|By Tom Cook||
|March 6, 2016 06:30 AM EST||
A year ago, I wrote a two-part series on how lower cost, higher performance on-premise storage and nearly free cloud-based storage were driving both innovation and disruption in the storage industry. Applying Clayton Christensen's theory of innovation and disruption to the storage industry, my premise was that flashy startups, (e.g., Pure, Nimble, VMem, Tegile and Tintri) that were first to introduce credible data reduction to flash arrays were innovators but not disruptors in the space and would therefore disappoint investors; storage incumbents (e.g., HDS, EMC and IBM) who added data reduction would continue to survive; but the real disruptors would be the cloud players (e.g., Amazon, Google and Microsoft). The combination of struggling share prices, weak earnings reports, recent acquisitions, and raging cloud revenue witnessed throughout 2015 and into 2016 continue to point to Christensen's theory as the explanation for an ongoing economic transformation that will forever change the storage industry as we know it.
As we look at the future of storage: 2016 and beyond, what does it hold for the industry? Today, it's apparent that the last of the flashy startups and remaining storage incumbents are fully engaged in a race to solve what is essentially yesterday's problem. They are building better, faster and cheaper on premise branded arrays... that will serve a declining share of the market. Dependence upon branded solutions will prove to be the Achilles heel for the once innovative array companies. Meanwhile, disruption continues to be driven by cloud adoption. A recent StorageNewsletter article cited an IDC report that suggests cloud environments accounted for 1/3 of worldwide IT spending on infrastructure in 2015 and predicted that overall spending on enterprise IT infrastructure would jump from 28% to 32.5% over the next year.
The accelerated pace of moving data to the cloud suggests that hybrid cloud and hyper-scale cloud providers will make massive share gains. I believe the impact of these gains will drive the adoption of white box compute, open source storage, computing and networking software. Offerings that are "good enough" today, will progress and the software driven, cloud business model will prevail.
Hybrid Cloud Changes Everything
Is it premature to say that the branded storage companies and business are in a permanent state of decline and that hybrid cloud changes everything? I don't think so. Here's why:
Business Model Change
Moving data to the cloud changes compute, networking and storage costs from CAPEX to OPEX items. Storage, networking, and compute are all built from unbranded commodity components,which makes performance metrics and costs of goods easy to compare. Differentiation and margins decline as a direct result of this commoditization. Marketing of branded solutions loses the power to influence decision-making. And, as interoperability between vendors improves, enterprises can gain agility with the ability to switch vendors fluidly.
Buyer Influence Change
Data center buyers emerge and gain influence in relation to storage (specific) admins and buyers. As purchasing relationships change, branded vendors lose influence. This accelerates movement from branded to commodity-based hardware. As data center buyers consolidate compute, networking and storage purchasing into one entity to drive down costs and margin, their buying power becomes more concentrated. White box vendors operate at 10% margin vs. the 55% margin of branded vendors, so incumbents will have a hard time ever competing in this environment.
Emergence of White Box
The hardware platform of choice becomes standards-based, commodity class white boxes for compute, networking and storage. Branded vendor proprietary reliability is instead delivered through commodity component redundancy; "Refresh" becomes a passe term and is constant to improve efficiency. Flash devices enable high performance, negating the requirement for specialized platforms.
Open Source Software with Enterprise Support Is Embraced
Standardization drives migration of value to open source software. As the offerings pass the "good enough" quality and performance bar, maintenance and support dollars move from hardware to open source-based options for software- defined compute, networking and storage. Because more mission critical applications are migrated to the hybrid cloud, and software is disaggregated from hardware, cloud data centers opt for commercial support to deliver an enterprise level of QoS to their cloud infrastructure.
Emergence of Hyper-Converged as an Architecture Option
The hybrid cloud can leverage the hyper-converged architectures supported by more capable, and feature rich open source software. Distributed storage becomes a function of commodity servers, not special purpose storage arrays.
Conclusion: Which Cloud Players Will Ride Disruption to Leadership in 2016?
So, who will the real disruptors be in the coming months? My prediction is that Christiansen's theory of Innovation and Disruption plays out to a "T" and that we'll see three classes of companies benefit from the secular trend and disruption of hybrid cloud adoption. If I'm right, all three will benefit at the expense of branded incumbents.
- White box players and ODMs (e.g., Super Micro, Quanta, Wistron, Inventec). This class of competitor will gain share by selling directly to all hybrid clouds - both hyper scale providers and to a larger group of enterprises that build clouds. To establish leadership in this category, white box players will have to overcome the pressures of highly concentrated buyers, tight margins and codified pricing. These are big challenges, but they are ones their margin structures are prepared to address.
- Hyper scale cloud service providers - By 2020, 50% of storage dollars will be controlled by Amazon, MSFT, IBM, and Google. These companies will leverage core competencies like applications and analytics to subsidize free or near free storage, which will accelerate the migration of critical apps and data to the hybrid cloud and quicken market share gains.
- Commercial Open Source software vendors (Red Hat, SUSE) - These vendors deliver WW support for enterprise compute, network and storage software. Hybrid cloud data centers already leverage Linux at a higher rate than any other OS and because it houses mission critical information, operators will look for single-source support. The company that provides 75% of paid Linux is Red Hat. The halo effect of Linux adoption benefits other open source ecosystems, such as Open Stack, Ceph, KVM, and Containers.
The hybrid cloud is disrupting the supply chain of the IT infrastructure. Just as Clayton Christiansen's theory of innovation and disruption predicts, new business models and products offered by hybrid players are disrupting old models, changing the rules for how data is stored, and winning the battle for storage market share. In this case, it is not just one sector that benefits, but the whole ecosystem of hardware vendors, open source support organizations and hyper scale providers that form a cohesive, well capitalized, capable, and disruptive market force. In the long run, hybrid cloud disruption delivers low cost, scale and agility, all things that benefit the enterprise and the end user.
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