CRN Interview: Mike Ruettgers
(URL: crn.com
By Joseph F. Kovar
CRN
11:40 AM EST Fri., Jan. 19, 2001
EDITOR'S NOTE: EMC Executive Chairman Mike Ruettgers examines the booming demand for storage and sheds light on EMC's product and channel strategies in an interview with CRN Section Editor Joseph F. Kovar.
CRN: What are the driving factors behind the continuing growth in the storage market?
Ruettgers: One of the general truths is that the amount of information people are
storing appears to be doubling every year. A recent study by the University of
California-Berkeley shows that to be the case. You know, people put these systems in
place, you start collecting information and you just never get rid of what you collected, so
it literally doubles every year.
Today, you've not only seen [companies] moving into the Internet, but the industry also
doesn't sell much storage at the front end of these applications and development
projects. For somebody putting in an ERP system to get ready for Y2K, the storage
industry wouldn't see much demand out of that until you got into the year 2000. So we're
just starting to see some of the demand from the investments made around CRM or
supply chain management. We're seeding the ground for what probably will be another
round of demand next year. If you looked at the end of last year, CRM and supply chain
management have become two big killer apps these days, at least at the enterprise level.
CRN: So with these applications, businesses still don't have an idea of the amount of
storage they're actually going to need?
Ruettgers: That's right. They're in the business of putting the systems in and changing how they do business. And it's not unusual to take 18 or 24 months before they turn them on. Until you turn them on, they're not collecting the information.
Dataquest and IDC looked at the annual growth rates of IT [overall] and several sectors of IT, and they showed IT
growing through 2004 at about 11 percent a year, PCs and servers at 6 percent, and storage at 22 percent. So we're clearly the fastest growing piece within some of the major IT stats.
CRN: Although the storage market is growing, aren't we looking at a downturn in IT spending overall?
Ruettgers: There's some debate as to what's being seen. We certainly haven't seen that. If there is a downturn, it's
probably going to be short-term. And even in a downturn, we don't think most of the change will come out of storage. Storage has become a much more of a non-discretionary expenditure. Once you put these systems in place, you have to collect the information. Otherwise, why bother with them?
CRN: If there is a downturn and strong demand for storage capacity continues, wouldn't that give an opportunity for other vendors to come in with lower-priced products aimed at smaller IT budgets?
Ruettgers: Certainly, when things slow down, you might expect pressure on pricing. But EMC has been the leader in driving down pricing in the marketplace. We drive prices down about 30 percent a year. So someone coming into the year with a fixed budget will, by the end of the year, be able to buy 30 percent more [storage capacity] than they thought.
CRN: That's the first time I've heard anyone describe EMC as a price leader.
Ruettgers: Well, you have to be careful with definitions. When I say price leader, I'm saying that we're the ones making prices in total go down. We're not the lowest price, if that's what someone means when they say they're the 'price leader.' We have very competitive offerings, and when you [consider] what you pay for vs. what you get, it's very clear we give customers greater value.
A couple of years ago, I remember Delta Airlines put a freeze on capital expenditures. It was a difficult time for the airlines, and there was a lot of pressure not to make any capital expenditures. There were only two that were approved, and one was our storage system, which even at that time were at a premium price-wise. But Delta got something like a six-month payback on that investment.
CRN: In the past, EMC has emphasized how important storage is,and how important EMC is,to the dot-com world. How does last year's dot-com bust affect that market's need for storage and, in turn, EMC's business?
Ruettgers: If you remember, last year one of the five growth drivers we had was the Internet business coming out of the Global 2000 companies. We didn't actually have the dot-coms as one of the five growth drivers. The dot-coms, for us, only got to about 10 percent of our business. Some of them are bound to be successful. But these are new businesses, and the failure rate among new businesses is about 80 percent. It shouldn't have been a surprise to anybody when a bunch of these guys didn't make it.
CRN: So the dot-com bust has little effect on EMC's bottom line?
Ruettgers: Yes. You've seen through the year an actual acceleration in the growth of storage. There are still some pretty good companies in that [dot-com] space. Not all of them are going to roll over.
CRN: Regarding dot-coms, how is EMC doing with the storage service provider (SSP) space?
Ruettgers: You have to be careful with the definitions. We have pretty broad programs with service providers. In
general, one of the things they like about our stuff is we provide a full architecture and a pretty complete integration of their entire structure. So they can buy essentially most of what they need all from one place and know that it all works together. So we believe we're the leader in this space.
CRN: One of the largest SSPs, StorageNetworks, isn't as much of an EMC customer now as it was, say, a year ago. Is that an isolated case, or does it have bigger implications for the way EMC works with SSPs?
Ruettgers: I think that is an isolated case because there are a number of others that have joined us since
[StorageNetworks] kind of went their own way. It is a pretty good-sized market, and [companies] that have good business plans should be successful here.
CRN: What are the new market opportunities that EMC is looking at?
Ruettgers: The big opportunity for us is still around networked storage, whether it is storage area networks (SANs) or network-attached storage (NAS). This market is only 18 months old. And if you look at the adoption rate, I think, [based on] the numbers I've seen recently, less than 15 percent of the people that could be deploying these [technologies] are deploying them. So it's still very early.
There are initiatives around the announcements we made last month in the midrange NAS space that should be interesting to some [solution providers]. And there's the rich media and the video space, which again probably plays well with some solution providers in that area providing different kinds of service.
CRN: When you look at new markets such as rich media and video, where does EMC fit in?
Ruettgers: We've had some excellent technology for a number of years, and we've been working with people in these spaces--both with our high-end products and some of our midrange products. For example, our midrange products were actually used in the filming of the original 'Survivor' TV program.
CRN: Which of EMC's competitors do you watch most closely?
Ruettgers: We watch a number of competitors. We watch all the server vendors,IBM, Sun, HP and all that. Compaq. Those guys are most closely attached to the [storage] opportunity. They're already selling servers, so they get the first shot at selling storage. So we watch what those guys do. And there are a few independent [vendors], like Hitachi, that we watch also.
CRN: Who's public enemy No. 1 for EMC?
Ruettgers: On the hardware side, I would say it's still Hitachi, because they've had a strategy for a number of years of just copying us. They're about two years behind, and even at that they are probably closer than some of the other people.
CRN: Other storage vendors note that EMC's hardware is still based on proprietary technology and doesn't interoperate with other storage hardware. Is that still the case? If so, does EMC plan to change that?
Ruettgers: It's funny. Most of our customers, when they refer to our systems, don't say Symmetrix or Clariion. They say it's the 'open systems box.' So our customers don't view it that way. InformationWeek did a survey of 350 companies in November and asked them to rank nine different storage vendors, and we ranked No. 1 in interoperability. And the company that's most vocal about the fact that we're proprietary--IBM--ranked last.
CRN: A lot of vendors--hardware vendors, server vendors and ISVs--are developing software that works with a wide
range of storage products, including EMC's. But EMC's storage management software is still pretty much tied to its hardware, and it isn't really aimed at working with competitive hardware. Will that change?
Ruettgers: Well, it might. We have this API program in place where we're providing people who want to write software that manages a bunch of different things . . . so that they can control our equipment underneath that. So we're trying to respect the wishes of customers who may want to use and deploy some of these different kinds of software products. We're making it easier for those vendors to, in fact, integrate with our systems. We may do some of that. There's such a difference between our systems and other [vendors'] systems, and it's more difficult to do than it sounds.
CRN: So the part that's more difficult . . .
Ruettgers: . . . is for somebody like EMC, which has more sophisticated software, to make its software run on somebody else's hardware when there's such a difference in the hardware. It would be like putting a race engine on a tricycle. If you don't have a frame to put the engine in and the transmission in, then it doesn't make much sense.
CRN: Has EMC's direct sales team grown?
Ruettgers: Yes, it's been increasing.
CRN: How about on the channel side? Has that been increasing?
Ruettgers: That's also been increasing. The difficulty is we have more opportunity than we can address right now, which means that most of the time when we lose business it's because we didn't even know a deal was going down. We're anxious to find more people to help us cover the marketplace. So we're hiring directly, and we're recruiting indirectly. The goal this year is to do $12 billion in revenue, and that will be up from about $8.5 billion last year. So we have a lot of growth planned, and obviously you can't do it all yourself.
CRN: Out of the $12 billion, what percentage do you think will come through indirect channels?
Ruettgers: It depends exactly on how you define 'indirect' channels. It may be as high as 40 percent.
CRN: And that's worldwide?
Ruettgers: Yes, that's worldwide. Now there's a little bit more in the [United States], because we get about 60 percent of our business from the United States.
CRN: What does EMC offer channel partners that they can't get from other vendors?
Ruettgers: Well, you get a couple of things. You get a brand name that's well-recognized; you get a system that's flexible and can be attached to any kind of server; you don't end up having to inventory or have knowledge about six different server product lines; you can solve your storage problems with one set of things; [and] you're selling a premium product that customers see a great value in,the service, the support, particularly the 'call-home' features that essentially remove the service burden from the channel partners.
So you get a product that works, which is still rare, and you get a product with a great reputation from a customer
standpoint. And then you get the superb service that goes with it. So for our channel partners, it's essentially risk-free from that standpoint. You know that once you sell it to them, you're not going to have to be in there all the time making it work.
CRN: What exactly do you seek in channel partners?
Ruettgers: We're looking for people that are able to cover the market and sell the product without a great deal of
support--and then have the ability to help customers with the other values.
CRN: Are you currently looking for these people?
Ruettgers: Yes, we are, particularly for some of the new products we announced in December: the IP4700 [NAS]
midrange products, which are excellent products with a market that we'll rely a little more on channel partners for.
CRN: How about the Symmetrix side?
Ruettgers: We have partners, particularly on the service provider side. As I said, we think we're the leaders in that
marketplace with Symmetrix.
CRN: You mentioned the IP4700 Chameleon. This is EMC's first entry into what might be called the entry-level market. Why now, when in the past EMC has been focused more on the high end and midrange?
Ruettgers: In the NAS market particularly, we saw the need for more midrange products. That's where this product
started. As we spend time with customers, it became somewhat clear that there were some product attributes here that we might be able to use on the entry-level side.
CRN: Is this risky for EMC since it's moving into a new part of the market?
Ruettgers: Well, at the enterprise level, the SAN level, we have Symmetrix and Clariion. In the NAS space, we have Celerra, which is the high end, and Chameleon, which now goes into the midrange. You think about it as being more of an entry-level product. We still think about it more as a midrange product.
CRN: Since you classify Chameleon as more of a midrange product, do you see EMC moving more into an entry-level area?
Ruettgers: Probably not. With the rapid growth of storage, people get to the midrange pretty quickly. Remember that in the last 10 years we've gone from systems that didn't hold more than 4 Gbytes to, today, disk drives that will hold more than 60 Gbytes. So these applications have to be pretty reasonably sized. I don't see us selling individual disk drives, for example.
CRN: With Chameleon and the new midrange products, is this an indication that EMC aims to do more with the channel?
Ruettgers: Yes, it clearly is. Again, it's part of a broad program to try to reach more customers and then reaching more companies with more products. So the channel is actually helping us both in reaching customers, which could include Symmetrix, and in reaching more product distribution, which reflects some of the midrange stuff that we have. So for channel partners, it's a great opportunity. It's an expanding business. It's a market where you don't have to compete on price all the time. It's not like the PC business. You can actually provide customers good value, so that they're happy to buy from you.
CRN: Is EMC's direct sales force doing more in terms of working with channel partners? Or are the two separate and competitive?
Ruettgers: No, I think we're still evolving to have a little less conflict there. For the most part, our direct sales staff are working on assigned accounts. So there are not very many of them that have open territories where they can go any place. That, by its nature, should keep them away from each other. That doesn't happen all the time, but it should in general.
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