By Steve Duplessie,
The Enterprise Storage Group
Earlier this month, Robertson Stephens sent the tech sector of the stock market reeling downward, crushing many storage stocks, with significantly flawed reasoning.
While we by no means possess the ability to interpret financial metrics, we do know the storage business, and this article is written in reaction to specific assumptions the Robertson report made.
Robertson's overall contention is that a global macro-economic slowdown is inevitable, and that slowdown will directly slow IT spending. We agree. Where they go awry is in lumping storage within general IT spending. We do not disagree that discretionary IT spending will slow, we just don't think storage is discretionary spending. Companies that need 1TB will still need 1TB, and will not be able to put off acquiring it.
Points of contention
The Robertson report stated that "Recent industry checks indicate IT purchases will fall off sharply in Q1..." The report went on to say that now "storage is at risk" and this is based on factors including "macro economic issues and decreasing threat from dot-coms allowing bricks&mortar companies to slow the deployment of their web initiatives."
We do not argue that IT spending will slow. However, we do not believe that storage requirements or spending will slow. We think companies will consider postponing desktop upgrades, but will not have the luxury of pushing off desperately needed storage capacity and storage networking initiatives. Examples include new software management tools (storage resource management, SAN management, virtualization, etc.) that more efficiently manage storage resources. Users must improve these efficiencies as staff diminishes (or stays flat) while capacities increase, or risk significant financial liability.
Second, Robertson's dot-com position seems ludicrous to us. It is exactly backward, as we think the brick and mortars' e-business initiatives will launch the storage sector into the stratosphere. They certainly are not going to slow up moving to the e-conomy just because some dot-bombs went bust. They are moving to the Internet because it offers them the ability to make more money by streamlining processes, improving customer/supplier contact, and aiding in improving user experience, which directly leads to more revenue and higher margins.
We are glad that the dot-coms put storage on the map by significantly raising its visibility - in 1994 the average start-up required less than 100GB of on-line disk, and we think it was closer to 5TB by 1998. The fact of the matter is the storage explosion has only just begun, for these reasons:
- It's all about user experience, and rich media is the future of e-biz. And rich media requires lots and lots of storage.
- User experience means putting content (storage) closer to the users. It's nice that Amazon has 200TB or so in Seattle, but sooner or later that will be replicated 50 times around the world (driven by the reality of a virtual enterprise that propagates data internally and externally).
- Small dot-coms may have started with 5TB, but when brick-and-mortar companies such as GM go on-line for real, they'll start with petabytes. This will more than offset the Robertson contention that VC-backed startup funding is down for storage-intensive companies.
Storage networking adoption rates have just started to take off. We know of no major IT organization that has bought into networked storage that has completed re-working the architecture end-to- end. In other words, users have adopted networked storage because they have to in order to keep up, but few have reached a point of perfection. We estimate that capital cost represents less than 10 percent of the true cost of implementing, maintaining and operating a storage infrastructure, and that the improved business flexibility garnered from these expenditures clearly outweighs any associated capital burden. There is no way that CIOs who have found a potential solution to a massive problem can stop in mid-stream, especially knowing that they will need to support twice the on-line capacity next year, with the same level of staff (at best).
The bottom line
The Robertson report lumps too many quasi-related factors together to be an effective tool, or judge of a specific sector. Storage isn't about discretionary spending any longer; it's about survival. IT shops don't have an alternative, and simply saying, "we'll wait until next quarter" is not viable. The rationale shouldn't be that IT shops aren't going to be buying; it should be that perhaps money will be tighter, and because of that users may take a harder look at lower-cost alternatives for their storage requirements. Anyway you slice it, though, they still need the storage.
There are storage areas that can and will be delayed, such as new replication projects, archival projects, desktop upgrades, etc. Users may decide to keep only four copies of data instead of six. However, primary on-line data requirements will not slow down, and cannot be delayed. Data is the lifeblood of any organization, so unless that changes and business goes back to blind guessing, the storage sector should be just fine for the foreseeable future.
Steve Duplessie is an analyst with The Enterprise Storage Group, in Milford, MA. He can be contacted at firstname.lastname@example.org