While the headline price of storage has dropped throughout the years, consistent with the IT industry’s long-term ability to extract much more from less, the amount of money spent by IT departments on storage has remained remarkably consistent.
Over the past four years, research by Gartner indicates that storage has typically represented six to eight percent of IT spending. The mathematics behind this is simple enough – even as prices drop, the storage needed in the digital economy is burgeoning.
For resellers the trick is to make money in a world where customers increasingly want to buy services instead of products, where trends like the cloud are changing business models, and where technologies – especially flash – are providing alternatives to traditional approaches.
And all of this in a context where observers believe margins pressure is set to tighten.
Yet for all the talk of the commoditisation of the storage markets, views are mixed as to the current impact on margins. Jarrod Bloomfield, director of the top company in the 2013 CRN Fast50, NGage Technology Group, suggests that while margins have decreased somewhat in the enterprise storage market, the decline is not alarming.
“It is definitely decreasing because it has become more commoditised – but not dramatically. You can still make a decent margin out of storage,” says Bloomfield. It is a view supported by research from Gartner. According to analyst Arun Chandrasekaran, “The storage industry gross margins are probably still around 55 to 65 percent for most of the big mainstream enterprise storage vendors, and it has pretty much remained that way for the past three to five years.”
However, Chandrasekaran confirms that pressure is building. “With public cloud and the adoption of open source paradigms like Hadoop and OpenStack, you can now store data on commodity hardware with open source software. These are very clear trends that do not portend well for the future margins of the storage industry.”
He adds, “This is something vendors and channels really have to plan for moving forward.”
Meanwhile, Mike Romans, Australia & New Zealand country manager, Barracuda Networks, says companies need to differentiate by offering higher-level capabilities around the management software for that storage.
Gavin Cohen, director of marketing and technology, Nimble Storage, however, offers a contrary view on margins. “Most traditional storage products offer little differentiation and have become highly commoditised. As a result, margins have become squeezed in the channel.”
Cohen – whose company is a leader in flash storage – suggests that to preserve margins, resellers should focus on solutions that are differentiated based around innovative storage architectures leveraging modern technologies.
HEAR FROM LEADING FLASH RESELLERS:
• Flash player: VMTech & NetApp
• Flash player: Remora & Violin Memory
• Flash player: Advent One & IBM
• Flash player: BEarena & Nutanix
• Flash player: Cloud Solutions Group & Nimble Storage
There are two points everyone agrees on: first, storage needs are not decreasing; and second, that the industry is moving away from selling hardware to focus on complete solutions.
According Phillip Teague, director of industry and alliance solutions at Hitachi Data Systems ANZ, the proliferation of web and digital data sources is actually adding to overall demand.
This has led to a renaissance of the storage market, he says, but at a price. “Selling is more complex and specialised. Customers are looking for ways to extract value from their information, so the higher up in the food chain partners can position themselves, the higher their margins are and, in turn, providers become more relevant to their customers.”
Resellers should be aiming to build true partnerships where business and technology strategies are developed in tandem, leading to greater margins and more account stickiness, he says.
Teague also points to changing IT consumption models as the other seismic shift. The software-as-a-service movement modelled this trend and it now applies to the whole technology stack, including the storage layer, he says.
Next: New service models
This has opened up possibilities to build new service models. NGage’s Bloomfield says a key area for his company is migration. The Melbourne-based reseller was an early partner of flash vendor Pure Storage.
“An area where a customer will need the most help is migrating from one platform to another, especially when they are moving to a new vendor and where there is no clear migration method. That is probably where the biggest amount of services is to be delivered, as well as training around the new technology,” says Bloomfield.
NGage signed up with Pure Storage in October 2013, supplied by distributor Observatory Crest, “because they are the clear market leader in flash technology. Pure Storage fits in well with the NGage culture and we feel it’s extremely important to always be on the lookout for technology that will help our client,” says Bloomfield.
“Pure Storage addresses current market needs, delivers an in-depth strategy and roadmap, has multiple key customer success stories and delivers tangible value to customers.
“The flash adoption rate is moving quickly. Within the next year we anticipate 50 percent of clients will be utilising flash in the data centre.”
Bloomfield points out the key points that “set Pure Storage apart from the chasing flash pack” as: granular data reduction; consistent latency; high IOPS and performance; simplified management; high availability; and adds that it is cost effective.
He says that business has been “sensational”. NGage Technology Group has seen “great feedback from clients and we have had a number of success stories”.
Nimble’s Cohen, meanwhile, says that reference architectures allow partners to make significant money by delivering fully integrated “stacked” solutions. These often comprise storage, networking, software and services. “Some sophisticated resellers offer fully managed storage solutions where the customer owns the equipment, but the management is provided by the reseller.”
A focus on solutions
Oracle storage product director Sam Voukenas notes that there have and always will be implementation and migration services that go with the storage that partners can deliver. “Services such as data profiling have become really important for our partners.” In data profiling, the partner surveys the customer’s environment and then provides consulting about where the money is being spent, what sort of storage is being used, and recommendations about aligning service levels to the data.
Another trend is the rise of storage brokers, says Voukenas.
“With customers looking for a menu of services and opex rather than a capex models, this has created opportunities for partners to provide more value than just being a managed service provider.”
HDS’ Teague takes a similar line, suggesting that customers want a business outcome rather than simply a budget-friendly product and these outcomes are what CIOs and IT leaders are hanging their reputation on.
“Digital pathology is a good example of where HDS works with software partner Pixcelldata’s Collibio, and solutions and delivery implementation specialist Perfekt to jointly go to market with a high-value solution that addresses a very specific market segment and need.”
Risky business
Resellers are not simply adjusting from product- to service-led sales, they also need to contend with the disruption wrought by the cloud.
While the transition to cloud computing is well documented and acknowledged, the use of private clouds and on-premise storage remains an important source of business for many companies. But tempting as it might be, resellers that want to keep their customers for the long haul can’t get away with pushing those clients towards solutions that go against the client’s interests.
Gartner’s Chandrasekaran says research conducted by his organisation last year identified four primary use cases for storage on the public cloud, all of which are at different stages of transition. These included content delivery services, backup, archiving, and storage for primary application services that reside in the cloud.
“The [companies] I see moving the public cloud mostly are content distribution and archiving. That is primarily because archiving is not performance sensitive and, frankly, content distribution can be better delivered from the cloud.”
Backup has moved less to the cloud in our part of the world, adds Chandrasekaran, “but I hear from my North American peers that it is getting more mature”.
That still leaves a lot of in-house storage to manage and maintain. “Storage administrators care about performance and reliability, so for mission-critical services like Oracle databases, or even VDI, storage needs to be connected to the computing environment using high-speed fibre channel type networks. These are the workloads that will not move to the public cloud in the short term.”
Companies have other very good reasons for wanting to tread a cautious path to the cloud. Recent events such as the outage at public cloud leader Amazon Web Services and the collapse of US-based cloud provider Nirvanix have highlighted the risk of putting all your proverbial eggs in the public cloud basket.
According to HDS’ Teague, “Long-term cost, risk of data loss, and security and compliance issues are other reasons why organisations opt to keep infrastructure on premises or in a co-location facility. Enterprises might opt for a hybrid or private cloud model, but in most cases key components of the physical infrastructure remain in the data centre, especially for production environments.”
He notes, however, that a different set of rules applies in the mid-market segment. “The price point is more important, at the same time, security and compliance concerns are also resonating more strongly than in the past. The more specialised the service offering from [a managed service provider] – vertically and horizontally – the better they can compete with the commodity cloud.”
Oracle’s Voukanas also argues that the cost equation doesn’t always work in cloud’s favour, even for archiving – one of the most common use cases highlighted by Gartner. Voukanas says: “When you compare the costs per gigabyte per month for a cloud environment to what can be achieved in a customer’s data centre using a tiered storage solution, it is very comparable. And in some cases depending on how the data is used, it’s cheaper to stay on the tiered storage solution rather than move into cloud.”
Next: Blended approach
Many customers are opting for a blended approached, says Jason Rylands, national data centre architect at distributor DPSA. He points out, for instance, that many legacy applications do not virtualise well.
“It’s not a case of ‘cloud or nothing’. Instead it is more a case of hybrid. There is definitely room in the channel to provide services as customers make the journey to the cloud and after they have gone to the cloud.”
Barracuda’s Romans agrees: “Instead of competing against the cloud, resellers could take a hybrid approach, which often works best with a physical appliance capable of replicating to the cloud. This gives customers the benefits of having the cloud for off-site storage, with the efficiency of an on-site appliance for fast backup and recovery windows.”
The final piece of the current storage puzzle is the growing importance of flash; Gartner describes flash as a fundamentally disruptive technology.
EMC’s ANZ director of technology, Matt Zwolenski, agrees. “Flash storage technologies were the biggest disruptive force in the information infrastructure industry in 2013, and we see it only accelerating in 2014.”
He says the reason why it’s so disruptive is that it has a major impact on the two things that matter most to customers: first, lowering cost; and second, improving the end user experience.
“For example, with virtual desktop infrastructure projects, flash architectures allow desktop users to experience better performance, enable features they would normally deactivate, and will generally be five to 10 times more efficient in capacity, power, cooling and space. Ultimately, this can lead to significant cost savings for the business and a successful VDI project.”
The flash space has been hotting up, with a bevy of players now active in Australia (see boxes). Flash has also been a contentious space for EMC and its younger rival, Pure Storage – not just commercial rivals, the two vendors are in court over an intellectual property dispute.
Bloomfield notes that in the enterprise space, NGage will typically lead with flash first. “We work with Pure Storage and they are fairly new in Australia. The ease of use and the way they can compress data means customers save money on management and time and power and cooling as well. You can reduce one rack down to a fifth of a rack and you save money right there just on that.”
Gartner’s Chandrasekaran adds: “In the past, to improve performance you had to add more spinning disks – but thanks to flash today you can decouple performance from capacity.”
HEAR FROM LEADING FLASH RESELLERS:
• Flash player: VMTech & NetApp
• Flash player: Remora & Violin Memory
• Flash players: Advent One & IBM
• Flash players: BEArena & Nutanix
• Flash players: Cloud Solutions Group & Nimble Storage
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