Any data storage industry executive or analyst worth his or her filesystem knows that as soon as NAND flash became enterprise-ready-for-prime time in the 2006-2009 time frame, the industry was permanently upended.
One could argue that ever since NAND flash evolved to become the enterprise storage technology that dreams are made of, the storage industry as a whole has been in consolidation mode. Generally, a handful of companies (such as Samsung, Intel, WD SanDisk, Toshiba and Micron) provide the flash media hardware, with the software innovation coming from smart young companies—many of which have been, or shortly will be, acquired by large general-purpose IT providers. That is, if they can survive on their own long enough.
Things are now beginning to tighten up. We'll explain in a minute.
For the record, solid-state NAND flash memory, invented by Toshiba in the late 1980s, is revolutionary because it has no mechanicals, has much faster read/write performance than spinning disk drives, draws far less power from the wall and continues to show capacity improvements.
HDD Storage Gets a Kick in the Controller
New-gen flash storage companies such as Violin Memory, XtremIO, XIV, Fusion-io, Nimble, Kaminario, 3PAR StorServ, Coraid, Nimbus, Pure Storage, Skyera, Tegile and Solidfire popped up all at once because storage's hard-drive habit hadn't been seriously disrupted for more than a generation, and it needed a swift kick in the derrière.
Even though larger vendors like EMC, IBM, Dell and Oracle/Sun had their own flash options, flash storage seven years ago was not central to their strategies. This is largely because their installed base of mostly institutional buyers—more likely to buy from older, more established vendors—are slower to move to new-gen tech hardware.
With the coming of higher-quality NAND flash media, better controllers, improved wear levelers and vastly more efficient management software, the scene was set for wholesale disruption, which in turn caused companies to be swallowed. How? We shall explain.
One could say storage market consolidation started in earnest in 2007, when Dell decided it had enough of reselling EMC's storageware and bought iSCSI/Serial ATA drive maker EqualLogic. In 2008, IBM bought deduplication provider Diligent and Israel-based XIV, which hasn't exactly been a huge market mover but has brought Big Blue some high-end storage customers.
HP Gets 3PAR, Dell Gets Compellent
Dell then added Minnesota-based Compellent's auto-tiering "Fluid Data" tech in 2010, right after losing a $2.3 billion bidding war with HP for 3PAR earlier that same year. By the way, Dell obtained a first-class storage company at a much lower cost ($940 million); Fluid Data is now Dell's first-string storage product.
EMC outbid NetApp for Data Domain in 2009 (spending $2.1 billion); it also bought XtremIO in 2012 and took its time refining the technology to fit its customer base. In the last year alone, we've seen SanDisk buy Fusion-io for $1.1 billion (June 2014) and then watch Western Digital buy SanDisk for $19 billion earlier this month.
Of course, Dell's $67 billion buyout of the world's storage market leader, EMC, on Oct. 12 is Exhibit A in all of these power struggles. It's not only the biggest storage deal in history; it's the largest acquisition in any IT sector, ever.
The storage-industry power struggles are far from over. There are still quite a few young companies out there looking for sugar-daddy buyers. They include Violin Memory, Nimble, Kaminario, Nimbus, Pure Storage, Skyera and Solidfire.
Coraid, which sold a scale-out NAND flash, direct-attached-over-Ethernet system, imploded earlier this year after it lost out on a huge 5PB casino video security storage deal that it needed to stay alive.
Not Going to Be Room for Everybody
It's going to be tough for the other companies all to survive long term. Most of the all-purpose tech vendors already have flash storage divisions and aren't looking for much more flash IP. Exits to deep-pocket benefactors are getting harder to come by.
IT hardware companies in general have been in a desperate survival-of-the-fittest battle. Read Scot Petersen's superlative analysis here in eWEEK, "Dell-EMC Mega-Merger Extends Pace of Enterprise IT Consolidation."
None of these new-gen storage companies are profitable on their own, NetApp Vice President of Product, Solution and Services Marketing Lee Caswell, a longtime storage industry veteran, told eWEEK.
Caswell has worked the IT business from several perspectives: startup (he was the founder and CEO of early converged scale-out storage maker Pivot3), new-gen progressive companies (VMware and Fusion-io) and old-school established vendor (NetApp).
Young Companies Not Getting Closer to Profitability
"When new companies get a piece of the market, they get picked up by a bigger company, and that becomes their way to become profitable," Caswell said. "This is the part that people have not figured out; they are not profitable, and they are not getting closer. When the growth stops, you have to figure out how to be profitable. Well, then the wheels fall off.
"Without an acquisition target, there is no path to profitability because they are losing money—not on gross margins, but they're spending the same amount of money to acquire every customer. In part, we've [NetApp has] lost share to companies who are just buying the business right now. We don't think that's sustainable."