 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. The storage business as we know it has changed forever. On-prem storage was once a virtually unlimited and untapped bastion of innovation, VC funding and lucrative exits. Today it's a shadow of its former self and the glory days of storage will not return. Hello everyone and welcome to this week's Wikibon Cube Insights powered by ETR. In this Breaking Analysis, we'll lay out our premise for what's happening in the storage industry and share some fresh insights from our ETR partners and data that supports our thinking. We've had three decades of tectonic shifts in the storage business. From a simplified history of this industry shows us there have been five major waves of innovation over spanning five decades. The dominant industry model has evolved from what was first a mainframe-centric vertically integrated business led, of course, by IBM. It became a disintegrated business that saw between like 70 or 80 Winchester disk drive companies that rose and then fell. They served a booming PC industry and this wave was led by the likes of Seagate. Now Seagate supplied the emergence of an intelligent controller-based external disk array business that drove huge margins for functions that, while lucrative, was far cheaper than captive storage system vendors. This era, of course, was led by EMC and NetApp. And then this business was disrupted by a flash and software-defined model that was led by Pure Storage and also VMware. Now the future of storage is being defined by cloud and intelligent data management. It's being led by AWS and a three-letter company that we'll just call TBD, otherwise known as Jump Ball Incorporated. Now, let's get into it here. The impact of AWS cannot be overstated. Now, while legacy storage players, they're sick and tired of talking about the cloud, the reality cannot be ignored. The cloud has been the most disruptive force in storage over the past 10 years and we've reported on the spending impact extensively. But cloud was not the only factor pressuring the on-prem storage business. Flash has killed what we call performance by spindles. In other words, the practice of adding more disk drives to keep performance from tanking. So much flash has been injected into the data center that that no longer is required. But now as you drill down into the cloud, AWS has been by far the most significant factor in our view. Lots of people talked about object storage before AWS, but there sure wasn't much spending going on. S3 changed that. AWS is getting much more aggressive about expanding its storage portfolio and its offerings. S3 came out in 2006 and it was the very first AWS service. And then Elastic Block Service, EBS, came out a couple of years later. Nobody really paid much attention. Well, last fall at storage day, we saw AWS announced a number of services, many file related. And this year we saw four new announcements from Amazon at re-invent. We think AWS's storage revenue will surpass 8 billion this year and could be as high as 10 billion. There's not much data out there, but this would mean that AWS's storage biz is a larger than that of a net app, which means AWS is larger than every traditional storage player with the exception of Dell. Here's a little glimpse of what's coming at the legacy storage business. It's a clip of the vice president of AWS storage. Her name is Maylon Thompson Bukevek. Watch this. Okay, now you may say, Dave, the heck does that have to do with anything? And yeah, I don't know, but as an older white guy that's been in this business for a while, I just think it's badass that this woman boxes and runs a business that we think is approaching $10 billion. Now, let's take a quick look at the storage announcements AWS made at re-invent. The company made four announcements this year. Let me try to be brief. The first is EBS IO2 Block Express Volumes. Got to love the names. AWS claims this is the first storage area network or SAN for the cloud. And it offers up to 256,000 IOPS and 4,000 megabytes per second throughput and 64 terabytes of capacity. Hey, sounds pretty impressive, right? Well, let's dig in a little bit. Okay, first of all, it's not the first SAN in the cloud, at least in my view, there may be others, but Pure Storage announced cloud block store in 2019 at its annual Accelerate customer conference. And it's pretty comparable here. Maybe not so much in the speeds and feeds, but the concept of better block storage in the cloud with higher availability. Now, as you may also be saying, you know, Dave, what's the big deal? The performance, come on, we can smoke that. We're on-prem vendor, we can bury that. Compared to what we do, AWS's announcement is really not that impressive. Okay, let me give you a point of comparison. There's a startup out there called Vast Data. Just there for you in closure with bundled storage and compute can do 400,000 IOPS and 40,000 megabytes per second. And that can be scaled, so yeah, I get it. And AWS also announced that IO2 was priced at 20% less than previous generation volumes, which you might say is also no big deal. And I would agree, 20% is not as aggressive as the average price decline per gigabyte of any storage technology. AWS loves to make a big deal about its price declines. It's essentially following the industry trends. But the point is that this feature will be great for a lot of workloads. And it's fully integrated with AWS services, meaning, for example, it'll be very convenient for AWS customers to invoke this capability for, for example, Aurora and other AWS databases through its RDS service. Just another easy developer, easy button for developers to push. This is especially important as we see AWS rapidly expanding its machine learning and AI capabilities with SageMaker, it's embedding ML into things like Redshift and driving analytics. So integration is very key for its customers. Now, is Amazon retail going to run its business on IO2 volumes? I doubt it. I mean, I believe they're running on Oracle and they need much better performance, but this is a mainstream service for the EBS masses to tap. Now, the other notable announcement was EBS GP3 volumes. This is essentially a service that lets you programmatically set SLAs for IOPS and throughput independently without needing to add additional storage. Again, you may be saying things like, well, I remember in SolidFire, let me do this several years ago and it gave me more than 3,000 IOPS and 125 megabytes per second performance. But look, this is great for mainstream customers that want more consistent and predictable performance and that want to set some kind of threshold or floor and it's integrated again into the AWS stack. Two other announcements were made, one that automatically tiers data to colder storage tiers and a replication service. On the former, data migrates to tier two after 90 days of in access and tier three after 180 days. AWS, remember they hired a bunch of folks out at EMC years ago and they put them up in the Boston Seaport area. So they've acquired lots of expertise in a lot of different areas. I'm not sure if tiering came out of that group, but look, this stuff is not rocket scientists, but it's rocket science, but it saves customers money. So these are tried and true techniques that AWS is applying, but the important thing is it's in the cloud. Now, for sure we'd like to see more policy options than say, for example, a fixed 90 day or 180 day policy. And more importantly, we'd like to see intelligent tiering where the machine is smart enough to elevate and promote certain data sets when they're needed. Like for instance, at the end of a quarter for comparison purposes or at the end of the year. But as NFL Hall of Fame coach Hank Stram would have said, AWS is matriculating the ball down the field. Okay, let's look at some of the data that supports what we're saying here in our premise today. This chart shows spending across the ETR taxonomy. It depicts the net score or spending velocity for different sectors. We've highlighted storage. Now, don't put too much weight on the January data because the survey was just launched, but you can see storage is continues to be a back burner item relative to some other spending priorities. Now, as we reported, CIOs are really focused on cloud, containers, container orchestration, automation, productivity and other key areas like security. Now let's take a look at some of the financial data from the storage crowd. This chart shows data for eight leading names in storage. And we put storage in quotes because as we said earlier, the market is shifting. And for sure companies like Cohesity and Rubrik they're not positioning as storage players. In fact, that's the last thing they want to do. Rather they're category creators around data management or intelligent data management but they're in adjacency to storage. They're partnering with all the primary storage companies and that they're in the ETR taxonomy. Okay, so as you can see, we're showing the year-over-year quarterly revenue growth for the leading storage companies. NetApp is a big winner. They're growing at a whopping 2%. They beat expectations, but expectations were way down. So you can see in the right most column, upper right, we've added the ETR net score from October and net score of 10% says that if you ask customers are you spending more or less with the company, there are 10% of the customers that are essentially spending more than spending less, get into that a little further later. For comparison, a company like Snowflake, it has a net score approaching 70% pure storage used to be that high, you know, several years ago or high 60s anyway. So 10% is in the red zone and yet NetApp is the big winner of this quarter. Now Nutanix isn't really again a storage company but they're in adjacency, they sell storage and like many of these companies, it's transitioning to a subscription pricing model. So that puts pressure on the income statement. That's why they went out and did a deal with Bain, Bain put in $750 million to help bridge that transition. So that's kind of an interesting move. Every company in this chart is moving to an annual recurring revenue model and that as a service approach, it's going to be the norm by the end of the decade. HBE is doing it with GreenLake, Dell has announced APEX virtually every company is headed in this direction. Now, speaking of HBE, it's nimble business that has momentum but other parts of the storage portfolio are quite a bit softer. Dell continues to see pressure on its storage business. Although VxRail is a bright spot, everybody's got a bright spot. Everybody's got new stuff that's growing much faster than the old stuff. The problem is the old stuff is much, much bigger than the new stuff. IBM's mainframe storage cycle, well that seems to have run its course. They had been growing for the last several quarters. That looks like it's over. And so very, very cyclical businesses here. Now, as you can see, the data protection, data management companies, they are showing spending momentum, but they're not public, so we don't have revenue data. But you got to wonder, with all the money these guys have raised and the red hot IPO and tech markets, why haven't these guys gone public? The answer has to be that they're either not ready maybe they're at numbers, weren't where they want it to be, but maybe they're not predictable enough, maybe they don't have their operational act together, or maybe they need to get that in order. Some combination of those factors is likely. They'll tell you, they'll give other answers if you ask them, but if they had their stuff together, they'd be going out right now. Now, here's another look at the spending data in terms of net score, which is again, spending velocity. The ETR here is measuring the percent of respondents that are adopting new, spending more, spending flat, spending less, or retiring the platform. So net score is adoptions, which is the lime green, plus the spending more, which is the forest green, add those two, and then subtract spending less, which is the pink, and then leaving the platform, which is the bright red, what's left over is net score. So let's look at the picture here. Cohesity leads all players in the storage taxonomy, the ETR storage taxonomy. Again, they don't position that way, but that's the way that customers are answering. They've got 55% net score, which is really solid. You can see the data in the upper right-hand corner, it's followed by Nutanix. Now, they're really not, again, in the scope of pure play storage play, but speaking of pure, its net score has come down from its high of 73% in January, 2016. It's not going to climb back up there, but it's going to be interesting to see if pure's net score can rebound in the post-COVID world. We're also watching what pure does in terms of unifying file and object, and how it's faring in cloud, and what it does with the Portworx acquisition, which is really designed to really bring forth a new programming model. Now, Dell is doing fine with VxRail, but Vsan is well off its net score highs, which were in the 60% plus range a couple of years ago. Vsan has definitely been a factor from VMware, but again, that's come off its highs. HPE with Nimble still has some room to improve. I think it actually will. I think that these figures that we're showing here, I think they're somewhat depressed by the COVID factor. I expect Nimble is going to bounce back in future surveys. Dell and NetApp are the big leaders in terms of presence or market share in the data, other than VMware, which of course VMware has a lot of instances, because it's software-defined, and so that's why they're so prominent. And with VMware's large share, you'd expect them to have net scores that are tepid, and you can see a similar pattern with IBM. So Dell, NetApp, I'm saying tepid net scores as is IBM, because of their large market share, VMware, kind of a newer entry into the play. And so doing pretty well there from a net score standpoint. Now, Commvault, like Cohesity and Rubrik, is really around intelligent data management, going, trying to go beyond backup into business recovery, data protection, DevOps, bringing that analytics, bringing that to the cloud. You know, we didn't put Veeam in here, and we probably should have. They had pre-COVID net scores well into the 30s, and they have a steadily increasing share of the market. So we expect good things from Veeam going forward. They were acquired earlier this year by Insight Capital Private Equity firm. So big changes there as well. That was their kind of near-term exit, maybe more to come. But look, it's all relative. This is a large and mature market that is moving to the cloud and moving to other adjacencies. And the core is still primary storage. That's the main spring kind of prerequisite, and everything else flows from there. Data protection, replication, everything else. This chart gives you another view of the competitive landscape. It's that classic XY chart. It plots net score in the vertical axis and market share in the horizontal axis. Market share, remember, is a measure of presence in the data set. Now, think about this from the CIO's perspective. They have their on-prem estate, got all this infrastructure, and they're putting a brick wall around their core systems. What do they want out of storage for that class of workload? They want it to perform consistently. They want it to be efficient, and they want it to be cost-effective. So what are they going to do? Well, they're going to consolidate. They're going to consolidate the number of vendors. They're going to consolidate the storage. They're going to minimize complexity. Yeah, they're going to worry about the blast radius, but there's ways to architect around that. The last thing they want to worry about is managing a zillion storage vendors. This business is consolidating. It has been for some time. We've seen the number of independent storage players that are going public, has consolidated over the years, and it's going to continue. So on-prem storage arrays are not giving CIOs the innovation and strategic advantage back when things like storage virtualization, space efficient snapshots, data duplication, and other storage services were worth maybe taking a flyer on a feature product like, for example, a three-par or even a data domain. Now, Flash gave the CIOs more headroom and better performance. And so as I said earlier, they're not just buying spindles to increase performance. So as more and more work gets pushed through the cloud, you're seeing a bunkering in on these large-scale mission-critical workloads. As you saw earlier, the legacy storage market is consolidating and has been, for a while, as I just said, it's essentially becoming a managed decline business where R&D is going to increasingly get squeezed and go to other areas, both from the vendor community and on the buy side where they're investing, as I said, things like cloud containers and building new layers in their business. And of course, the DX, the digital transformation. I mentioned Vast Data before. It is a company that's growing. And another company that's growing is Infinidat. And these guys are, you know, traditional storage on-prem models. You know, they'll bristle if I say traditional. They're next gen, if you will, but they don't own a cloud. So they were selling to the data center. Now, Infinidat is focused on petabyte scale. And as I say, they're growing revenues. They're having success consolidating storage, that thing that I just talked about. Ironically, these are two Israeli founder-based companies that are doing, you know, they're growing. And as you saw earlier, this is a share shift. The market is not growing overall. The part of that's COVID, but if you exclude cloud, the market is under pressure. Now, these two companies that I'm mentioning are, you know, they're kind of the exception to the rule here. They're tiny in the grand scheme of things. They're really not going to shift the market. And their end game is to get acquired. So they can still share, but they're not going to reverse these trends. And everyone on this chart, every on-prem player has to have a cloud strategy where they connect into the cloud, where they take advantage of native cloud services and they help extend their respective install bases into the cloud, including having a capability that is physically proximate to the cloud with a co-low like an equinex or some other approach. Now, for example, at reInvent, we saw that AWS's hybrid strategy, we saw that evolving. AWS is trying to bring AWS to the edge and they treat the data center as just another edge node. So outposts and smaller versions of outposts and things like local zones are all part of bringing AWS to the edge. And we saw a few companies, Pure, Infinidat, Veeam, come to mind that are connecting to outposts. They saw Cumuloh was in there, Columio, Commvault, Weka, Weka IO is also in there. And I'm sure I'm missing some. DM me, email me, yell at me. I'm sorry I forgot you, but you get the point. These companies that are sort of selling on-prem are connecting to the cloud. They're forced to connect to the cloud much in the same way as they were forced to, you know, join the VMware ecosystem and try to add value, try to keep moving fast. So that's what's going on here. What's the prognosis for storage in the coming year? Well, where have all the good times gone? Look, we would never bet against data but the days of selling storage controllers that mask the deficiencies of spinning disk or add embedded hardware functions or easily picking off a legacy install base with Flash, well, those days are gone. Repatriation, it ain't happening. You know, it's maybe tiny little pockets. CIOs are rationalizing their on-premises portfolios so they can invest in the cloud, AI, machine learning, machine intelligence, automation and they're re-skilling their teams. Low latency high bandwidth workloads with minimal jitter, that's the sweet spot for on-prem. It's becoming the mainframe of storage. CIOs are also developing a cloud-first strategy. Yes, the world is hybrid what does that mean to CIOs? It means you're going to have some work in the cloud and some work on-prem. There's a hybrid, we got both. Everything that can go to the cloud will go to the cloud in our opinion and everything that can't or shouldn't won't. He has people who make mistakes and they'll quote unquote repatriate but generally that's the trend. And the CIOs, they're building an abstraction layer to connect workloads from an observability and manageability standpoint so they can maintain control and manage lock-in risk, have options. Everything that doesn't go to the cloud will likely have some type of hybridicity to it. The reverse won't likely be the case. For vendors, cloud strategies involve supporting your install basis, migration to the cloud. That's where they're going. That's where they want to go. They want your help. There's business to be made there. So enabling low latency hybrids and accommodating subscription models, well, that's a whole nother topic but that's the trend that we see. And you're to rethink the business that you're in. For instance, data management and developing an edge strategy that recognizes that that edge workloads are going to require new architecture and that's more efficient than what we've seen built around general purpose systems. And wow, that's another topic for another day. You're seeing this whole as a service model really reshape the entire cultures and the way in which the on-prem vendors are operating. No longer is it selling a box that is as dramatically marked up controllers and disk drives. It's really thinking about services that can be invoked in the cloud. Now remember, these episodes are all available as podcasts wherever you listen, just search, breaking analysis podcasts and please subscribe but appreciate that. Check out etr.plus for all the survey action. We also publish a full report every week on wikibon.com and siliconangle.com. Lot of ways to get in touch. You can email me at david.valante at siliconangle.com. You could DM me at Dave, at sorry, at dvalante on Twitter. Comment on our LinkedIn posts. I always appreciate that. This is Dave Valante for theCUBE Insights powered by ETR. Thanks for watching everyone. Stay safe and we'll see you next time.