Data storage sales since the start of 2013 have declined, with every major vendor taking a hit.
Networked storage declined 0.9%, with leaders EMC Corp. and NetApp Inc. growing slightly, while IBM, Hitachi Data Systems and Hewlett-Packard Co. revenue dropped.
When vendors explain why they failed to meet expectations, they often blame the global economy. But many industry analysts see a more obvious reason for slow storage sales: It's the cloud, stupid.
"Secondary storage is big business," said Marc Staimer, founder and president of Dragon Slayer Consulting in Beaverton, Ore. "A lot of the data that would have gone to what the big guys would call secondary storage ended up in the cloud."
What about the argument that the largest data storage vendors make their own cloud storage sales directly to cloud storage infrastructure providers? "They recognize it as an opportunity, yes. But they are also losing business," Staimer said. "They didn't just say 'This is a great idea.' Instead it was, 'Holy crap! We've got to do something about this.'"
That isn't how EMC CEO Joe Tucci sees it. At an April earnings call, Tucci was asked about the slowdown in the storage market and whether cloud spending hurt sales. Tucci said there is money to be made selling storage to companies building private clouds, but acknowledged that "a tremendous amount of shadow IT go[es] to public clouds, and that's good and bad." Bad, because enterprises lose some control of information, and good, because new approaches drive innovation, he explained. In the end, though, he declared, "We do not see this as a negative trend for us."
Still, while storage vendors see cloud providers as a growing market, the largest cloud providers such as Amazon and Google bypass the large vendors by building their own storage with commodity hardware.
Morgan Stanley, IDC see shift to cloud storage sales
Morgan Stanley this week released a report underscoring that reality. The Wall Street firm said Amazon's cloud business will cut into traditional server and storage offerings from large vendors. Morgan Stanley analysts predict Amazon could seize $152 billion of the IT dollars out there, and they assessed the data storage opportunity for Amazon at $25 billion.
Jon Toigo, founder and managing principal of Toigo Partners International, said he is not sure if Amazon can pull it off. "Amazon also has a very highly publicized and problematic track record with availability," he said.
Toigo compared cloud storage vendors to the storage service providers of the '90s, who were selling mostly to infrastructure providers. "[Some reports] have said that 88% of cloud storage is being consumed by cloud infrastructure providers; this is not even end users, it's cloud guys buying from cloud guys."
Toigo does concede that cloud storage is making strides in the archive space. "My clients are willing to consider cloud for application hosting, and for backup, and [disaster recovery] DR in some cases, but they don't intend to give their production data to a third party," he said.
Not so fast, said Ashish Nadkarni, a research director specializing in storage at Framingham, Mass.-based IDC. "Yesterday I was talking to someone [a provider of network gear] who was telling me that one of their business units runs their analytics environments on Amazon Web Services," he said.
Nadkarni said the problem with getting a good grip on how much cloud storage sales are cutting into storage sales generally is that both sides are a little bit right, and things are changing quickly. "Storage vendors do indeed supply storage systems to cloud providers," he said. But, he added, "that number is rapidly declining." Instead, cloud providers are going directly to OEM providers and building their own systems. "The bigger the provider, the less chance that cloud provider is buying systems from big companies," he said.
For a glimpse into the future, Nadkarni said, just take a look at IBM's $2 billion SoftLayer acquisition this week. SoftLayer is the largest privately held operator of a public cloud infrastructure. Storage is a small part of SoftLayer's cloud business, but it gives IBM a hedge against declining storage sales. "IBM has had many false starts with a public cloud offering," Nadkarni said. "But with SoftLayer they can effectively deliver a public cloud. This is going to become the next frontier for all these storage vendors." Ultimately, he said, all the major vendors will have to offer a direct competitor to Amazon. "The fact of the matter is that it may not be a worrying trend at this point for companies like EMC," he noted. "However, it is a trend they cannot ignore."