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Some thoughts on the storage industry, and whether it will be a gorilla game or royalty game, and where EMC and Network Appliance fit into all this. Constructive feedback would be appreciated.
Up until recently, storage has basically been attached to an individual server, and a given network with various servers could have storage from a number of various storage vendors involved. And there was not a high cost of switching to a different storage vendor for any new server added to one's network. Under this paradigm, storage was clearly a royalty game, which has as its King EMC.
Recently, however, there has been the beginnings of a paradigm shift. The new paradigm has freed the storage from any individual servers, and placed them on their own within the Storage Area Network (SAN). Although I believe this paradigm has clearly crossed the Chasm, I am not sure if it has truly hit the Tornado (if anyone can show numbers to suggest it has, that would be helpful...looking for SAN revenues to be increasing in the ballpark of 100% year/year). At the current time, any given vendor's SAN is NOT compatible with other vendor's. And these are VERY expensive installations. So, currently, we have an assortment of proprietary technologies, and they are associated with high switching costs.
Now, there is a movement underway to develop standards which would allow SAN's to allow products from the various storage vendors to inter-operate. This would effectively reduce, if not eliminate, any switching costs. Apparently, these standards are at least two years away.
So it seems to me that the crux of the issue as to whether the SAN market spawns a gorilla vs. a royalty game hinges on the timing of the SAN tornado in relation to the development of common standards. That is, if the tornado preceeds the development of common standards, and consumers have to go ahead now and pick a particular vendor, and assuming one of those vendors assumes a leading market share (can one imagine anyone other than EMC taking that spot????), then that company would be a true Gorilla: proprietary technology of an enabling technology with high switching costs. On the other hand, if there are common standards in place BEFORE a true SAN tornado, then it will play out as a royalty game (again, EMC seems likely to be the King in that senario).
Now enter network-attached storage. Again, this is a paradigm shift compared to server-attached storage. However, with this paradigm, the technology is inherently plug-and-play, and there are NOT high costs of switching. (Some have previously responded that once a consumer picks a certain vendor of quality, such as Network Appliance, that they are very reluctant to bring in a second vendor...but this is NOT "high costs of switching" in the Gorilla Game sense). So although a company such as Network Appliance has market leadership and a superior product offering, this is still destined to be a royalty game. Now, looking at the stock price performance of Dell and EMC during the 90's, it is clear that royalty games in the appropriate tornadoes can still produce amazing results, but these are still not gorillas.
A huge question, and one I am still trying to sort out, is whether or not SAN's and NAS are complementary or competitive. It may not be either-or. I do have concerns that as network bandwith improves, particularly with Gigabit Ethernet, that the need for the extra cost of a separate fiber-channel network for storage to ease network traffic will become less compelling. If this becomes the case, what will a SAN have to offer that NAS--which is otherwise much simpler and cheaper, and therefore more attractive--does not???
I believe that there will clearly be an enormous market for NAS (and internet caching) and that therefore Network Appliance (currently the uncontested King in this area), despite being involved in a royalty game, will do terrifically well, similar to Dell with the PC royalty game.
To me, there is more uncertainty with EMC. This uncertainty is primarily due to the issue of whether or not SAN's will have a huge market in the face of broadband networks in the future. Clearly if SAN's do develop a huge market, EMC will do great (regardless if SAN's spawn a gorilla or royalty game). However, if NAS stuck onto Gigabit Ethernet broadband networks dominate the storage industry, then EMC will be more dependent on stealing market share from Network Appliance for its success.
Clearly the storage area overall will produce enormous profits for someone.
Again, I would appreciate constructive feedback on these issues, as I, and I'm sure many reading these boards, are still trying to sort this all out.
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