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The Emperor Has No Clothes!

By Sudheesh Nair
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A couple of years ago I was calling on a fairly large customer in the Vancouver area. NetApp had been their preferred storage supplier for many years. I was there to sell a scale-out storage system for a new database project. The technical decision maker was completely bowled over by the revolutionary scale-out architecture (I was selling IBM XIV) and was figuring out a way to make the deal work for him. His only objection to abandoning NetApp was that his company had been with them for a long while.

After spending a few minutes on the white board I realized that I had to speak plainly and tell him that the emperor is actually naked! I put the marker down and asked him why he chose NetApp all those years ago. His one-word answer was “innovation”. I then followed up and asked him to name one revolutionary, innovative thing NetApp did in the last 5 years. He paused for almost 30 seconds and meekly asked me, “Flexvols?”

That was the turning point of that deal. (In the end NetApp came back to put pressure on him through their upper management, a very EMC-like thing to do).

A lost culture (of innovation)

Does it matter that NetApp is not as innovative as they used to be? Perhaps not, because they are still a $12 billion company putting relatively impressive numbers on the board. Maybe it’s a natural progression companies go through when they cross the $10 billion mark. Or maybe they are so consumed with angst about EMC that they are trying to be exactly like them, a sales-driven company as opposed to an engineering- and customer-focused company.

I am a huge NetApp fan partly because they are a West Coast company with a very good culture and partly because they make good products. In early 2000s they came out with a fantastic multi-protocol file system, probably the best CIFS implementation ever, a very innovative way to do snapshots using metadata pointers, and many other file system improvements like qtrees. When it came to data protection they had outstanding products like SnapMirror and SnapVault. They led the industry in application integration with SnapManager and clones.

Then they decided to be more like EMC by just cruising on the legacy of past products and focusing on building a sales and marketing forces like EMC’s. Recently one of their employees told me that one of the most important projects they executed in the last few years as a company was introducing the new logo and complete revamping of their website. Unfortunately he wasn’t joking.

This is not a new problem for NetApp; it’s been in the making for a few years. The problem is becoming more acute now because they are losing the two significant crutches they had before.

VMware to the rescue!

The aforementioned innovative technologies put NetApp at the top spot of enterprise NAS. Just when they were running out of fuel, VMware and Oracle came along and provided them the lift they needed. Oracle on NFS became a big thing. But more importantly, customers realized that VMware couldn’t deliver their key value propositions without shared storage. To their credit, NetApp recognized this early on and worked with VMware to make NFS the best platform to deploy VMware.

But VMware is not in business to make NetApp successful. They want to own the data center intelligence and not outsource it to NetApp. Through their innovative APIs (like VAAI, VADP, and VASA) and data protection tools (like SRM), they are now capable of providing higher level intelligence without relying on intelligent and expensive storage systems like NetApp. They now actively work to eliminate NAS and SAN from the datacenter with products like VSA and VSAN. It’s a market Nutanix created, but even VMware is jumping in.

If you can’t build it, buy it

Up in Hopkinton, EMC saw the threat NetApp posed and tried their best to compete with their Celerra NAS. I don’t think even they believed that Celerra was any sort of real competition for NetApp. But no one can accuse EMC of being emotionally invested in their products. As soon as they realized that their dog wouldn’t hunt, they dropped it and went shopping for products like Isilon.

Now this is the real genius of EMC. They know how to pick winners. They are really good at spotting the trends and placing wise bets. Let’s take a look at some of their recent plays:

  • Security & Content: RSA and Documentum
  • Virtualization: VMware
  • Backup/de-dupe: Data Domain, Avamar, and Legato
  • Big data: Greenplum
  • Scale-out and flash: Isilon and XtremeIO

All of these have been successful acquisitions.

Now, let’s look at NetApp’s track record… On second thought, let’s not. Like I said, I really do like NetApp.

(Topio, Akorri, Decru …anyone …One of their sales guys recently told me that LSI is their answer to big-data challenges!)

If you can’t buy and assimilate a new technology, you have to build it. There are 2 reasons why NetApp cannot keep up with the industry by building technologies on their own.

  1. WAFL and ONTAP are really past their prime.
    Nowadays almost all modern file systems do what they do. Data center infrastructure changed around them so much in the last few days that patching ONTAP just isn’t going to cut it. (Sorry ONTAP-V or ONTAP-C or ONTAP-Edge.) Faster CPUs, faster networks, and flash are asking for a complete re-write, not Band-Aids.
  2. Innovation requires fresh blood and fresh ideas.
    Imagine that you are a scary smart fresh grad from a great university coming to the Bay Area for interviews. On one hand you have a lot of innovative, pre-IPO startups like Nutanix to choose from and on the other hand you have very large, established but still very dynamic companies like Google, Twitter, LinkedIn and Facebook. Why would they choose to join a NetApp, HP, or VMware?

Innovation creates a passionate sales force

I am passionate about the products I sell. In the early 2000s, NetApp sales reps used to carry a NetApp filer in their car’s trunks. When a customer showed skepticism about their pitch, they could run to the parking lot, pull out the filer, and tell the customer that they can bring up an NFS server in less than 30 minutes. Customers with their complex HP servers and Veritas file systems were blown away.

Their conference show booths used to be full of nifty products and passionate, confident SEs and product managers. When I walked around their booth at the VMworld last month, I couldn’t tell any difference between their booth and EMC’s. Both consisted of large racks of metal monsters with blinking lights and arcane technologies, with product brochures full of marketing jargon that even their own sales people couldn’t explain.

Innovation is good business

Customers pay for the value a solution brings to their business, and value is created through innovation. When a company offers good value, the company makes money and their resellers make money. Most NetApp resellers used to make very high margins and still had very happy customers. That is no longer the case. If you take a look at results from recent quarters, you will see their executives talking about doing very deep, unhealthy discounts to win deals. They have to do that because the product doesn’t differentiate itself any more. When that happens companies don’t make money and their resellers don’t make money.

When Dell went down this path a few years ago, Michael Dell took charge and changed it all around. They bought Perot Systems for services, Compellent and Equallogic for storage, and Wyse for thin clients. All of a sudden Dell was no longer a PC company, but a complete ecosystem company with a portfolio to give IBM a run for its money. NetApp doesn’t seem to have the drive or resources to make any such hard turns.

Innovation is good marketing

Those of us who are plugged into the enterprise storage and virtualization space know that EMC has a lot of thought leaders. People like Chad Sakac and Chuck Hollis are always out there talking about the next thing and how EMC is pushing the envelop. Who from NetApp do you follow on your twitter feed or on blogs to get latest update on where the enterprise data center infrastructure is going?

Why am I pontificating?

I am a sales guy for Nutanix. You may be asking why I am writing all about NetApp with such melancholy and nostalgia. It’s part genuine disappointment about the direction of this once-great company and part self-serving business interest. I greatly admire how NetApp built their business through solid product development championed by very loyal customers and loyal reseller channel.

During VMworld, we invited some of our customers to come and spend some time in our booth talking to prospects. We expected that they would probably spend an hour or two. But when I saw them come to our booth wearing Nutanix shirts and spending 5-6 hours every day for three days talking passionately about Nutanix, it reminded me of the early days of NetApp. Customers were this passionate about them; partners were this loyal to them. (See some of the videos here http://www.youtube.com/user/Nutanix)

Nutanix wants you!

If you are one of those early customers who made NetApp, we want you. If you are one of those business partners who made NetApp in your region and enjoyed healthy margins on every deal but are now seeing those margins slipping, we want you. We learned from the right things NetApp did early on and are now implementing and improving on them. We have a clearly differentiated product that adds tremendous value to the customers; we have a business model that sells 100% through channel partners; we enable the partners to earn a very healthy blended margin and increase their professional services footprint. Most importantly we value the feedback from our customers and resellers. Our channel loyalty program includes a stellar registration advantage program and a sales team that knows the value of a vibrant reseller channel.

We want you to come and do it all over again. Together, let’s build the next NetApp.