Gus I want to thank you for all your great posts to date. You are one of the few (that I know) qualified technally to comment on the following post from the NTAP Board. I have been long on EMC for quite some time and do not own any NTAP shares.
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Here is my network Appliance report from Soapbox.com:
See my previous post for more details.
Network Appliance (NTAP)
Market
As the Information Revolution shifts into high gear, it is becoming increasingly difficult to accurately predict where the new technologies will lead. Something that we do know for certain is that IT will dominate our lives. Now we must ask ourselves, where are we going to store all of that information? The Internet, for instance, is getting huge. As more companies move online, the need for efficient, reliable storage will grow at an exponential rate. Corporations are finding that knowing more about their customers is a key competitive advantage. Where are they going to store the information they compile about their customers?
Over the last decade, we have watched as investors grew fascinated with the rise of the microprocessor and bought Intel. They became fascinated with networking and bought Cisco. Now it is likely that they will become fascinated with storage and buy companies like EMC, Veritas, Brocade, and Network Appliance.
The appetite of data is unquenchable; it expands to fill whatever storage space is available. Suppliers of storage equipment and applications seem to have found an industry with almost limitless potential. A succession of industry research reports suggest that the market for data storage products will rival the market for computer systems in value over the next few years on the back of a compound annual growth rate of over 60%. Storage capacity is growing at 100% a year and is expected to account for 75% of computer hardware spending over the next 5 years. It is the Internet and specifically e-business and the volume of data it generates that is driving the growth in the storage market. Companies are re-centralizing processing and storage requirements to meet the demands of running and maintaining e-businesses. A high level of continuous availability is key, no availability means no company. According to international Data Corp. (IDC), the total installed terabytes of storage worldwide has grown from 20,000 terabytes (terabyte = 1,000 gigabytes) in 1993 to 3 million terabytes in 2000 and there's no end in sight.
Competing Technologies
There are three main models for storage. Right now, most storage is in a hard drive that is attached to a server or desktop machine. This type of storage is known as Server Attached Storage (SAS). In this case, the storage is the slave to the processor/server master. The second model is the Storage Area Network (SAN) model. Here, a network of storage devices such as hard drives and tape drives is set up and attached to the server with specialized software and hubs. The final model is the Network Attached Storage (NAS). Here, there is a central stack of storage that many servers connect to. In effect, the slave has become the master.
Server Attached Storage (SAS)
Early mainframe storage designs took the premise that disk storage, which was cheaper than main memory, could be treated as an extended virtual memory. To achieve the fast data, access, the data paths (or channels) between storage and processor were widened and accelerated. SAS architecture dominated the scene for many years.
The primary handicap of SAS comes from the tight coupling between storage and the operating system. These general purpose servers perform a variety of tasks concurrently, from running applications, manipulating databases, file/print serving, providing communications and checking data-integrity to many housekeeping functions. This means that all data access requests from a client must continuously compete with these tasks. As the number of users accessing the common centralized data storage increases, the file access takes a back seat to other tasks leading to slow response time for queries. Since this configuration does not permit sharing of storage resources between servers, bottlenecks occur when demand for one system can't be offloaded to idle resources of other systems on the network.
Alternatives
Suppliers of discrete storage hardware and software products believe users will increasingly purchase storage separately from computer systems. A dedicated storage system will depend less on the server CPU, which must handle other tasks in addition to routing data. A storage system can be designed to perform more specific functions. It can be extended and managed independently which eliminates many of the I/O bottlenecks imposed by running storage applications on general purpose operating systems supported by traditional servers.
As mentioned above, when choosing how their data is to be managed, there are really two alternative storage choices emerging in addition to conventional server/storage combinations. Suppliers of storage area networks (SAN) and network attached storage (NAS) equipment each claim they are best placed to service the storage requirements of e-business. SAN and NAS, are together expected to account for half of the storage market by 2005 with traditional storage networks accounting for the remainder. IDC estimates the NAS market alone will be worth at least $5.1 billion by 2003, up from $540 million in 1998. As incredible as that sounds, IDC estimates are not even at the high end of predictions. Market research firm Dataquest Inc., expects sales of NAS devices to hit $10.5 billion in that time. Many believe that computers should not be file servers at all, they're awkward to manage because they were designed for some other purpose, mainly computation. Both of these technologies are faster, simpler and more reliable because they're customized to this set of application requirements, being mainly information and data access. Most people seem to have trouble believing that these technologies will provide information access over a network faster than a local disk in most cases. Because of this technology shift, the bottleneck has now become the disk drive itself and no longer the network interface.
Network Attached Storage (NAS)
NAS appliances are specialized servers optimized for file sharing. These appliances attach directly to the LAN and enable IT departments to efficiently expand network storage capacity at reduced cost through specialized designs. NAS is a system independent, shareable storage that is connected directly to the network and is accessible directly by any number of heterogeneous clients (ie. Unix, WinNT, Netware or Linux) or other servers. NAS file servers are essentially stripped down servers specifically designed for file serving and offloading file management services from the more expensive application servers. Unlike with SAS technology, where the system administrator has to take down the system in order to add storage, with NAS, you can add storage at random without disrupting the network. As business operations become more global and around the clock, more and more applications are demanding 24X7 uptime. NAS provides 99.9% availability (8 hours per year of downtime) and in some cases, can provide 99.99% (1 hour of downtime per year). NAS devices are also relatively easy to set up with simple plug-and-play devices requiring no server downtime. After plugging a NAS server onto a network and assigning an IP address, setting up control lists and user permissions, it's done and accomplished in as little as 15 minutes. This is because the NAS server boards integrate the Ethernet connection, the SCSI (or Fibre Channel) controller-to-disk connections, the operating system and boot up software all on one simple card. The new system now allows clients to directly access data without burdening the application servers, greatly enhancing the performance of the network.
One of the major shortcomings of NAS storage architecture is that the network on which NAS runs is also used for access by clients to retrieve data from the file server or to communicate with application servers. The data movement between the disk and tape servers also goes over the same LAN. This can potentially create network bottlenecks when the number of users increases and because NAS runs over the LAN, it also moves at that slow speed. While NAS works well for documents, file manipulation and transaction based applications, it is not necessarily most advantageous for database applications because it is file-oriented. Also, for high bandwidth video applications, NAS slows down since the shared network on NAS gets clogged fast with multiple large files.
Storage Area Networks (SAN)
A SAN is a dedicated high performance network to move data between heterogeneous servers and storage resources. Being a separate dedicated network allows it to avoid any traffic conflict between clients and servers. Adopting SAN technology through the use of Fibre Channel and hubs and switches allows high speed server to storage, storage to storage or server to server connectivity. By using a separate network infrastructure it mitigates problems associated with existing network connectivity. SANs also have the potential to allow cable lengths of 500 meters today and up to 10 km in the future, so servers in different buildings can share external storage devices. In a SAN, while data requests are still processed similarly to other systems, the storage boxes themselves are completely detached from any individual server, and can be miles away from them. SAN enables concurrent access of disk or tape arrays by two or more servers at high speeds across Fibre Channel, providing enhanced system performance. Data moves at the faster speed of Fibre Channel rather than the Internet-type speeds of the LAN.
One of the shortcomings with SAN technology that needs to be sorted out is whether Fibre Channel or Ethernet will be the standard. EMC sees FC and Ethernet coexisting for some time but believes the new SAN standards will not deliver interoperability. They believe the standards are too high-level and do not specify the implementation detail needed. One vendor's products will most likely not work with others (unless you are using only vendors from EMC's Fibre Alliance). For instance, a company cannot go out and purchase a SAN from EMC and then purchase a second one from Compaq, they won't run in the same Fibre Channel network. At present, this system does not offer interoperability between operating systems either. If a storage pool is connected to the back-end of a UNIX server, the only applications that can make use of the files are those running on UNIX servers. This is true for all operating systems, including Windows NT, Novel Netware, Unix and Linux. Cost is another problem with SAN technology, companies must install an entirely new storage network in order to implement SAN, something that could cause some reluctance in the marketplace.
And The Winner Is...
Both NAS and SAN have their strengths and weaknesses. SAN's for instance, have a speed advantage over NAS because they operate on a separate and (at present) faster Fibre Channel network while NAS uses the existing LAN. This difference will become less of an issue as companies begin deploying new gigabit Ethernet technology which is 10X faster than the present LAN. There is also growing awareness of the coming of 10 gigabit Ethernet, likely two years away and another ten fold increase in speed. This will be a significant boost to the NAS value proposition and increases its prominence in enterprise storage architecture. The typical SAN installation issues block level commands directly into the Fibre Channel, doing away with the protocol layer (IP) of NAS solutions. Generally it is better to work with these commands for large sequential data applications, such as streaming video, since block level commands are more efficient and large amounts of data can be moved with little overhead. With Fibre Channel, the largest individual data packet is 125 MB, much larger than the 1.5 KB size of Ethernet. Therefore, when a corporate LAN requests a 10 megabyte video file over an Ethernet connection, it must immediately be broken down into 1.5 KB packets sent along the network and then reassembled at the other end. With Fibre Channel, that file could be sent as a single packet alleviating the servers on both ends of the processing time required to break the file into smaller packets and then to reassemble it. An advantage for NAS is that it is ready now, SANs are not. Today's SANs limit buyers to products from one or two companies. In contrast, NAS avoids the interoperability issue by accessing files through standards such as Ethernet and NFS and CIFS file systems. NAS is so simple to deploy that customers can trial the product before buying, a relatively difficult chore with SANs. Increasing data volumes and complexity are causing many companies to consider outsourced storage from vendors like Storage Networks. NAS could well be a fixture among such service providers.
It's my belief that in a head to head battle, the simple NAS appliance should beat complex SANs over the long term as the superior storage standard. George Gilder's storewidth view argues that NAS "wastes" the "cheap" technologies of drives and bandwidth while SANs depend on more expensive microprocessors and labour. In his view, as with bandwidth so with storewidth, abundance trumps intelligence every time. There will not be a need for specialized storage networks if the general network can easily support key storage applications such as the backing up of data. For most e-commerce companies, cost plays an important role in product decisions and for these companies NAS will be the obvious choice. Does this mean that SANs are doomed over the long term? Not necessarily, for the high end customer where price is less of a factor, many have touted a combined NAS/SAN combination as the optimal storage solution. While today SAN and NAS are often thought of as alternatives, most vendors on both sides consider the technologies to be complementary. Even IDC breaks out NAS and SAN in its projections. NAS and SAN are each projected to grow at a 66% compound rate through 2003. Although the combined NAS/SAN market is only 8% of the market today, IDC projects it will grow to 34% by 2003 and many believe this projection to be too conservative. Nevertheless, as NAS operators continue to scale their offerings, they have begun to eat into the bottom portion of SAN's market and there is no reason why this will not continue as the speed and size of NAS offerings continue to grow.
For the dual market, NAS and SAN are converging into a combined world running IP (over Ethernet). In order to capture both of these growth markets, vendors are looking to run file and block level commands over IP. This will give users much more flexibility. As I stated above, although Ethernet may not be as efficient as Fibre Channel for certain applications, the massive growth in Ethernet performance in the next couple of years will make this a non-issue for the large majority of applications. Customers will be able to run HTTP, e-mail, database, video and OLTP applications over an increasingly fast IP network. In this combined world, every storage device is attached to the network. Some devices, however, will take in file commands (ex. NetApp filers) and some will accept block commands (ex. New EMC Symmetrix). This combined world should significantly accelerate the growth of the NAS/SAN market. What makes this combined world attractive is that:
1) Customers already know how to operate an Ethernet network
2) The network environment is good at both file level commands and block level commands and there can be one network that is used for everything
3) Filers from different vendors can operate on the same network.
4) D-WDM-based IP networks of the future can be exploited as soon as they become available.
In early 2000, a group of vendors announced completion of a project that will enable IT managers to back up a NAS device to a tape library on a SAN without sending data over the LAN or through a server. The group certified an IT architecture that starts with a Network Appliance NAS filer equipped with a new Qlogic Corp. Fibre Channel host bus adapter. The adapter enables the filer to attach to a Vixel switch, which would connect to a SAN with Quantum or Spectra Logic libraries on it. The companies modified their hardware and software to work with each others' offerings and have certified interoperability.
The basic conclusion here is that NAS will dominate the majority of the market with its more economical solution. Network Appliances' NAS product NetApp had an average selling price last year of $80,000 per system while SAN solutions from the likes of EMC can often cost well over a million dollars. At the higher end of the market customers will use a combination NAS/SAN solution.
The Company
Now that I've finally clarified the two competing technologies and which is superior, we must now focus on the company that is best positioned to take advantage of this exploding market, Network Appliance. Network Appliance has been a leader in network attached storage since 1992. They pioneered the appliance concept for the network, laying the foundation for the growing industry trend toward specialized products that perform a single function.
Products
Network Appliance offering in the NAS market is the NetApp filer which is by far the most robust and popular NAS product on the market. Their filers are designed for the utmost in scalability, manageability and data availability. Using the most powerful components of any file server in its class, Network Appliance's flagship product, the NetApp F700 series, consistently outperforms the competition on every front. It has over 99.99% availability and scales from 50 gigabytes to multiple terabytes. The company also offers scaled down versions (F760, F740 and F720) depending on the customer's needs. Another great advantage of the system over its competitors is something called WAFL (Write Anywhere File Layout) which is a patented file system that accelerates write operations to disk, maintains a completely consistent on-disk file system image and reboots in 1-2 minutes.
Another product offered by Network Appliance is Netcache. Netcache competes in the Internet Caching market. According to the 1999 Internet Caching Report, released by Internet Research Group, Network Appliance was ranked number one in caching appliance revenue in 1998. The report concluded that Network Appliance had a 28% share of the caching market for that year. This market is expected to explode over the next few years reaching $2 billion in 2003, according to IRG. What exactly is Internet caching? Basically, it's the process of storing information physically closer to users so that ISPs that deliver content don't have to go back to the source every time someone requests that content. In the real world, it's akin to finding ways for a magazine distributor to deliver numerous publications to a news stand so that a merchant doesn't need to phone the publisher every time a customer wants a copy. For a while, the conventional wisdom was that Web performance would improve as soon as the average user acquired more bandwidth, eliminating downloading delays. But it turns out that all sorts of things clog the system, from inefficient traffic management to insufficient computing power. As bandwidth continues to grow, latency will become an ever increasing problem, no matter how much bandwidth is increased, it still cannot reduce the length of time it takes a data packet to move from one location to the other. The only solution to this problem is to physically move the information closer to the user. If a student in New York is trying to access information from California, the only way that latency will be able to be improved is by actually storing the information closer to New York on a Web caching server. Since everyone is still desperate for faster Web access, there will continue to be an growing demand for Web caching. The Network Appliance NetCache is well positioned to capitalize on this expanding market. It is a transparent network infrastructure component that enables enterprises, ISPs and Web-hosting companies to enhance the Web experience for the end user. A NetCache appliance can save customers money by decreasing bandwidth and server costs by as much as 50%.
Competition
At present, Network Appliance has very little competition in the NAS market. While the company has more than 45% of the market, no other company has even half that. NTAP also wins over 70% of the contracts that it bids on, a definite demonstration of product superiority.
Company 1998 Share 1999 Share
Network Appliance 41.4% 45.9%
Auspex 22.4% 10.7%
Compaq 13.7% 8.0%
EMC 7.9% 18.2%**
**The numbers for EMC are deceiving, while above it states that EMC held 18.2% of the NAS market, in reality it was much less than that. In order to use EMC's NAS offering, Celerra, a company had to purchase EMC's SAN solution Symmetrix as well, which costs a minimum of a million dollars (for the low end model). On top of that, the company has to buy the Celerra server itself, which isn't cheap either. The Symmetrix is the actual storage space (hard drives), while the Celerra is the server that makes the storage space of the Symmetrix available to clients over the network. The actual market share for EMC is probably in the low single digits, 5% is probably being generous. Another report by Dataquest released in April 2000 pegs Network Appliance's 1999 market share at 60.1% of the worldwide HDD NAS market. The only reason I can think of for the disparity in these numbers is that Dataquest removed some of the inflated marketshare of EMC and possibly only counted the revenues from the actual Celerra server.
EMC is the company that will provide the greatest challenge to NTAP's position. EMC presently dominates the SAN market and is looking to do the same with NAS. Their first foray into the market was the in house developed Celerra which competed in the high end NAS market. The Celerra costs 3-5 times as much as the NetApp per megabyte, is much less user friendly and requires four times the cache memory and eight times the number of file systems to match the throughput of the filer. Needless to say, the product has not been very successful. Nevertheless, EMC has realized that the future of storage lies in NAS and has decided to try again. Later in 2000 they will be attacking the low-end market using NUMA technology which it acquired from its Data General purchase. EMC also recently beefed up its Celerra system giving it support for Fibre Channel which will allow the IP-connected NAS box to have all of its storage in a separately managed environment. This system, while an improvement, still does not address the fact that Celerra continues to requires a high level of sophistication on the user's part, unlike NTAP's offerings which look to make NAS as easy to use as any everyday appliance. This problem will continue to hinder Celerra's penetration into the marketplace.
While many companies could feasibly copy the filer's physical structure, it is the proprietary software that provides NTAP with its sustainable advantage over competitors. The company has created, from scratch, an operating system called Data ONTAP to run its Netapp file servers. They've also created a series of applications to aid in its storage management capabilities. One such application is called Snapshot which automatically creates one or more backups within a given file server. These backups take up only a fraction of the space required for the original and result in fast recovery of lost or corrupted files. Another competitive advantage resides in its Write Anywhere File Layout (WAFL) system (mentioned earlier) which allows NTAP filers to serve data without regard as to whether the application servers that are using this data are Windows or Unix based. These advantages will also help prevent NTAP filers from becoming a commodity in the marketplace. The company's gross margin is around 60%, which is the highest in the group and has changed little over the past few quarters despite the negative impact caused by increasing amounts of low margin disk drives in the sales mix. It's future value lies in the high margin software.
The increasing NAS adoption has also attracted other competitors. HP and IBM have announced products to compete with NTAP. Although they stand to lose some sales to incumbents, the increased attention will help NAS awareness. The company's name is synonymous with NAS and the number of deals where NTAP is considered will increase. EMC touts its service edge, but NTAP is attempting to eliminate the issue by growing customer and professional services at two and a half times the overall company growth rate. The growth of the category is likely to more than compensate for increasing competition.
Conclusion
There is no slowdown in sight for the demand for storage. Not only is Network Appliance the leading NAS solutions provider but it is also increasing its lead on a quarterly basis, up to over 60% at last check. As long as the Internet continues to grow, so too will the need for storage and NTAP is going to be one of the key players.
Matt Tomkins
soapbox.com
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