SAN and NAS Mean M&A
In the RAID market, the four leading systems vendors (Compaq, HP, IBM, and Sun) command about 60% of all revenues. That`s in part because their products are competitive with those from independent suppliers, but it`s also because end users often buy storage somewhat blindly from the same vendor that won the server sale.
That may change as storage becomes a larger and larger percentage of total system costs (40% to 52% in the NT market, and growing). This will force users to put more emphasis on storage and may give the independents a slight edge, especially when price is paramount. But there`s a bigger trend at work--one that some think could make it more difficult for big vendors to keep up with smaller vendors. Storage area networks (SANs) and network-attached storage (NAS) decouple the server purchase from the storage subsystem purchase.
Although that may seem to bode well for independents, I`m skeptical because few vendors are banging the SAN drum louder than the large systems vendors. Last month we were extensively briefed by two of the leading systems vendors--Compaq and HP--and SANs were at the heart of each vendor`s strategy. And because deploying a SAN can be a complex integration task, that would seem to give the edge to large vendors that can more easily provide a one-stop shop and the required level of systems integration and services expertise.
As a result, I`m betting that the storage revenue split between systems vendors and independents will remain about the same--around 60% in the case of RAID--despite the advent of SANs and NAS.
To compete in the emerging SAN and NAS environments, independent vendors will have to partner extensively in an attempt to make more than just, for instance, a RAID sale. And, for better or worse, I think SANs and NAS will also lead to an upsurge in mergers and acquisitions next year, not only in the overcrowded RAID market, but also in segments such as tape libraries, hubs, switches, and SAN management software.
Speaking of SANs, Dataquest recently released a report ("Storage Area Networks: Hype, Hope, and Happiness") that provides some interesting insights and market projections. Look for a summary in our next issue. For now, it`s worth noting that Dataquest estimates that the current market (OEM revenues) for SAN-specific products is only about $370 million, and it`s expected to increase to only $1.7 billion by 2002.