Welcome!

CRM Authors: Xenia von Wedel, Ian Khan, PR.com Newswire, Steve Mordue

Related Topics: @CloudExpo, Containers Expo Blog

@CloudExpo: Blog Post

Storage Industry Innovation and Disruption | @CloudExpo [#Cloud]

Data efficiency will serve as the metric that separates Innovation Pretenders from Market Contenders

Some companies have gotten ahead of storage incumbents by offering new, more efficient flash storage arrays. These newcomers have raised money in quantities and valuations that would suggest they are market "disruptors." Indeed, press and analysts have been wooed by marketing campaigns to this effect. In reality, it's becoming apparent that these companies are rather "innovators" with much more modest financial prospects.

By overestimating their strategic importance, innovative array companies have raised too much money and may have already missed the window for high-value divestiture to incumbents, who are making up ground fast. Incumbents like HDS, IBM and EMC are fighting back by adding efficiency technologies to their mature product lines. They "get" cloud and are making the sustaining innovations to maintain relevance in a greatly altered storage market.

The real battle for the future of the storage market will be between Tier 1 incumbents and hyperscale cloud providers like Amazon (AWS), Microsoft (Azure), and Google (Drive) that have novel business models, address new customers, and take new cost structures into account. For this reason, they are the true industry disruptors and the ones most likely to succeed in an era of transformation.

The storage industry is in the midst of a major transformation that will forever change its economics. Lower cost, higher performance, on-premise storage and nearly free cloud-based storage are driving both innovation and disruption in the industry.

In Clayton Christensen's seminal book The Innovator's Dilemma, Christensen argues that industry newcomers, who are often perceived as disruptors, end up losing to industry incumbents when their fundamental strategy for differentiation is based on innovation that is "sustaining" rather than "disruptive" in nature.

Why is this so? Creating and selling a differentiated product to an incumbent's best customers motivates the incumbent to retaliate with similar differentiation. And, because incumbents enjoy significant business model advantages over innovators, they are able to capture the lion's share of economic benefit catalyzed by a newcomer's innovation. Christensen thus concludes that a sustaining technology strategy is not a viable way to build a new growth business.

Let's apply Christensen's theory on innovation to the storage array (spinning disk, all-flash and hybrid) space.  Recent market entrants, companies like Pure and Nimble have aggressively introduced flash products that offer cost and performance advantages over those sold by Tier 1 incumbent companies (e.g., EMC, NetApp, IBM, and HDS) and have speculated that these savings will spell the end of HDD storage and storage incumbents as we know them.

By driving down the cost of performance around flash, the all-flash and hybrid startups have made "effective cost" the new metric for primary storage. The advantage AFA and hybrid startups have enjoyed however is temporary, because it is based on savings from data efficiency rather than on a new or different application of commodity flash.  And, data efficiency is a sustaining rather than a disruptive innovation - centered around improving an existing product category serving an existing market.

To eliminate the startups' advantage, Tier 1 incumbents need to deliver mature arrays with superior data efficiency- something that is already available today. This will enable them to reclaim market share with all-flash and hybrid offerings that afford even higher performance at lower effective cost.

Some companies have gone directly down the path of "innovators." While they've executed well to date, as Christensen's research shows, this isn't enough to build a winning company or to be true industry disruptors in the long run. Indeed, storage incumbents aren't running from a fight with the all-flash and hybrid startups. Pushed by sustaining innovation, they are rapidly adopting data efficiency technologies. The addition of data efficiency to mature storage arrays takes the "innovators" advantage away from all-flash and hybrid startups, and returns it to the tried-and-true storage incumbents who are able to use it as a far more powerful weapon in their arsenals.

Data efficiency not only makes effective cost the defining metric for storage, it also delivers savings for storage, bandwidth, energy management, and backup. It is valuable for primary data, data at rest, over the network, and portfolio-wide, and, most importantly, it is applicable to HDD, flash, hybrid, converged and cloud offerings and for many applications from databases to Big Data. Winning companies will deploy data efficiency solutions throughout their on-premise and cloud portfolios because sales teams can't afford to offer it preferentially in one product and not another.

Permabit spent much of 2014 "arming" (HDS, EMC and NetApp, among announced partners) Tier 1 companies with data efficiency so that they can out-innovate upstart flash and hybrid arrays. If Christensen's theory bears out, I expect Tier 1 storage vendors will regain the upper hand in 2015. I'll take that a step further and predict that 2015 will be a tough year for the smaller, upstart array makers.

However, this does not mean that storage incumbents are out of the woods. There is an even bigger threat to their businesses: disruptive innovation.

In contrast to sustaining innovation, which is all about building a better mousetrap for current core customers, disruptive innovation occurs in markets where incumbent products overshoot the base requirements for many potential customers. Christensen argues that disruptive companies find their trajectory by introducing products and services that are not as good as currently available products, but offer other benefits - i.e. they are simpler, more convenient, or less expensive than incumbent product offerings.

Disruptive companies eventually improve their products and technologies enough to intersect with the needs of more demanding customers. When this happens, disruptive entrants with passable offerings ultimately crush incumbents.

The power of this construct is economic. Entering a market and competing effectively at the low end can be a very valuable asset.
As the low-end disruptor moves upmarket, much of the increment in price/margin will fall to the bottom line, and this continues as long as products can keep moving up market, eating away at the margin of the higher cost products from incumbents.

The storage market appears ripe for disruption. Hyperscale cloud providers, companies like Amazon, Microsoft, and Google are classic hybrid disruptors (new customers and low-end pricing), and they are building the fastest growing, multibillion-dollar segment in storage. Disruption favors the entrant. In the case of hyperscale cloud storage, incumbents face a very real threat, because hyperscale providers:

  • Have tremendous scale and balance sheets that give them the ability to outspend and outlast incumbent storage vendors.
  • Are driving the price of storage to $0.00 by investing heavily in data efficiency technologies and in "associated" revenue streams to execute this strategy.
  • Are creating offerings for low-end customers and non-critical enterprise data, but are steadily enhancing the offerings with gateways, data services, and analytics to move up-market.
  • Are exerting deflationary pressure throughout the storage market.
  • Are changing storage to an OPEX rather than CAPEX item by making it easy to consume their storage services.
  • Are attracting customers as fast as they can roll out infrastructure by the container-load!

In contrast to the innovators, disruptive hyperscale cloud providers represent a credible threat to incumbent Tier 1 storage vendors. To counter this threat, Tier 1 companies are aggressively developing and deploying data efficiency technologies portfolio-wide to massively reduce the effective cost of their storage products. This strategy has multifold benefits as it enables them to regain lost margin and share caused by innovators, to extend the life and competitiveness of legacy products vis-à-vis new entrants and hyperscale cloud competitors, and to gain competency for future third-platform,
cloud and SDS products.

Tier 1 incumbents are also adopting an "eat lunch or be lunch" product development strategy that includes funding and developing software-defined storage, converged, and third-platform products with data efficiency technologies, along with building OPEX business models that will cannibalize CAPEX product offerings.

The on-premise market share (as percentage of all storage) is certain to decline over the next ten years, while the cloud market share will increase. Incumbents can drop their effective cost with data efficiency and other tactics and relentlessly grab that on-premise storage market share to retain volumes and margins. They also have the scale to reduce operating costs (as percentage of sales) to prosper in a deflationary market, something the leaner startups cannot do.

As "innovators," the all-flash and hybrid array entrants who introduced primary data efficiency technology will be remembered for making data efficiency a mainstream product requirement, but they will disappoint shareholders and investors as the incumbent Tier 1 storage companies deliver superior data efficiency and reap the rewards of market share.  Disruption favors the entrants, so the real threats are from hyperscale cloud providers as they move up market.

Clayton Christensen's Innovator's Dilemma is a near-perfect model for describing the technical, economic, and business transformation of the storage market. As the critical sustaining innovation, data efficiency will enable incumbent Tier 1s to compete by maintaining market share and margin longer, extending cash flow and product lines, and consolidating share in the shrinking on-premise storage segment.

The smarter storage incumbents, companies like HDS, EMC and IBM, are well on the way to defining and building third-platform/cloud and software-defined storage offerings with data efficiency as they gird for the battle of their lives.

More Stories By Tom Cook

Tom Cook, Chief Executive Officer and President of Permabit Technology Corporation, is responsible for guiding the company’s strategy and vision. He has more than 20 years of experience leading growth stage technology companies. Prior to joining Permabit, Cook led and completed the sale of web application developer, Curl Corporation to a division of the Sumitomo Corporation. Prior to Curl, he was President and CEO of audio tool maker, Cakewalk Software (acquired by Roland Corporation), which he led from start-up to worldwide market leadership. He also served as a director of or advisor to more than a dozen companies and organizations.

Cook has a Master’s degree in Business Administration from the Amos Tuck School of Business Administration, Dartmouth College, and a Bachelor’s degree in Economics from Harvard University.

Comments (0)

Share your thoughts on this story.

Add your comment
You must be signed in to add a comment. Sign-in | Register

In accordance with our Comment Policy, we encourage comments that are on topic, relevant and to-the-point. We will remove comments that include profanity, personal attacks, racial slurs, threats of violence, or other inappropriate material that violates our Terms and Conditions, and will block users who make repeated violations. We ask all readers to expect diversity of opinion and to treat one another with dignity and respect.


@ThingsExpo Stories
SYS-CON Events announced today that IBM has been named “Diamond Sponsor” of SYS-CON's 21st Cloud Expo, which will take place on October 31 through November 2nd 2017 at the Santa Clara Convention Center in Santa Clara, California.
In his Opening Keynote at 21st Cloud Expo, John Considine, General Manager of IBM Cloud Infrastructure, will lead you through the exciting evolution of the cloud. He'll look at this major disruption from the perspective of technology, business models, and what this means for enterprises of all sizes. John Considine is General Manager of Cloud Infrastructure Services at IBM. In that role he is responsible for leading IBM’s public cloud infrastructure including strategy, development, and offering ...
Coca-Cola’s Google powered digital signage system lays the groundwork for a more valuable connection between Coke and its customers. Digital signs pair software with high-resolution displays so that a message can be changed instantly based on what the operator wants to communicate or sell. In their Day 3 Keynote at 21st Cloud Expo, Greg Chambers, Global Group Director, Digital Innovation, Coca-Cola, and Vidya Nagarajan, a Senior Product Manager at Google, will discuss how from store operations...
In a recent survey, Sumo Logic surveyed 1,500 customers who employ cloud services such as Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform (GCP). According to the survey, a quarter of the respondents have already deployed Docker containers and nearly as many (23 percent) are employing the AWS Lambda serverless computing framework. It’s clear: serverless is here to stay. The adoption does come with some needed changes, within both application development and operations. Tha...
Infoblox delivers Actionable Network Intelligence to enterprise, government, and service provider customers around the world. They are the industry leader in DNS, DHCP, and IP address management, the category known as DDI. We empower thousands of organizations to control and secure their networks from the core-enabling them to increase efficiency and visibility, improve customer service, and meet compliance requirements.
Join IBM November 1 at 21st Cloud Expo at the Santa Clara Convention Center in Santa Clara, CA, and learn how IBM Watson can bring cognitive services and AI to intelligent, unmanned systems. Cognitive analysis impacts today’s systems with unparalleled ability that were previously available only to manned, back-end operations. Thanks to cloud processing, IBM Watson can bring cognitive services and AI to intelligent, unmanned systems. Imagine a robot vacuum that becomes your personal assistant tha...
With major technology companies and startups seriously embracing Cloud strategies, now is the perfect time to attend 21st Cloud Expo October 31 - November 2, 2017, at the Santa Clara Convention Center, CA, and June 12-14, 2018, at the Javits Center in New York City, NY, and learn what is going on, contribute to the discussions, and ensure that your enterprise is on the right path to Digital Transformation.
Recently, REAN Cloud built a digital concierge for a North Carolina hospital that had observed that most patient call button questions were repetitive. In addition, the paper-based process used to measure patient health metrics was laborious, not in real-time and sometimes error-prone. In their session at 21st Cloud Expo, Sean Finnerty, Executive Director, Practice Lead, Health Care & Life Science at REAN Cloud, and Dr. S.P.T. Krishnan, Principal Architect at REAN Cloud, will discuss how they b...
SYS-CON Events announced today that mruby Forum will exhibit at the Japan External Trade Organization (JETRO) Pavilion at SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. mruby is the lightweight implementation of the Ruby language. We introduce mruby and the mruby IoT framework that enhances development productivity. For more information, visit http://forum.mruby.org/.
Digital transformation is changing the face of business. The IDC predicts that enterprises will commit to a massive new scale of digital transformation, to stake out leadership positions in the "digital transformation economy." Accordingly, attendees at the upcoming Cloud Expo | @ThingsExpo at the Santa Clara Convention Center in Santa Clara, CA, Oct 31-Nov 2, will find fresh new content in a new track called Enterprise Cloud & Digital Transformation.
SYS-CON Events announced today that NetApp has been named “Bronze Sponsor” of SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. NetApp is the data authority for hybrid cloud. NetApp provides a full range of hybrid cloud data services that simplify management of applications and data across cloud and on-premises environments to accelerate digital transformation. Together with their partners, NetApp emp...
SYS-CON Events announced today that Avere Systems, a leading provider of enterprise storage for the hybrid cloud, will exhibit at SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 - Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Avere delivers a more modern architectural approach to storage that doesn't require the overprovisioning of storage capacity to achieve performance, overspending on expensive storage media for inactive data or the overbui...
Most technology leaders, contemporary and from the hardware era, are reshaping their businesses to do software. They hope to capture value from emerging technologies such as IoT, SDN, and AI. Ultimately, irrespective of the vertical, it is about deriving value from independent software applications participating in an ecosystem as one comprehensive solution. In his session at @ThingsExpo, Kausik Sridhar, founder and CTO of Pulzze Systems, will discuss how given the magnitude of today's applicati...
Smart cities have the potential to change our lives at so many levels for citizens: less pollution, reduced parking obstacles, better health, education and more energy savings. Real-time data streaming and the Internet of Things (IoT) possess the power to turn this vision into a reality. However, most organizations today are building their data infrastructure to focus solely on addressing immediate business needs vs. a platform capable of quickly adapting emerging technologies to address future ...
SYS-CON Events announced today that Taica will exhibit at the Japan External Trade Organization (JETRO) Pavilion at SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. TAZMO technology and development capabilities in the semiconductor and LCD-related manufacturing fields are among the best worldwide. For more information, visit https://www.tazmo.co.jp/en/.
SYS-CON Events announced today that TidalScale will exhibit at SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. TidalScale is the leading provider of Software-Defined Servers that bring flexibility to modern data centers by right-sizing servers on the fly to fit any data set or workload. TidalScale’s award-winning inverse hypervisor technology combines multiple commodity servers (including their ass...
SYS-CON Events announced today that Avere Systems, a leading provider of hybrid cloud enablement solutions, will exhibit at SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Avere Systems was created by file systems experts determined to reinvent storage by changing the way enterprises thought about and bought storage resources. With decades of experience behind the company’s founders, Avere got its ...
As hybrid cloud becomes the de-facto standard mode of operation for most enterprises, new challenges arise on how to efficiently and economically share data across environments. In his session at 21st Cloud Expo, Dr. Allon Cohen, VP of Product at Elastifile, will explore new techniques and best practices that help enterprise IT benefit from the advantages of hybrid cloud environments by enabling data availability for both legacy enterprise and cloud-native mission critical applications. By rev...
SYS-CON Events announced today that Ryobi Systems will exhibit at the Japan External Trade Organization (JETRO) Pavilion at SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Ryobi Systems Co., Ltd., as an information service company, specialized in business support for local governments and medical industry. We are challenging to achive the precision farming with AI. For more information, visit http:...
Amazon is pursuing new markets and disrupting industries at an incredible pace. Almost every industry seems to be in its crosshairs. Companies and industries that once thought they were safe are now worried about being “Amazoned.”. The new watch word should be “Be afraid. Be very afraid.” In his session 21st Cloud Expo, Chris Kocher, a co-founder of Grey Heron, will address questions such as: What new areas is Amazon disrupting? How are they doing this? Where are they likely to go? What are th...