'Armageddon' For Hyper-Convergence Startups In 2017, Says Top EMC Exec

EMC VCE chief Chad Sakac is predicting ’Armageddon’ for startups in the crowded, fast-growing market for hyper-convergence, saying many of them will fail or will be acquired in the next year or two.

Sakac, president of Richardson, Texas-based VCE, which officially has been called EMC’s Converged Platforms Division since earlier this year, told CRN that the hyper-convergence market is following a predictable boom-bust cycle that ultimately will mean the demise of startups that have come into the space too late and unprepared to compete with big-spending vendors like EMC.

’In 2017-18, there will be 'HCI startup Armageddon,' ’ Sakac told CRN, echoing a recent post in his influential ’Virtual Geek’ blog.

[Related: EMC Exec: No Competition Between Dell-Nutanix Appliance And EMC Hyper-Convergence Portfolio]

Sakac's latest prediction comes as EMC seeks to solidify its presence in the burgeoning market for hyper-converged infrastructure as major legacy vendors enter the space in earnest and his company prepares to be acquired by Dell.

Sakac didn’t single out any startups that he considers particularly vulnerable, but did say the market’s powerhouses, including Nutanix, SimpliVity and Pivot3 ’aren’t going anywhere.’

EMC’s VCE division dominates the converged infrastructure market, but EMC and other major hardware vendors followed Nutanix and SimpliVity into the market for hyper-convergence, which typically refers to compute, networking, storage and virtualization running together on x86 servers.

Still, while legacy vendors may be late to the hyper-convergence party, they arrive with superior resources, and startups entering the space alongside them are unlikely to have what it takes to survive, Sakac said.

’If you’re forming a startup, you need to have an order of magnitude of improvement over the status quo. It has to be hard for the existing ecosystem to fight back against you. The giants have to be asleep at the wheel long enough for you to have an unassailable solution, and none of those statements are true around the HCI market,’ Sakac said. ’There are the first-movers, then a huge wave right behind that that is too big to be sustainable,’ Sakac said.

In addition, startups fueled by a glut of investor cash are facing a weak market for IPOs. And that route may not be attractive for these companies anyway, Sakac said.

’When you IPO, you expose your burn rate, and if you’re in a market with giants like Dell-EMC, what room does that leave for a startup if you’re burning $4 for every $3 you earn?’

While hyper-convergence represents only a small portion of the overall infrastructure market, it has been growing at a triple-digit year-over-year clip, according to research firm IDC.

Solution providers who spoke to CRN generally agreed with Sakac’s assessment.

’New products emerge and everyone rushes in, then the market gets too crowded and players fall away,’ said Dan Serpico, CEO of San Francisco-based solution provider FusionStorm. ’The emergence of OEM-owned, versus independents like SimpliVity and Nutanix, indicates that they’re going to own their own solutions rather than partner. My prediction is that someone like Cisco, HP, Lenovo and others will buy our favorite independents.’

Michael Thomaschewski, CTO at Long View Systems, a Calgary, Alberta-based solution provider that works with a number of hyper-convergence players and legacy vendors, said solution providers have to separate the real market movers from the hype. ’The one company that seems to be making the most inroads is Nutanix,’ Thomaschewski said. ’All the other hyper-converged startups seem to be hype mode, whereas Nutanix is in execution mode.’

Dell-EMC intends to take a more-is-better approach to hyper-convergence, selling Dell’s Nutanix-powered XC appliance alongside EMC’s VBlock, VxRack and VxRail solutions.

The Dell-EMC merger, currently valued at approximately $65 billion, is expected to close before the end of October.

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