Good article taken from Business Week on the momentum and demand of network storage/servers. Should be a good week for Network Engines, end of Q.P. and earnings are due. Remember that NENG has a licensing deal with IBM.
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JULY 13, 2000
SPECIAL REPORT
Data Storage Comes Out of the Shadows
As the Info Age causes demand to soar, competition in a once-musty
industry is heating up
Let's face it, data storage isn't the most scintillating of
Internet Age topics. But storing data is becoming a
huge business -- and it will grow bigger in the years
ahead. Not only do companies have mountains of data
to store already but being able to quickly retrieve and
use that data is increasingly critical to their success.
Perhaps it's the name itself that obscures the importance of the issue to business.
"The word 'storage' is a misnomer," says Richard Vigilante, publisher of the
Gilder Technology Report, which has highlighted some storage companies as
having key technologies for the future. "Storage is what you do in your basement.
The capability to get data out of some device in which it's currently isolated and
onto the network -- that's what companies are spending billions of dollars in order
to be able to achieve."
For a long time, storage was the Rodney Dangerfield of computing. Large
computer makers used to relegate storage to third-party manufacturers that could
fill their customers' limited needs. That's when the sale of the server accounted
for the big bucks. Storage used to make up just 10% to 15% of a sale, says Eric
Herzog, a former hardware salesman and now vice-president for marketing at
IBM's Mylex division. Now, he says, the price points of servers are declining
while storage demand is growing. The cost of storage is now approaching 50%
of the total hardware sale, says Herzog.
"IT'S SAILING, GUYS." That simple equation explains pretty clearly why
competition in the storage industry is suddenly booming. "This is a big-spend
area," says Denise Shiffman, vice-president for marketing at Sun Network
Storage, which rolled out a new line of storage products in mid-June. "That's
going to create a lot of pressure," especially on storage leader EMC, which she
says "has had it easy for the last few years."
Not only Sun but IBM, Compaq, Hewlett-Packard, and Hitachi have all
announced major storage initiatives in just the past few weeks. "They have to be
on that boat," says Merrill Lynch analyst John Roy. "It's sailing, guys." He thinks
it will take several years for the server vendors to catch up to where leaders like
EMC and Network Appliance are now. "In the meantime, EMC and NetApp are
grabbing burgeoning share of the burgeoning market."
Depending on its line of business, a company's storage demand should double or
even quadruple each year for the next four or five years, industry analysts
believe. Consider e-mail: Not only are people communicating more by e-mail but
they're also increasingly likely to attach large files, photographs, or music. As
bandwidth increases, people will start zapping videos around the Net. While one
digital photograph takes up only a third of a megabyte, 30 minutes of streaming
video gobbles up 850 MBs. Multiply that by a few thousand employees -- and it
looks like businesses are going to need a lot of storage.
DATA FLOOD. Demand for storage is growing fastest among Internet companies,
some of which add 250,000 MBs of capacity every day. Amazon's storage
requirements, for example, will grow substantially as the giant e-tailer implements
its new strategy of personalizing its site for consumers. Amazon must now
access complete transaction histories from every customer in order to offer them
suggestions for new purchases based on their tastes. But even old-fashioned
manufacturers are dealing with data overload as they keep digital track of
invoices, expense reports, marketing materials, and other communications that
used to be paper-based.
It's clear, too, that broadband Internet connections in homes will add to the data
flood. And the spread of wireless communication is yet another challenge for
storage technology, says John Webster, a storage analyst with
information-technology consulting firm Illuminata in Nashua, N.H. Again, an
example helps: Consider a company that maintains a fleet of trucks to deliver its
products. These days, each driver must have a handheld computer that connects
to a mobile database that has to be backed up and linked to the corporate
database. And again, that's a lot of data.
As data-storage companies ratchet up supply to meet growing demand, the
actual price of storage is dropping by nearly 40% a year. But according to
estimates from International Data Corp., total market revenues spent on storage
will rise 11% a year in the next four years, while storage capacity will increase at
nearly 80% a year.
"CAPITALISM AT ITS BEST." In fact, the excitement over growth in the storage
industry is really confined to a still small, but far more technologically advanced
segment of it, called network-attached storage. (In the traditional system, which
made up over 90% of the storage market in 1999, storage was attached directly
to each server.) By connecting storage systems to networks and adding
high-powered software, corporate users can back up systems more easily -- and
retrieve the data at high speeds from anywhere at any time.
"Traditional storage architectures had problems meeting the demands created by
the Internet," says Gene Bowles, a storage-industry veteran and CEO of Solid
Data, which makes specialized storage, or "caching," systems that help
e-commerce companies speed up transaction processing. "Whenever that's the
case and large dollars are at stake, then people are going to explore new ways of
doing things more effectively. This is capitalism at its best." And this is where the
action is: While overall storage is growing at a fairly tepid rate, the more
sophisticated network-attached storage market is growing at about 66% a year,
according to IDC.
Storage-networking technology is behind the growth of industry superstars EMC
and Network Appliance. At the high end, companies can build a storage area
network (SAN) -- a separate network that handles all their storage needs without
interfering with the main network. A SAN strategy is used most often by large
corporations that want the most robust, reliable system -- and they often turn to
EMC.
PHASE TIME. A simpler, cheaper solution is simply to add a network-attached
storage system (NAS) to the main network. For rapidly growing e-commerce
companies, this is often the best answer, and they most often turn to Network
Appliance. Merrill Lynch estimates EMC has 37% of the SAN market and
Network Appliance has 46% of the NAS market.
While you can debate the merits and growth prospects of NAS and SAN -- and
industry analysts frequently do -- the truth is that the lines between the systems
are increasingly blurring. IDC sees both systems expanding sales equally. The
challenge for EMC and Network Appliance, as well as all the server vendors
making big pushes into the storage market, will be to adjust their product
offerings to whichever technology takes hold the fastest among corporate users.
There are many phases to come in the industry before it figures out how best to
meet corporations' growing demand for storage. But as EMC CEO Michael
Ruettgers said recently at a Merrill Lynch-hosted event, "It's still too early to talk
about the next phase when we just started this one."
By Amey Stone in New York |
