Every year, Network Appliance [Stock ticker:NTAP] hosts a small dinner, such as the one Wednesday night: four top tier business journalists (Wall Street Journal, Barron's, Reuters and Silicon Valley Watcher of course :-) and the CEO Dan Warmenhoven and co-founder Dave Hitz.
It is always good value because you get to hear about a side of the IT industry that is a critical, and possibly the most crucial component of an organization's IT infrastructure. NTAP says it is server vendor neutral.And whether you agree with NTAP's point of view or not, the executives represent themselves and their company extremely well.
NTAP is one of those companies that knows what it does, and is very self-confident in where it is heading. And after chatting with Mr. Warmenhoven and Mr. Hitz, I think NTAP might very well have positioned itself in the sweet spot of the enterprise data storage industry.
Lots of M&A ahead
Surprisingly, the enterprise data storage industry is an interesting sector, one that is not yet as mature as, say, network communications, and so there is still a fair amount of maneuvering to be done in terms of strategy and acquisitions. And over the past year I've gotten to speak with some of the more interesting startups in this sector, and also some of the top executives at the big companies.
Tuesday I was chatting with David Scott, CEO of 3PAR, a very interesting data storage startup, expert in "thin provisioning." And earlier this year, on my blog Silicon Valley Watcher I interviewed Michael Workman CEO of Pillar Data Systems, another enterprise data storage startup, (Larry Ellison funded.) And I had dinner with top execs of the EMC Software group earlier this year. And I've spoken many times with IBM and Sun on the subject.
So I've heard quite a few pitches and I've heard the different strategies those companies are following. NetApps is definitely pursuing an interesting strategy, but is it a killer strategy? Maybe. Let me tell you about it.
Let me get straight to the point. NTAP is betting that data storage is going to be the key choke point in the battle of the IT vendors. It's all about whose software will run the data center of the future, who will be the Data Center Operating System provider.
This means having robust server and data storage virtualization software, it means having top-notch operations management software, etc, and all within a scalable utility computing architecture.
IBM, HP, MSFT, Oracle, Computer Associates, SAP, EMC, Sun Microsystems, Symantec, NTAP and others, would like to be in pole position and own/provide as much of the data center operating system software and hardware as possible.
Servers are cheap and not critical
The strategy IBM, HP, Sun, are taking is server based. Dan Warmenhoven claims that those companies cannot sell storage systems effectively, because they have a server business to defend. It is not in the interest of those companies to sell data storage systems that interoperate with many platforms.
NTAP says it is server vendor neutral. And that being focused on the data storage equipment, it is the best position to steal a base or two in data from its server-centric competitors. EMC has a server strategy through its VMware server virtualization group.
Here is Mr Warmenhoven's reasoning: "Servers are not critical to your business, they run applications and if they go down, you provision another one. But your data storage system has to be there all the time."
Dave Hitz adds: "The most risk-averse IT buyer is the one that buys the storage systems. There is no such thing as a slightly corrupted data file. You cannot run a business unless you have full and easy access to your data."
Therefore, data storage equipment is the most critical component of an organization's IT infrastructure. Therefore whoever controls that interface--between the data and the servers--will control much of the future data center operating system.
And that could very well be NTAP, quietly building a strong position in what could be the sweet spot of the market, as its rivals pursue a server centric business strategy.
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BTW, here is some link-love to Dave Hitz, who is a keen blogger. He's very pleased to have recently hit a Google PageRank of 6.
Also, here is an interview with Dave Hitz, calling me from Washington D.C. on a recent trip to visit legislators discussing data protection laws.