Those of us with a bit of institutional memory recall a brash upstart named Network Appliance that burst onto the storage scene to challenge EMC -- itself once a brash newcomer -- and other storage royalty like IBM. But that was 20 years ago, as difficult as that seems to believe, and the company, now named NetApp, is $5 billion-plus storage leader in its own right.
In this installment of the IDG Enterprise CEO Interview Series, CEO Tom Georgens talked to IDGE Chief Content Officer John Gallant about what's driven NetApp's success and shared his views on key technology issues like big data and deduplication. Georgens also explained why NetApp's single-architecture approach gives the company a big development and agility advantage compared to EMC, and explained why "server vendors" like Dell and IBM are falling behind in the storage arms race. Furthermore, he talked about NetApp's keen focus on the private cloud and how partnerships with companies like Microsoft and Cisco are helping NetApp deliver quickly on that emerging model of computing.
John Gallant: What's the NetApp mission, and what defines the company?
Tom Georgens: At our core, we're a storage and data management company. NetApp has been around roughly 20 years, and our history has been about innovation, about enabling people to use their information assets more effectively and more cost-effectively than they previously could or can now with alternative approaches. NetApp has been an innovator from day one. We effectively invented the NAS business back in the early days of the company. With the demise of the dot-com bubble, NetApp lost a substantial amount of its customer base and needed to make a very, very important transition into the enterprise space. We innovated there around storage efficiency, around integration with business applications. Then we went through the most recent recession, and we came out of that as the innovation leader in storage for virtualized environments.
So our core area is storage and data management. That's been our focus from day one, and we intend to be experts in that, although clearly as we get bigger we'll expand our footprint. Innovation is in our culture, innovation is key to what we do, and the message to the team is that ongoing innovations that are relevant to the customer are key to our ongoing survival as a company.
Our technology enables people [not only to] store stuff, but make better decisions, bring products to market faster, lower costs, drive velocity. We're not in the disk drive business, we're in the storage management business.
Gallant: A recent analyst report said you are on "an unstoppable growth vector." What's driving that, and where in the company are you seeing the greatest growth?
Georgens: Words like "unstoppable" have a certain entitlement message, and I clearly wouldn't want to imply that. We need to earn our business and our customer trust every day. But the business, even from the early days, has outgrown the market by several [times] for 20 years. Our last fiscal year which ended in April -- we run an unusual fiscal year -- was 30 percent year-over-year growth for us. It was our biggest market share-gain year in our history. Clearly very, very solid, and almost all of that growth [came] organically. Since then, the overall macro environment has not been quite as robust as it was last year, but our growth for the first six months this year in our reported quarters is 20 percent-plus. Admittedly, there was some inorganic activity in that, but nonetheless still a market share gainer.
The key to that is bridging the gap between available technologies, software innovation, and customer need. NetApp recognized early on that this virtualization trend was not only relevant for servers, it had big implications for storage as well. Our innovation has enabled more virtualization, which is the evolution to shared infrastructure or the private cloud or whatever terminology you want to use. That's been a big part of our dialogue with customers: How do they redesign their IT infrastructure, take advantage of this new technology, and drive cost efficiency, flexibility, and velocity?
Gallant: Within your revenue base, what product line grew the fastest over the past year?
Georgens: Our technology base is driven around a single core technology. We have a bunch of other smaller products, but Data Ontap is our core operating system, and we apply that to different markets and to different applications. But most of [the growth] came in our core storage and data management business. You know, we don't necessarily line item our software separately, but software is our differentiator, and it's how we add value for customers. The growth of the business is the ability to continue to differentiate with our software.
Gallant: How is the storage market changing and what are the key forces that are reshaping it right now?
Georgens: The storage market -- unlike some other markets like networking that have an 80 percent market-share player or a very, very high market-share player -- is still very, very fragmented. There are independent players that are storage and data management experts like ourselves. The server vendors are players as well with their own portfolio of products. You've certainly followed their acquisition trends of recent years. If there was an overall trend over the last few years, it's that the server vendors' share is actually declining and the share of the independent, best-of-breed players is increasing, not only ourselves but competitors that are similar to us. The demand for storage is clearly going up, but more important, it's a market where there are still opportunities for innovation and differentiation. These are not businesses that have been commoditized, that lend themselves to being subsumed by the server vendor's selling motion. This is still a very, very differentiated market, particularly from the midlevel to the high end. The best-performing companies still drive reasonable margins and are gaining share. Storage is not only a growing market, but it's still a market in which there are opportunities for differentiation. It's not commoditized.
Gallant: In addition to the explosion in the amount of data that has to be managed, what are the other key things you're seeing among customers that are driving growth in the market?
Georgens: It's more than just the amount of data, it's the desire to do something useful with the data. A lot of industries are regulated, so there are compliance things related to their data, whether it be data retention or data longevity, those types of things. For certain markets like health care and financial services, increasing regulation is driving data. But I'd say that across the board we're seeing several things going on, one of which is the rise of multimedia, which is generating new data types that were not material 5 or 10 years ago and that are going to become more significant as time goes on.
The other one is the desire to use all of this data that we have in an effective way. How do we make better product decisions? How do we make better choices? How do we accelerate our business? To cite an example, we have a client in the credit card business, and when you swipe your credit card, they run through their databases what is your credit limit, what is your payment history, have you ever bought from this vendor before? Those kinds of things. What they would like to do is go out and glean all the data that's knowable about you in the public domain, whether it be unpaid parking tickets, did you just buy a house, did you just change jobs, all of these types of things. At that point of time when you swipe your card, they want to do a risk assessment on you that transcends the information that's currently in their database, rather than waiting 90 days for you to default. What we're seeing is that virtually every industry has got a component of that. People are trying to take the data that they have or the data that's available in the external world and use that to their advantage, whether it be buying behavior decisions, technology decisions, or market evolution decisions. They want to use data to drive much, much better decision making. For us, it's not simply that people are writing more emails and they have to store them someplace, people are trying to get greater utilization of this information.
Gallant: Let's talk about the competitive situation against three of the companies that come up most often in the discussion about storage. First, how does your approach to solving these problems differ from EMC's?
Georgens: I think it's different on a few fronts. NetApp is one of the major market share players in this industry, [even though] NetApp is far and away the youngest. [That's because] one of the things that NetApp has done from early on is instead of having a set of point products that solve a whole bunch of point issues, NetApp has built more generic technology that can be extended. For instance, without getting too technical on the storage side, there are high-end products, there are low-end products, there's SAN technology for accessing storage, there's NAS technology for accessing storage, there's backup, there's archiving. Many of our competitors have separate products with separate operating systems and separate hardware and separate development efforts dedicated to each one of those.
NetApp has developed a single operating system, Data Ontap, that can do SAN and NAS, high-end and low-end archiving, disk-to-disk backup. What that means is that when we introduce a new feature, it's available on all of those technologies at the same time and it works the same way at the same time and it has the same set of tools to manage it. Our competition has to develop the products multiple times, they've got different manageability techniques, functionality doesn't necessarily work the same on all the different products. Overall, that's given us not only simplicity from a customer perspective -- because it's one set of tools, one set of people -- but it's given us tremendous development leverage as a company. If you ask how NetApp come from a standing start 20 years ago to actually No. 2 in market share in this industry, passing HP and IBM last year in storage, at least in the SAN and NAS cycle as we measure it, it is because we've had this tremendous development leverage. That is a fundamentally different approach than the other guys. EMC is bigger than us, they've got a bigger R&D budget, and they might be able to sustain a number of these point technologies for a longer period of time. But the smaller companies that have neither this unified approach nor the R&D budget will continue to lag.
Frankly, if you look at the traditional architectures in this space, almost all the innovation has been done by startups. You see almost no real innovation being done by the server guys anymore. Even our largest competitor, where they're gaining share [is with] products they acquired. The innovation rate has slowed on their core technology. Simply put, it's hard to advance five or six separate platforms at a high rate so that they'll all be compelling and competitive in their markets. NetApp has gotten tremendous development leverage from this approach. Certainly there are compromises to it, but it's served us well to this point in time, and it's enabled us to out-innovate the market for 20 years.
Gallant: When you look specifically at IBM and how you're approaching certain customer needs and challenges, how do you differ?
Georgens: I put IBM more in the category of the server vendors. Let me just take a step back a second. We compete against EMC. EMC is going to compete similarly to the way we would on the basis of technology value and what it can bring to the business. EMC's notion is that their purpose-built products will be better than any generic products from NetApp. That's sort of the argument that they'd make and certainly a thing we've been competing against for 20 years successfully. The server guys will compete on a different vector. The server guys will compete less on technological innovation and they will compete primarily on integration: a one-stop shop for server, networking, storage, support services, all from one place. There's a set of customers for which that has appeal. But the trade-off they're forcing is that what they're selling in the form of integration, the customers know they're also forfeiting in innovation. The server guys are not particularly innovative from a storage technology perspective. While I understand the idea of one-stop shopping and its appeal, if you actually look at the market share charts, it's clear that that's not working for them from a storage perspective. If you look at the recent acquisition activity by the server companies in the storage space, I think that would be an indication of the need to kind of reload from a technology perspective because the existing technologies are not gaining them any share.
Gallant: Would you consider HP in that same category as IBM?