The VARBusiness Interview: Network Appliance CEO Dan Warmenhoven

IBM has been hungry to compete in the midrange, and Network Appliance has been looking to gain its footprint in the data center. Their pact, disclosed today, in which IBM will OEM NetApp's products, fulfills both goals and certainly promises to give NetApp integration partners more credibility with large enterprise customers. NetApp CEO Dan Warmenhoven discussed its alliance with VARBusiness senior editor Jeffrey Schwartz.

VB: Who initiated this deal?

Warmenhoven: The initiator was IBM, who approached us, but it was very attractive to us. We have struggled to scale our distribution to get coverage. If you look at how we compete with EMC, we win a large percentage of the deals we're in for, but we're just not in a lot of deals, relative to them. So this is an enormous opportunity for us. It gives us access to a lot of major accounts in their direct channels that we are not in. It also gives us access to countries we are not in or have just started to open up, like China. But more importantly it gives us access to a terrific array of very high-quality distributors [and solution providers].

VB: With IBM partners now carrying your line, what impact will that have on your existing partner base?

Warmenhoven: I think it's pretty minimal. Where I think they are going to go, at the moment, they have [thousands of] partners that carry the IBM storage products, and their expectation is that [their partners will] be certified to carry this one. If you look at the most likely outcomes, our expectation is there will likely be very little overlap, and that there won't even be channel conflict as a result.

VB: I met with founder Davit Hitz recently, and he made no bones about the fact that he sees Network Appliance eventually becoming a tier-one storage vendor [going head-to-head against EMC, Hitachi, IBM and HP]. Was that a precursor to this agreement? Will that be a key catalyst in reaching that goal?

Warmenhoven: It certainly helps. Was it a precursor? No. We've had our sights set on being a tier-one storage supplier for the last five years, moving out of departmental solutions and into data-center-class solutions and enterprise-class solutions. I think this certainly gives us an endorsement, and it certainly gives us access to a number of enterprise accounts that would take us years to develop on our own.

VB: That said, what do you need to do to get to that tier-one status?

Warmenhoven: I don't think there's anything that's missing except to get our solutions in front of customers.

VB: Do you see broadening your own solution provider base to do that?

Warmenhoven: Oh, yes, we will continue to expand our channel structures, and we will continue to build out our direct sales force, and we will continue to build a set of star partners and other regional partner networks. We will continue to build a two-tier set of VARs. We are in active discussions with guys like Arrow about how to accelerate the business there. So we are going to develop on all fronts. This is additive -- this isn't a replacement for something.

VB: Did IBM want to buy you guys outright?

Warmenhoven: I can't comment on that, but my P/E is a little tough to digest [ed note: it's 54 with a market cap of more than $10 billion].

VB: Would you like to be acquired by IBM?

Warmenhoven: As a CEO, I only care about shareholder value. [But] I like being independent.

VB: How will this expand NetApp's installed base?

Warmenhoven: In the near term, not that much. It will take them a year to phase in the entire product line. Going forward, I think it's going to be quite significant. If you project out a few years, I can see them easily doing 10 percent of our total business.

VB: How will this affect your relationship with Veritas?

Warmenhoven: The Veritas relationship has been one of our really prized strategic relationship and has paid enormous dividends to both. The fact that we are doing integration work with Tivoli doesn't take away from the Veritas relationship at all.

VB: By virtue of the fact that you are making IBM/Tivoli your preferred backup and recovery solution, that certainly doesn't bode well for Veritas?

Warmenhoven: Oh no, we're not. We're moving them to the status to "a" preferred. Right now, we have one preferred and that's Veritas. We are going to work with Tivoli to get them up to the same level. This is not a replacement for Veritas. Tivoli is definitely not "the" preferred solution. Here's the difference between supported and preferred. We have a lot of relationships with data-management software companies--CommVault, BakBone, CA and others--and we certify interoperability with them. If the customer chooses them, we will support them, etc. Preferred means we are doing things to more tightly integrate our two product solutions. We have done no work with regard to that with Tivoli. We essentially do the same kind of thing--identify opportunities with Tivoli to integrate our two technologies and move them from just the certified or supported category to one we can say is preferred. Customers that have Tivoli will get more value when they have Network Appliance infrastructure, just as customers with Veritas get more value when they use Network Appliance infrastructure.

VB: So what will be key to NetApp's growth moving forward?

Warmenhoven: Just execution. We have a year coming up--here, our fiscal year starts in May--where we are basically in the course of the next 12 months refreshing our entire product line. That's the key. Bigger, better, faster and cheaper. Executing on that series of product transitions is key for us.

VB: And EMC is enemy No. 1?

Warmenhoven: Absolutely. We made no bones about that. It has been inside Network Appliance for the last several years.

VB: What is their key weakness that you feel you can exploit?

Warmenhoven: Lack of unified architectures. If you look at the range of solutions customers are looking for in order to address that range, EMC has four separate product architectures with very limited interoperability and very limited flexibility in terms of how customers migrate from one to the other. Our single architecture addresses all four of those types of ranges--high end, low end, SAN, NAS, primary storage, secondary storage. A customer who buys our solution can use it an any one of his different application environments, whereas with EMC, it means going to a different product, different user interface, different application interface, different management interface and no interoperability.

VB: How much of your sights are on HP as well?

Warmenhoven: The way I describe the competition to my employees is the company we have to take share from is Hewlett-Packard; the company we have to beat to do it is EMC. And that's typically what's going on in the market. HP is losing share, and EMC and [NetApp] are in a fight to see if we can pick it up.

VB: Do you think with HP's new leadership in place that that will be increasingly more difficult to do?

Warmenhoven: Their storage product line, from my viewpoint, atrophied. It was really, really strong, but it has not been nurtured. We'll see.

VB: What about Hitachi?

Warmenhoven: They've launched a NAS blade, which has been available in Japan for quite some time now, so they're taking it from Japan to a global environment. It's from my viewpoint a point solution. We have six platforms in our product line that scale in price and performance and so on. They have one. Theirs is NAS-only as opposed to all virtualization services we provide and all the application integration services, so I think there's enough differentiation that's not really an issue.

VB: Do you see doing any more major acquisitions going forward?

Warmenhoven: We've done several acquisitions. We look at that opportunity to expand our market footprint.

VB: [With your agreement to certify IBM's tape products], what's your view of the future of tape?

Warmenhoven: Diminishing. Tape's days will always be the preferred archival medium, but I think customers are looking to reduce the frequency with which they write to tape, and they will start using more disk-to-disk backup techniques for single-file recovery or rolling back to yesterday's version of a database or something, and also for business continuity or disaster recovery. Disk-to-disk technologies are very cost-competitive for those two environments.