As StorageTek Warns, CEO Talks Up ILM And Tape

VARBusiness

During a keynote address at last week's StorageWorld conference in Long Beach, Calif., Martin said enterprise sales were looking to be flat at best this year. In an interview with VARBusiness senior editor Jeffrey Schwartz, Martin indicated StorageTek and its channel partners have had a challenging year so far. He describes the problems as industry-specific. Martin also talked about the company's focus on ILM, the role of tape and competitive issues.

VB: Revenue growth was in the 5 percent growth range last year. You don't seem to think this year will be as good?

Martin: What we've said to Wall Street is we are going to grow our revenues 2 to 3 percent higher than the market. This is a very spotty market right now. We have pockets of growth, and surveys back it up. People are struggling in terms of spending money. That's quite frankly where our ILM story plays well. Those people that have less money to spend or want to spend the same amount and need to handle SLA requirements or data-growth requirements, the only option they have is some version of an ILM solution.

VB: You have acknowledged that there's a lot of hype around ILM, yet customers don't have ILM strategies. So, how are you addressing that?

Martin: If you take a look at who's speaking about ILM, one of our competitors, the 800-pound gorilla, talks about it but they can't deliver. The stuff we're talking about we are delivering, and it is not a technology. It's a combination of systems, processes, as well as technology. I'll tell you our customers are not telling us it's hype.

VB: As you increase your focus on ILM and software, will tape remain the cornerstone of what falls into that?

Martin: Tape is absolutely the cornerstone of an ILM strategy. Even recently our friends at EMC recognized you need to have tape as part of your offering. We think it is the bedrock of an ILM strategy.

VB: So what was your reaction to EMC jumping into the tape space?

Martin: I had no reaction. They were selling Quantum drives and it didn't have a material impact. We competed against IBM for 35 years in the tape business; now EMC is bringing ADIC into the marketplace, God bless them. We don't believe their technology is anywhere remotely as close to ours. We also think it will help us in our channels because I think there's going to be a lot of overlap and conflicts as ADIC's products are being sold through Dell and now EMC. So, it will give us an opportunity to pick up some good distribution and channel partners.

VB: Before choosing ADIC, did EMC approach you about OEMing your tape drives for them?

Martin: I'm sure EMC talked to everybody. But at the end of the day, we're not a tape company; we're an ILM company, EMC is an ILM company. We think our ILM story is compelling. I think it would be difficult for EMC to have someone who's in their same space, not just a tape company, bringing that offering in. I think the challenge they have is they have a great brand image in disk, and ADIC has a great brand image in low-end libraries, but they don't have a brand image at the enterprise. I think it may actually water down the brand.

VB: You've launched two major new products, the SL8500 and the SL500 tape-automation libraries. How does that map into an ILM strategy?

Martin: The 8500 has the ability to play in both open and MVS simultaneously, which allows you to mix media. You don't have to partition your libraries, and so your ability to get much more efficiency out of your libraries, because of the way it's architected, your ability to scale gracefully, either through reliability, or from storage, is huge. It runs 24/7. If you're in a hospital environment or an airline environment and you have to be up all the time, it basically allows you to do that. It has the ability to manage the storage capacity across all of your computing platforms. Much of ILM is managing storage that you need, whether it be backups, or for archival. So that plays very strongly into tape and ATA offerings. So, I think it's the cornerstone for our technology. The SL500 is a very similar story; it's for small and medium environments, and it goes from 30 to 500 cartridges. We've partnered with our OEM partners like Sun, we have rack-mounted solutions so they can roll out our products along with their blade servers and you have a very, very compact solution that also allows you to scale.

VB: There's a lot going on in the disk world, too, with Serial ATA and Serial Attached SCSI, to name two. What kind of advances do you see coming to the tape world?

Martin: We will be launching our next-generation tape drive early next year. We continue to believe tape has tremendous life. We are selling more and more information, and these tape subsystems are critically important to us and to our customers--I think faster access, faster transfer rates, more density, obviously better price performance, almost an extrapolation of what you've seen from StorageTek over the last five years. The other part of that is we see that the open world is absolutely ripe for the level of efficiency and effectiveness we've had in MVS. So a VSM type offering that we have in the MVS space, you'll see that type of offering ported to open systems. And that will let people more effectively manage their data in terms of performing local and remote backups, mirroring, recovery, media conversion, so you'll see that type of stuff. It's all about moving, managing and classifying information.

VB: You're coming out with a new tape drive next year, yet how quickly does that become commoditized?

Martin: We think there are three different levels of tape needs. At the highest level is where most of the large customers are today--when they're using tape with very high-duty cycles. The amount of information they're putting on those tape drives and extracting from is significant. If you just need to write something once and not use it, you can quite frankly use a scratch loader. But if you're going to be using it as an active part of an ILM solution where you're pounding the living hell out of it sitting behind a virtual solution, that is not a commodity product. The level of complexity and sophistication in that is huge. And there are only two players in that space; it's IBM and ourselves. The amount of research and development to build one of those tape drives is incredible, and effectively is a barrier. Customers that decided to buy a lower-end tape product like an LTO or an SDLT and they put them in those environments, they're just not as robust. Those that do typically throw those drives away into the trash bin.

VB: What new breakthroughs do you see in tape-drive technology?

Martin: I think you'll see us doubling the amount of channels we have on those drives, you'll see us come out with a terabyte cartridge in the very new future, I think you'll see us doing double reel like we have on our 9840 for fast access. Fundamentally, what you've been seeing for the past few years, it's more information in less and less space. More channels and parallel transfers.

VB: Do you see any significant acquisitions?

Martin: We don't really talk about that, but certainly we are very aware and very cognizant of what's happening in the marketplace, and we have a fairly active view of that marketplace.

VB: Do you see broadening either through partnership or acquisition into other product categories like EMC has done through its acquisition of Documentum?

Martin: No. We believe our value proposition is storage. We will stay in the space that includes managed storage. We will interface as the Switzerland of the storage industry. We will play with Legato, Tivoli, Documentum and whatever application subsystems there are out there.

VB: Will you increase focus in other areas of storage outside of tape?

Martin: We believe we have a very strong ATA offering, and that's going to take us into various opportunities. We will continue to support our disk subsystems; we're building a nice business with both our direct and indirect channels.

VB: Are you looking at serial-attached SCSI as well?

Martin: We keep watching it, waiting for it to take off. We're focusing on iSCSI. One of our offerings last year was based on iSCSI and the big mistake was the market wasn't ready for it.

VB: Do you feel it is now?

Martin: I think it's getting better, but I think it has a long way to go.

VB: What about Serial ATA 2?

Martin: It's going to be the drive of choice.

VB: What are the biggest pressures you are feeling from both partners and customers?

Martin: Most of our customers are being challenged to respond to an ever-increasing demand for service levels with flat to slightly declining budgets. Most of my large customers through acquisitions are now talking about substantial data-center consolidation. That's been a priority for the past 12 to 18 months, and it continues to be a priority today because that's one of the ways of getting cost out of systems. They are also very frustrated with backup and recovery. Customers are saying that they can successfully back up, but they are afraid to recover. Recovering the application now is an irrelevancy, because data is created via the Internet in all sorts of strange ways, so we have to think about recovering systems. Their ability to do backup and recovery in an effective way is their second-biggest challenge. And then they have the government sitting over them with a sword saying you have to get compliance done by a certain dateyet you have to do that without breaking the bank. Customers are still very cautious, very conservative; we see decisions are being delayed.

VB: How about the channel partners?

Martin: I think our channels in the first half of the year have been struggling more than they have in the last couple of years and I'm not sure if it's the segment of the market they cover but if you look at some of the recent announcements--Overland lowered their revenue projections and they blamed it on their channel. ADIC had an announcement at the end of their quarter. Obviously they have a big channel. Something tells me the channel is a challenge right now. I still believe customers of every stripe, the largest customers to the smallest prefer to do business with VARs. When they buy a computer, they buy storage. When they have major complex problems to be solved, they will come to a vendor like me that has the system-engineering skills to do that but what I'll call either the very specific vertical applications where the VARs bring value specific to geography where the VARs have good presence and relationships, there seems to be a desire to do business with the channel.

VB: When we talked to you in the beginning of the year, you talked about your approach to the channel and your strategy of reducing the number of channel partners. Are you still targeting to whittle that down to 175 this year?

Martin: Our view is we want to support our channels well, and if you have a lot of channel partners that are overlapping and conflicting with each other, that becomes very difficult. So, what we are looking to do is work with the maximum number of channels that we can effectively support and cover the market. What we don't want to see is two or three guys with our products fighting each other in front of one customer. No one ends up winning. We are also looking to give them resources to make them more successful.

VB: That said, would you like to see a higher percentage of your revenues coming from those partners?

Martin: Of course. We have a long-term goal to have well north of 60 percent of our revenues coming from channel partners. We also have a great direct sales force--we will always have a direct sales force--and they work pretty well in partnership with the VADs and VARs. I couldn't have said that three or four years ago when I first came here. But I think the working relationship is pretty good. We need to also expand our reach beyond our traditional customer set to midtier companies and small and medium businesses, and clearly the best path to those customers is through VARs. But it's not just those customers, an awful lot of large companies use VARs for a variety of reasons--for technology support because of relationships and presence to purchase products.

VB: A lot of customers are still complaining about license fees for backup-and-recovery products. Since Veritas is a key player in that space and often the subject of those discussions, are you hearing that as well?

Martin: I can tell you a horror story. We are a partner of Veritas, and we partner very well with them. But we had a customer who is going through a data-center consolidation as well as building a second data center, and the amount of money they can spend for doing the backup hardware and software was about half of what Veritas wanted to charge them for the software. The customer was very seriously considering using Veritas--they like it--but was seriously considering throwing Veritas out and embracing someone else's product that was at price points that would meet their budgets. They have no choice; Veritas hasn't budged on the price.

VB: Have you intervened as a partner?

Martin: We tried to. They said what I would say probably is that if you make an exception here, then it takes my overall pricing down. I don't live in Bloom's shoes, so I have no idea what his challenge is, but clearly the pricing license fees are an issue. As software and services become a bigger portion of the pie, there's going to be tremendous pressure on both services as well as software and license fees, because it has been allowed to grow relatively unchecked over the last couple of years. Now it is going to become a bigger portion of their budgets, and customers are going to rightly raise hell about it.

VB: So are you going to stick with Veritas?

Martin: Well, we go where the customers want to go. If customers want to use Legato, we also partner with Legato, as well as CommVault. But we are also very good partners with Veritas. My assumption is economic reality will dictate what decisions they make.