew from 12.2% to 13.7%, overtaking NetApp’s number two position. EMC was way out in front with a 28.7% share.
Nevertheless, NetApp is keen to market competitively against EMC. One of the factors currently driving storage spending is virtualisation, as many organisations are finding that their legacy storage infrastructure sits ill-at-ease with virtualised servers, limiting the degree of consolidation and automation they can apply in the data centre.
EMC is the majority shareholder of virtualisation market leader VMware, and argues that this gives it the advantage in selling storage to VMware environments.
“In cloud and virtualisation, our ownership of VMware is the greatest differentiator we have,” explains Petter. “We know VMware far better than any other provider, and that is reflected in the points of integration between our products.”
It seems a solid argument, but NetApp’s Allen is prepared to take it on. “Despite their ownership, we have integration with VMware, we have joint development teams, we have unified support on our products,” he says. “And we win [customers using] VMware all over the place.”
“One of the core reasons is the cultural similarity between us and VMware,” he adds. “VMware are culturally more similar to us than they are to EMC.”
He also adds that Microsoft’s Hyper-V virtualisation platform is finally making inroads in customers’ data centres.
Allen says NetApp’s partner model plays to its favour. “In terms of us versus EMC, our ability to partner will be a competitive differentiator in that race. We don’t compete with our partners”, he says, implying that EMC’s breadth of offerings complicates its reselling partnerships – a familiar argument from independent providers.
Overall, though, Allen concedes that the real race is product innovation. “We’re number two in that two horse race, and that means we need to do something different.”
He points, therefore, to spending on research and development. “EMC spends $3 billion plus on R&D, which is a serious amount of money, and we spend around $500 million,” he says. “But we’ve got fewer products, and all of our R&D spend goes on one unified architecture. I believe we will win by out-innovating.”
Although not responding specifically to Allen’s comments, EMC’s Petter nevertheless remarked that “our financial stability to invest in R&D is another one of our differentiators”.
NetApp has its work cut out if it is to threaten EMC’s dominant position of the storage space. Although Allen dismisses recent acquisitions by Dell and HP as mere market share buys, the prices they were prepared to pay for them – especially HP’s 160% premium for 3PAR – suggest storage is not a race they will give up on easily.