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Dell, HP Prepare to Tee Off Against EMC and NetApp in the Enterprise Storage Game

Here are the million and, in many cases, the multi-million dollar questions that every enterprise of almost any size or consequence is making or will be making now or in the next few years, “Are Dell and HP serious about enterprise storage?” Or are they inclined to treat storage as they have in the past – a bolt-on accessory to a server sale?

The answers to these questions will do more than just determine the type of storage that enterprises ultimately purchase. They also stand to significantly alter the fates of Dell and HP as well as EMC, NetApp and the storage industry as a whole.

HP’s acquisition of 3PAR and Dell’s acquisition of Compellent in the last year cemented the profound impact that server virtualization is having upon all size enterprises. When HP rolls out $2.1 billion for 3PAR and Dell forks over over $800+ million for Compellent, they are sending a clear message that storage is no longer an adjacent market that they can use to pad their server sales. Rather they are signaling that storage arrays and the software features they provide have shifted to become the new area of focus that provide the highest margins when sales to datacenter occur.

It is for this most basic reason (staying profitable) that likely prompted both Dell and HP to open their wallets and plunk down a chunk of change for both 3PAR and Compellent. They could simply no longer afford to concede this part of a sale to the enterprise datacenter to either EMC or NetApp. By so doing, they concede what is shaping up to be the highest margin part of the sale to enterprises and their virtualized server environments: the storage.

What is likely even more disturbing to Dell and HP is that as this shift towards buying more storage occurs, enterprises are buying more storage and fewer servers. As I have attended numerous storage conferences in the last three months (Dell Storage Forum, EMC World, InterOp, NAB, NetApp Analyst Days, Storage Networking World, and Symantec Vision,) all you hear users bragging about at every one of these storage conferences is the ratio of VMs to physical servers. 10:1, 20:1, 30:1 or even greater consolidation ratios are being achieved in these environments.

Further, the trend is to accelerate the movement towards virtualizing even more business-critical and mission-critical application servers in these environments. Microsoft Exchange, Microsoft SharePoint, Oracle and many others are now on corporate radar screens to be virtualized.

So in addition to users talking about the ratio of VMs to physical servers that they have achieved, they are also openly discussing the percentage of their physical environments that they have virtualized. 80% and upward is not uncommon with companies like Mazda having already achieved an 80% virtualization rate while companies like Guardian Insurance are closer to 95%.

But even as these organizations were highlighting how much of their physical server environment they have virtualized, you could not miss the obvious as to how much external storage capacity they were buying to support these environments. Most of these companies were not talking about a couple of hundred GBs or even a couple of hundred TBs. They are talking about needing PBs of storage to support these virtualized environments.

In fact, while at the NetApp Analyst Days, one NetApp user even mentioned that he had just purchased about 6 PBs of storage just prior to the start of the event. NetApp’s Jay Kidd got visibly excited on stage, did a fist pump and exclaimed, “Cha-ching!” There is no way that Dell and HP can afford to allow that to continue going forward and let all of that storage revenue go to either EMC or NetApp even as they watch their bread-and-butter server business become virtualized.

So this brings me back to the question I posed at the outset of this blog entry, “Are Dell and HP prepared to get serious about enterprise storage?” Maybe much to EMC’s and NetApp’s chagrin, I don’t believe Dell and HP have any other other choice but to get and remain serious about enterprise storage.

The fact that they (Dell and HP) have collectively spent about $5 billion over the last few years on storage acquisitions indicates that, yes, they are serious about storage. So an equally important corollary to that question is, “Can they compete in the enterprise storage space?

If you ask NetApp’s CEO Tom Georgens, he would scoff at the idea. At the NetApp Analyst Days, he suggested that all server companies care about is selling servers and that storage is only an afterthought in the data center sale. It is for that reason that he believes that with NetApp’s best-of-breed offerings that it can continue to compete and win against companies like Dell and HP.

However the assumption that Georgens was making when he made that claim is that NetApp truly offers a best-in-breed storage offering. Yet according to the DCIG Buyer’s Guides that it has released over the couple of years, NetApp cannot make the claim that it has “best-in-breed” in every case. Rather, as a result of the acquisitions that Dell and HP have made, those “best-in-breed” storage designations are starting to go to Dell and HP. Ooops.

So if companies like EMC and NetApp no longer have best-in-breed in storage according to independent 3rd party analysts and some “best-in-breed” designations are starting to shift to Dell and HP, where does that leave EMC and NetApp? Further, if companies like Dell already have 12 million customers and NetApp has in the neighborhood of 4,000, that does not leave NetApp in a very strong competitive position going forward.

The conclusion that enterprise users are bound to reach is that, yes, Dell and HP are very serious about now competing in the enterprise storage space and, as a result of the acquisitions they have made in the last few years, they are ready to compete and win on the technical merits of the products they offer.

So the final leg in the sales equation is how committed are Dell and HP to equipping their sales and support teams to go against EMC and NetApp which are historically extremely strong in the storage space?

My initial thought is that Dell and HP still have work to do but I am already seeing evidence they are ready to battle EMC and NetApp in this area as well. It used to be that if either Dell or HP were bidding a deal and EMC or NetApp came into the equation, Dell or HP would concede the storage sale since all they really cared about was the server sale anyway.

Those days are coming to an end. HP is already fighting back by getting outside consultants on the phone with their customers to counter the perceived advantages that EMC and NetApp offer, flying customers out to their executive briefing centers to discuss product road maps and making it much more attractive for them to choose HP storage.So even if EMC and NetApp continue to pick off some Dell and HP accounts, one would expect the deals to take longer and they may no longer be easy picking.

Further, despite EMC’s and NetApp’s size in the storage space, combined they have less than 50% of the total enterprise storage market and lack the sales force that both Dell and HP possess. As Dell Compellent’s Phil Soran remarked during this past week’s Dell Storage Forum, “I was impressed with Compellent’s sales force until I joined Dell and we had to have Dell’s sales meeting in a basketball stadium to hold the 6,000 – 7,000 Dell sales representatives and partners in attendance.”

So are Dell and HP serious about serious about enterprise storage? They have got to be or they are putting the future of their respective companies at risk. Further, they are sending a clear message to EMC and NetApp that they are bringing produc
ts t
o the table that, on a technical level, compete very favorable or even exceed the capabilities of what EMC and NetApp offer.

So no one – enterprises or Dell’s and HP’s competitors – can afford to look at Dell and HP the same way that they have in the past with regards to storage. Dell and HP have fundamentally changed their attitude and go-to-market approaches and are very well equipped to compete and win in this space which bodes well for users who are looking for more choices in storage products that have both more features and better price points.

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