Note To EMC: 'You've Been Served'

IBM's recent decision to dump its underachieving network storage product in favor of recruiting Network Appliance to OEM its entire line of NAS and IP-SAN storage wares has amounted to a declaration of war against market leader EMC. But despite last month's unexpected pact, observers are quick to note that IBM will hardly light the world on fire anytime soon with its own logo'ed versions of the entire NetApp product line.

That's because NetApp CEO Dan Warmenhoven says he doesn't expect his company to recognize material revenue from the deal before 2006, and even then it will only amount to 10 percent of its overall revenue. So, is this a case of underpromising in hopes of overdelivering? Or is Warmenhoven trying to keep his own channel of storage integrators in the fold?

Most observers agree the pact is a tacit acknowledgment by IBM that it needed help in the rapidly growing segment of mid-tier networked storage, while an opportunity for NetApp to quickly expand its reach through IBM's channels. Turning to NetApp to fill that void was a natural choice, partners and rivals agree. "IBM really hasn't been a player in the NAS space, so they turned to NetApp," says Bob Schultz, senior vice president and general manager of HP's network storage solutions.

Under terms of the agreement, IBM will offer NetApp's entire portfolio as IBM-branded solutions. Those products include NetApp's NearStore and the NetApp V-Series Systems. IBM will gradually phase out its own NAS offering, the NAS 500G Gateway, which is mainly suited to the high end, notes Bill Colestock, senior director of the storage business unit at Mainline, IBM's largest storage integration partner. "Where IBM had a hole was in the midrange of the market," Colestock says. "This fills that hole."

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While that's good news to a solution provider like IBM Global Services, which already was selling NetApp gear but now gains a much broader reach, it remains to be seen whether NetApp's existing partners will stick around, or start jumping ship.

Indeed, one longtime partner, who requested anonymity, is convinced that IBM will use its market clout to undercut NetApp partners on the pricing front. "Regardless of what all this channel-friendly [B.S.] is, it's not an abnormal occurrence," he says.

But Kevin Schoonover, director of engineering at Arrow Electronics, says he doesn't anticipate the two companies' channels stepping on each other. "Since NetApp has gone through distribution, they have done an excellent job at keeping a very clean channel," he says.

Hayes Drumwright, president of Trace3, a NetApp partner in Irvine, Calif., also is not concerned. "[NetApp has] good protections in place," he says. "Especially in larger accounts, this will give us more credibility in enterprise accounts."

For EMC's part, it argues that the pact underscores weaknesses in both companies' storage businesses. To wit, IBM's fourth-quarter revenue for network storage products fell nearly 13 percent, while EMC's was up 17 percent, and NetApp's jumped nearly 30 percent, according to IDC's most recent Storage Tracker report.

One thing is clear: There appears to be little overlap in IBM's and NetApp's solution-provider bases. "There is significant space for us to get synergies here," Warmenhoven says.

Warmenhoven discusses the alliance:

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...Our expectation is there will likely be very little overlap, and that there won't even be channel conflict as a result.

VB: Do you see broadening your own solution-provider base?

Warmenhoven: Oh, yes, we will continue to expand our channel structures, 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.

VB: How will the ibm deal 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 relationships 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: 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.

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 [who] can pick it up.