The shifting dynamics of infrastructure

In my former role, I was the one who had the final word on what technologies our firm was to include in our integrated offerings to our clients.  I spoke to dozens of technology manufacturers each month, evaluated their products in my lab, spoke to clients who used or evaluated the technologies, etc.  Many of these hopefuls left empty-handed even though their technologies may have been quite exciting, even performing better than the standard-bearers in the markets they were trying to break into.  If that market was the Enterprise Storage market, they had two strikes on them before ever coming to the plate, and I will discuss why.

Some may know that I’ve been a NetApp advocate for quite some time, but that’s NOT the reason the newer firms had a disadvantage.  I have ALWAYS submitted that if someone else came to the table with the best demonstrable breadth and depth of feature/functionality/efficiency, with some proof of staying power, that would be the solution that I’d prefer to integrate and bring to my clients.

That’s not what I’m talking about here.

I’m talking about the market dynamics that present a real danger to today’s storage startups.  I can’t look a client in the eye three years from now if I’ve recommended to them a product that is either gone, or subsumed into a black pit of a mega-conglomerate and de-emphasized.  Even if there is a 25% risk of that happening, that’s more than zero and must be added to the product selection process.

Let’s discuss the dynamic.  Please note that what follows are general statements, I’m well aware that of course it won’t go down 100% the way this flows, but I argue it doesn’t have to for the dynamic to still hold true.

The Storage market has a continuum that’s typically broken up into a few groups:

  • Service Providers
  • Large Enterprises
  • Medium-sized Enterprises (MSE)
  • Small-to-Medium sized Businesses (SMB)
  • Startups

If you are starting a business today (or have done so in the past 2-3 years), the overwhelming odds are that you aren’t going to buy any infrastructure. Why should you?  With MS or Google, you’ve got 50-75% of the functionality you need, you can SaaS most of the rest with other vendors (Salesforce, Netsuite, Box, DropBox, you name it).  Even if you need servers, you’ve got the hyperscalers.  So Startups can do whatever they want IT-wise in ways that simply couldn’t be done ten or twenty years ago.

Startups, of course, become SMBs, then MSEs, as they succeed and grow.  Sure, some of them get bought by established, larger firms that have their own infrastructure, but over time that pressure to be hyper-responsive to compete with smaller competitors will push everyone in the bottom three segments – Startups, SMB, and MSE – to move to cloud.

Of course, “cloud” falls under the Service Provider moniker.  So as the infrastructure market for the SMB and MSE buckets shrink, the data’s gotta live somewhere, right?

Almost EVERY Storage startup first needs to establish a beachhead in SMB/MSE – that’s because Large Enterprises won’t give any of them the time of day until they’ve got a solid,  stable, and reference-able customer base.  This means that all of these storage startups (and more pop up every week it seems) are fighting over a market segment that is shrinking before our very eyes and will continue to shrink at an accelerating rate as the startups (using all cloud) of today grow into the SMB/MSE’s of tomorrow, and the current SMB/MSE’s transition to cloud in order to compete with them.  Only when they transform into Larger/Medium Enterprises will these folks have the need for any significant storage infrastructure, especially as they’ve likely optimized their organization and processes to use cloud resources for most everything IT.  Note, we’re talking about a few years down the road here, but this movement is real.

What of the other side of the market continuum?  Large Enterprise, and Service Providers?

If the above dynamic holds true, Large Enterprise will, despite some leveraging of the cloud, still maintain a sizable, if not expanding, on-premises infrastructure.  What would have been hyper-growth of on-prem storage may now only be logarithmic growth.  But Large Enterprises are still buying large storage systems from the large storage vendors in large quantities, despite what how the trade rags tech blogs opine on the market.  As this segment of the market is hesitant to deploy startup technologies, and has established relationships with the existing/established “big 5” storage vendors, there’s not much of a chance for others to break in- you’ll see mostly the “big 5” trading market share of this back and forth (which presents its own problems from a growth perspective to the “big 5”, that’s another story).

The Service Providers, however, are seeing storage growth at accelerating rates never before seen in the history of IT, and that acceleration will itself increase as the SMB/MSEs flock to the cloud and abandon infrastructure.  Most of the storage startups won’t get to see much if any of that business, as they’re going to be too busy picking through the remains of what was once the SMB/MSE market they were architected to serve.  THIS segment represents the real growth opportunity for the “big 5”- finding ways to leverage their platforms in physical and virtual form to support and sell into this Service Provider market segment.

So if you look at the choices made by the big storage companies (NetApp included), I believe you see a recognition of this dynamic and where their companies are going to succeed long-term, rather than solving yesterday’s problems cheaper or faster.

This dynamic is what gives me pause when evaluating today’s storage startups.  Don’t get me wrong, the tech in most cases is amazing, and there are definitely things they do very, very well.  The difference between these startups and the storage startups of 20 years ago is that the former startups had the TIME to develop their enterprise cred.  These startups do not have that luxury, as they will need to establish that cred before the clock runs out on the SMB/MSE testing ground.

The shifting dynamics of infrastructure