Roberson, president and COO of Hitachi Data Systems, Santa Clara, Calif., sheds light on the storage market and Hitachi's channel, sales and marketing approach in an interview with CRN Senior Editor Joseph F. Kovar.
CRN: What are some key trends in storage that you and other Hitachi Data Systems executives see today?
Dave Roberson, president and COO of Hitachi Data Systems
ROBERSON: Over the past 12 months, it's been a very difficult time for the vendors in the industry as prices have eroded and demand has slowed. Certainly, the industry as a whole actually declined in revenue last year, which certainly was not expected in the beginning of the year. EMC has publicly stated that its prices declined between 50 percent and 60 percent last year. Ours declined less than that. The real beneficiary of all this has been our customers because the cost of purchasing on the hardware side has gone down dramatically year-on-year.
A lot of our customers are in what I'll call a 'study period.' I liken it a little bit to what happened after Y2K, when there was a lot of excess capacity in the customer environment and a lull in buying that lasted about six months afterward. I think we're seeing a little bit of a lull like that in the market today, where customers are looking very carefully at what they have installed and working on how to use it more effectively, as opposed to buying more.
CRN: Where is the storage market headed in 2002?
ROBERSON: I think a couple of things will happen this year. I think you'll still see the competitive pressure I mentioned earlier. I think the other thing that will happen this year will be some consolidation in the industry. There are still probably 20 to 30 viable storage start-ups out there working on their technology. Some of those, not all of those, will prove [the value of their technology in customers' environments in, say, the next six months. The ones that don't prove it within that time frame will probably either be bought, the R and D talent or technology they have will be used elsewhere, or they will fold.
CRN: Which part of the storage market does Hitachi stand in? How well is the company doing in that segment?
ROBERSON: In the enterprise RAID storage part of the [global market, which is the high-end, large subsystems competing with [EMC's Symmetrix and [IBM's Shark, we're No. 2. We have, depending on who you look at, around 30 percent to 35 percent of that market.
I believe, by the end of this year, that we have the potential to be No. 1 in that market. Certainly, we'll have the technology to be No. 1, and I think we have the traction. We've doubled our market share in that market in the last two years. If you look at the midrange market, where today Compaq dominates, we probably have about a 5 percent to 10 percent market share. That's a market where I think we have tremendous growth potential. The Hewlett-Packard/Compaq merger will create some opportunity. Dell has aligned with EMC in that market. We really don't have a server vendor we're aligned with there. In the Unix world, we're aligned with Sun and HP, but in the [Windows NT world we really don't have a partner that's a server vendor today.
CRN: In terms of its branded products, how does Hitachi work with the channel? Is the company in a recruitment mode to work with more distributors and/or solution providers?
ROBERSON: We're always looking for new companies to partner with. Do we have an active campaign to add 15 more? No. On the other hand, are we always out looking for people who understand the market and the technology? Absolutely. Companies come and go. We're always on the lookout for companies that understand customers and their storage problems.
CRN: Are any promotions or other channel-related programs coming up?
ROBERSON: We have programs in place around some of the products and solution offerings. That's one part. We continue to have a very channel-neutral pay policy with our sales [staff so that it is as easy for them to source it through the channel as it is to source it direct. And then the last piece is providing the technology and the tools to use it in the most effective way.
CRN: A lot of Sun Microsystems solution providers say Hitachi seems to be incenting its sales force to work with them. In some cases, Hitachi salespeople can make better commissions if they work with a Sun solution provider than if they work with the Hitachi brand. Can you explain that?
ROBERSON: That's theoretically possible because we have this channel-neutral approach vis-a-vis Sun or our own brand. What we like our guys to do is, where they can leverage the channel, please do. Still, about 60-plus percent of our business is with our own brand. We want to keep it that way.
We like the Sun relationship. We like the HP relationship. But those may not last forever. We'd certainly like them to last forever, but nothing lasts forever in this business. So it's really important for us to keep the strong customer ties with our direct sales force and our channel as we move forward. So we're willing to pay for our folks to work with [channel partners so that, ideally, we have the relationship if and when things change in the future.
CRN: Is that the same situation with HP?
ROBERSON: HP is an OEM relationship, so the collaboration works a little differently with them. We do, in fact, pay our sales guys for working with HP and closing business with them, but it's on HP's brand and usually on HP's paper. So it's a little bit of a different relationship there.
CRN: Will the HP-Compaq merger affect Hitachi's relationship with HP?
ROBERSON: We hope not. They've been unwilling to say anything one way or the other because of the various legal constraints at the moment. But we hope that, if anything, [the merger will increase our business with them as we get access to Compaq's installed base with our technology. Compaq doesn't really have a good high-end [storage answer. Hopefully, they can put the StorageWorks products together with our high-end [products and end up with a much stronger business with us. Certainly, we're very eager to work with them in the new structure.
CRN: How would you compare Hitachi's product offerings with EMC's?
ROBERSON: From a hardware platform point of view, we have the best technology in the market today. From a performance, reliability and scalability point of view, we think we have the best technology out there--again, from a hardware perspective. We can compete with them quite well at the pricing level also. On the software side, they have the thought leadership of the industry, although I'm not sure they have the technology leadership in the industry. So what we're hoping to gain is both of those leadership positions, where we have the technical leadership and are looked at as the [company setting the standard for the industry.
CRN: Where does Hitachi stand in comparison with IBM?
ROBERSON: I think we have a good leadership position with IBM in both hardware and software. We've done some cross-licensing with them for our copy software. They aren't to be counted out by any stretch of the imagination, because they come at the problem a little differently. They're not coming at it from the storage perspective. They're coming at it from a 'We'll solve your entire problem' perspective. They can provide IBM Global Services, the server, the software, the storage, the PCs--whatever you need. So it's sort of the one-stop shopping approach, a little bit of a different competitive model.
CRN: Some industry executives and analysts say that as different software functions come together, we actually could see a day where the hardware doesn't matter anymore. It might be possible to do a lot of functions using commodity systems and maybe not need the Symmetrix, the Freedom Storage or the Shark hardware.
ROBERSON: We see that trend as well. I think you need to think about it a couple of ways. We believe that a lot more functionality will move into the network, which is kind of the same thing you're saying. We're going to build technology to support that trend. At the same time, we shouldn't forget that you still have to store [data somewhere. And a lot of companies have come up with the answer: Let's bolt JBODs [just a bunch of disks behind a really hot box and just manage it that way. But you have scaling issues, and you have reliability issues. So even though it sounds like cheap hardware may be the result--and it certainly will be, to some degree--there's still a need for enterprise-class or carrier-class storage hardware.
Now will you get a premium for it, like we do today? Perhaps not. But at the same time, if you look at our large accounts, they're willing to pay a little bit more for a hardware platform that is very scalable and very reliable. They can't afford to have outages because they saved some money by using JBODs. One of the interesting things I'm starting to see is different service levels for different applications. For example, let's say it's an online trading or banking system. That can never be down. If it is down, you lose customers, and there may even be legal penalties involved. So those applications are going to need high-end, more expensive technology. Now to pick on my financial brethren for a minute. People who close the books don't need systems to be full-availability, full-reliability, 24x7x365. There are probably two or three weeks a month where that's terribly important when they're closing the books, but the rest of the month it's not as critical of an application for a company. So perhaps you can use a different or lower-cost platform for that.
CRN: So Hitachi won't necessarily have a big market for premium, mission-critical storage but could encounter a case where a variety of products are needed for the different applications. Could that focus on premium solutions make up for any loss in volume?
ROBERSON: If you look at what customers are going to pay us for five years from now, it will be for the tools to manage their information in the enterprise. Whether it's a big [system or a little one, that's what they're going to pay us for. Hardware, in that sense, is going to become a commodity. But it won't all be equal. As I said, there may be some premium hardware you're going to pay more for. But that's because you know you need it, you know why you need it, and you use it in the most cost-effective way because you have these tools.
And coming back to the channel, which is always important to me, we need to make those things [possible so that the channel can add value at the customer level in ways that they can get compensated for. In other words, we have to leave some room for profitability for the various channel partners we have. And when we develop these tools, they have to be ones where [partners can add their own value on top of the tools we provide.