The World is Flat

The most sobering insights from The 451 Storage Executive Event and The Gartner Data Center Summit at the end of 2010 came from talking to enterprise end users about IT budgets, managing legacy systems and adopting new lower cost architectures across the enterprise. The majority of IT administrators are dealing with the brutal combination of increased senior management expectations with IT budgets that are often flat at best and sometimes declining. Senior executives are pushing IT leaders to reach new service levels with the same level of funding. There are few Greenfield areas and innovation in Brownfield areas presents a host of challenges.

SASI Perspective:

Where there is enterprise IT pain there is certainly opportunity for disruption by new entrants. Start-ups coming at this market are targeting legacy systems with historically high margins and are providing both Capex and Opex relief in many cases. However, the incumbents are not going away any time soon and are ferociously defending their legacy territory. We see the most near term disruption coming in Tier 2 and 3 storage environments with Tier 1 remaining the home turf of the incumbents for the foreseeable future.

Software-defined Everything

Software defined networking (SDN) made a big splash back in July of 2012 with VMware’s $1.26B acquisition of Nicera and again at The Gartner Data Center Summit and The 451 Storage Executive Event in Q4 2013.  Software defined storage (SDS) has become the hot marketing phrase with many start-ups claiming SDS market leadership. More recently, I have heard the terms software defined data center, software defined infrastructure and even software defined power. SDS has even made it onto the Gartner hype cycle for storage related technologies.

SASI Perspective on SDS:

The buzz around SDS is only matched by the confusion of what it is and what it offers IT users. The typical example given for SDS is some flavor of storage software with de-dupe, compression, a file system and various storage services all running on commodity hardware. There are actually a number of interesting companies thrown into the SDS space but I am unsure that using the SDS term really adds value and may even raise problems with market understanding and penetration. As an example, the value proposition of offering scale out storage software on commodity hardware that offers much lower cost than legacy systems resonated well at both events. Stated another way, end users like the notion of Amazon and Google scale and cost models for their own businesses. Adding a the new term “SDS” added little to the conversation and questions quickly turned back to who could provide this new storage software and how it could be integrated into their IT roadmaps. The software defined terms may be around for some time but I would rather hear more about real IT pain points being solved with great enabling technology and how, at the end of the day, it offers cost savings with possibly some analytics, which could even help the topline. Lastly, in terms of Gartner adding SDS to the storage hype cycle, they would be better served by focusing on core technologies like object storage and next generation distributed file systems.

Q2 2013 Storage Highlights

Q2 M&A dropped to a total of 5 transaction from 9 in Q1 but total consideration rose significantly to $659M, driven by Western Digital’s acquisition of STEC for $340M.  While the STEC deal was certainly not a “big surprise”, it does bring further consolidation to the SSD space and may be a precursor to projected consolidation in the solid state systems space. Other notable transactions include EMC’s purchase of ScaleIO for an estimated $200M and Fusion-io purchase of NexGen Storage for $119M.  ScaleIO brings EMC a new software platform for scale-out SAN while NexGen brings Fusion-io further into the systems business.   Total M&A for the first half totaled 14 deals with roughly $1B in consideration, which is on-track with our forecast of $2B for all of 2013.  Storage related venture funding keeps up solid momentum with $135.5M across 14 rounds with an average of $11.3M per round.  Smaller and later rounds of funding led the quarter with the exceptions being Panzura, Atlantis and PernixData securing larger rounds of $25M, $20M, and $20M respectively.  We also had a first round of funding for Reduxio, a provider of hybrid SSD solutions.  Our venture forecast of $700M for 2013 is looking good with $368M invested in the first half of 2013 through 28 rounds of funding.