For a new storage company to stand above the rest it has to, within its category, provide better performance, better cost or simplify management. Over the past two and a half decades we’ve seen many companies deliver these requirements. Is there room for another great storage company to emerge?
Before there was a stand-alone storage industry, most storage systems were provided by the server vendor. The first wave of storage start-ups differentiated themselves from these server vendors by coming out with an innovative new capability or by changing storage economics. Initially storage systems like EMC’s Symmetrix and Digital Equipment CLARiiON (later bought by EMC) and Network Appliance’s (later NetApp) Filer delivered this differentiation.
Then came a second wave of vendors like 3PAR (bought by HP), Hitachi (HDS), LeftHand Networks (bought by HP), EqualLogic (bought by Dell), Compellent (bought by Dell), Isilon (bought by EMC) and others that proved there was room for even more innovation at a faster pace with even more efficient economics. In some cases these companies delivered new capabilities like thin provisioning or were early movers on new technologies like iSCSI or SATA drives. Many of these companies also leveraged proprietary hardware, ASICs or network interconnects to be able to extract the most out of the limitations of hard disk technology and the scarcity of CPU power.
Of the second wave companies, HDS is the only one that legitimately made to the top tier, joining EMC and NetApp. Most of these second wave companies were bought in some form or another, there was clearly a higher population of companies in this wave. Venture capitalists were pouring money into the storage space.
We are now well into a third wave. This wave; Pure Storage, Nimble Storage (HP), Tegile Systems (WD), Tintri Systems, XtremIO (EMC), Kaminario, SolidFire (NetApp), Texas Memory Systems (IBM) and others, are building systems primarily focused on harnessing the potential of flash storage.
Another attribute of the third wave companies is that they are more software companies than they are hardware companies. While most of the companies provide turnkey solutions, their hardware is typically commodity off the shelf servers. A compliment to both the performance of flash and of the ever increasing power of the Intel processor.
Once again, there were a large number of new companies in wave three. Venture capitalists are all hoping for a repeat of the buyouts that we saw in wave two. The exits for these companies has been slow however. Part of the problem is the big companies are still digesting the companies they bought in the second wave and the sheer number of companies available in the third wave. Some of these third wave companies will need to either go public (Pure Storage, Tintri) or sustain their own profitability.
We are also starting a fourth wave, and things are getting complicated. The complexity makes predicting who is going to be the next great storage company difficult. The fourth wave for now is broken into three smaller waves or sub-markets. Each may eventually create its own wave.
The first sub-market is made up of a group of companies creating hyperconverged solutions that integrate storage software within the virtual infrastructure. There are companies in this market that provide the whole solution (software and hardware) turnkey like Nutanix, Scale Computing and Simplivity (HPE), while others only provide software and typically run within an existing hypervisor environment and creating a do-it-yourself hyperconverged architecture like Maxta. There are also companies like Datrium, that are creating a hybrid hyperconverged model.
The second sub-market is made up of a group of companies that leverage the cloud, but how they leverage the cloud varies wildly. Some leverage the cloud as a third or fourth tier of storage where, as data ages, is stored in the cloud for long term, cost effective data retention. Other companies like ElastiFile, Panzura and Nasuni are leveraging the cloud as an interconnect between offices and as distribution mechanism to make sure data is available to all locations at the same time. A final group, represented by companies like ClearSky Data are leveraging cloud storage as primary storage, where data is primarily in the cloud but cached in the data center and in some cases at a regional center.
A final sub-market is a group of companies like Primary Data, ioFABRIC and StrongBox Data that provide data management software. But fourth wave data management is different than traditional archiving solutions. Traditional archive is essentially one-way, data is tiered to a more cost effective tier of storage but never moves above its original tier of storage. Wave four data management companies provide not only the ability to move data to more cost effective storage, they can also move data to a higher performing tier of storage than where it originally started. They essentially manage data in two directions.
What is Great?
Another important step in our process is to define the word “great.” For a venture capitalist “great” might mean “gets bought for a high valuation.” For others great is a company that becomes the next Dell (which bought EMC), HPE (which was HP), NetApp or Hitachi. There is a much higher probability that a company will get bought, even after it has gone public than it will become a longstanding public company.
The first question is who gets bought next? For that answer we have to look at what potential buyers need. All already have at least one set of products within their portfolios delivering the capabilities of a wave three company. Many have multiple products that have the capabilities, and some have so many options it is almost embarrassing.
Big companies don’t always make the most logical choices (see HPE buying Nimble Storage and Simplivity after it already owned 3PAR and LeftHand Networks) or Dell buying EMC after it already owned Compellent and EqualLogic. They do tend to make the overlap work.
There is also a group of companies that are not traditionally known for enterprise storage that may want to quickly enter the market. Particularly interesting are the acquisitions companies like Western Digital (WD) and Seagate made. Recently WD announced it was buying Tegile. In addition to suppliers like Seagate, companies like Samsung, Lenovo or Huawei may want to get into the act.
The traditional storage companies (Dell, HPE, IBM) will likely go after something they don’t have, which makes companies providing data management or some level of cloud storage integration very interesting targets. Since most of these wave four companies are very much software based, an acquisition should be relatively easy. I’d expect each of the big companies to purchase a data management and a cloud storage integration solution within the next 18 months.
The bigger question is, “Can another big company emerge?” If it can, that company will likely come from one of the remaining wave three companies. Each of the companies that has not been bought have excellent management teams more than capable of taking their companies public. Two of those companies, Pure Storage and Tintri, are already public. The first step for these organizations is to build out their sales and engineering teams, which most of them are doing. The second step is for them to show PROFITABILITY or at least a reasonable path to it, which most of them are nowhere near doing. If they can achieve profitability then the final step on the way to greatness is show the ability to acquire a company and integrate it into the existing company.
Like the big companies all of the remaining wave three businesses are in need of both an end-to-end data management solution, meaning the ability to move data throughout the enterprise and into the cloud. They are also in need of cloud integration. Given the number of companies in these spaces, a wave three company with aspirations of being the next great storage company should consider making this move sooner rather than later. It will help their messaging to potential customer and they won’t have to pay as much if they move now.