NetApp: What’s driving this anti-EMC company? Part 1

I spent two days last week with Network Appliance’s senior management. Today and in Thursday’s newsletter, I’ll share some of the key takeaways from those meetings, and offer a few thoughts for your consideration.

NetApp has a good sense of its own history and today, as has always been the case with this company, engineering leads and marketing, on occasion, follows. That’s a problem for its resellers perhaps, but shouldn’t cause the slightest concern for you. You are clearly much better off with this kind of situation than you would be with a company whose marketing and sales arms can sell more than the engineering teams are capable of delivering.

An interesting direction CEO Dan Warmenhoven mentioned is that even though the network-attached storage (NAS) business continues to thrive (NetApp figures a 37% ownership), the rest of its lines are growing even faster. It may well be that soon we’ll see NAS, NetApp’s bread-and-butter technology since the company was founded, comes to represent less than half the company’s total revenue.

Where will the rest of the money come from? Good question.

Keep in mind that, first and last, NetApp positions itself as the anti-EMC. As a result, much of what the company does is either a reaction to something EMC has already done or an attempt to preempt something that it may be planning to do.

One way EMC has tried to distance itself from NetApp is through services and NetApp has had to invest significantly to keep pace. During the last year, NetApp has built up its service organization and seems intent on driving its professional and consulting service revenue to the point where it represents about one-sixth of corporate earnings. Percentage-wise this would put service revenue at about the same level as NetApp’s archrival, although EMC’s gross dollar figures would be quite a bit higher.

Enterprise use of Microsoft, Oracle and SAP is expected to be the prime mover for new revenue, with growth coming from iSCSI, storage-area network and management software. The ONTAP operating environment is going to have a major release soon, and this time we will – at last – see the fruits of the Spinnaker purchase of two years ago. This should give the company centralized management (and a global namespace) for both Fibre Channel and iSCSI SANs, as well as for NAS, all of which will likely be of little interest to smaller companies but should create significant opportunities for NetApp at the enterprise level. If you run multiple architectures and are concerned with data migration and accommodating large-scale growth in usage or data (or both), this should be of interest to you.

A major downside to what I heard: from NetApp, the odd man out is the small and midsize business sector. The company presently offers nothing in this area, although clearly management is looking for options. Let’s hope the company looks harder. If it lets this slide for too long, its competitors will have stolen a march and a whole generation of small businesses, poised to become midsize and much larger companies, will have grown up building loyalties to another vendor’s products.

Next time, I’ll offer some commentary on NetApp’s strategic direction.