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The Storage Industry
Ever since I have read The Innovator's Dilemma, I have been interested in the storage industry. Yesterday, Business Week published a feature about the storage industry called The Storage Comeback.
So, what is so special about the storage industry? It sells a product that is -- at first sight -- as clearly to define as anything you'll come across in technology. The product is explainable to everybody. Demand is growing in leaps and bounds with no end in sight. It is a classical hardware business morphing rapidly into all sorts of software and services. Both corporations and consumers are customers. Last but not least, both technological as well as business innovation is an important factor in the industry.
The first article Everybody Has More to Store highlights some more insight on why storage is a great case study, especially today:
- Industry Size: "$20 billion-plus business"
- Demand: Storage demand by corporations alone is growing by 65% to 90% annually. -> Note: There is no mention in the article about the reverse trend of storage getting cheaper all the time, a factor that implies demand growth not automatically translating into industry revenue growth. But then again, I would guess that private storage demand is increasing even more.
- Players: Everybody that is important in tech is dealing with storage in one way or the other, and EMC, HP, IBM, Sun, Dell, Veritas, Cisco, and many others are directly selling into the market. Furthermore, "since 2000, nearly 300 super-aggressive, well-funded storage startups have entered".
- Innovation: Most of these startups are bringing innovative technologies to market, making storage a constantly evolving market. I am no expert to make any summaries here, but just have a look at holographic storage to get a glimpse at what's going on.
- Morphing into Software and Services: A lot of innovation and most of the industry volume (ca. 70%) still resides with hardware, but the whole industry is rapidly morphing to or already is in a state where innovation and growth are coming from software and services. This is a nice way out of the detrimental effects of hardware commoditization, but brings its own issues along, e.g. the fights with software standards, new liabilities.
- A Changing Revenue Structure: Thus, along with the move to software and services, the industry's revenue structure is changing along. Instead of one-off purchases, it's more about licensing and renting and leasing with all the related effects on cash-flow and sales generation.
- Different Approaches: In such a dynamic industry, there are obviously lots of approaches to the solutions offered to customers. I could identify the following (disclaimer: most of these are combined with each other in one way or the other):
- Of course there is the whole "storage for PCs, notebooks, external disk-drives, and electronic devices" area, which is huge in itself catering to consumers, OEMs, and directly to corporate customers.
- There is the "one big box" fraction offering large storage systems to corporate customers.
- There is the "many small boxes" fraction offering corporate customers to build their own storage farms as they grown.
- There is the "pay-per-use services" fraction offering storage for rent with flexible models. This means operating large data/storage centers and renting capacity out to customers of all kinds.
- Finally, there is the whole "software and services on top" part of the market, which offers all kinds of advancements to plain storage and contains the biggest promises for the future.
The second article from the Business Week package I found most interesting was about how the afore-mentioned, specific industry structure leads to a specific kind of activity in mergers & acquisition and cooperations (Storage's Special Kind of Deals). Instead of the consolidation M&A activity that would be typical of a commoditizing hardware market, storage M&A instead is increasingly about product line expansion. Cooperation on software standards is another important element.
Fascinating industry indeed. I wonder whether the recently published The Innovator's Solution sheds some more analytical light on storage's continuing development.