Although No Silver Linings, The Cloud Is The ‘New Normal’

The Cloud Is The New Normal

Let’s face it, Microsoft is everyone’s favourite punching bag. Every analyst, publication and blogger has foretold its demise in recent times. PC sales are down, Surface hasn’t taken off… so on and so forth; this is all I have seen in the press for the last month.

While I concede there is something about Ballmer and the Redmond crew that seems to arouse everyone’s inner bully, I feel compelled to write about another shift that is happening but drawing far less attention, that of the enterprise storage business.

I decided to write after IBM’s results last week. While IBM doesn’t break down details, it was notable that revenue from storage systems decreased 11% YoY. To me this is the straw that broke the camel’s back. Look back earlier in the year and note that Dell recorded a 13% YoY decline in storage revenue in February and HP a similar 13% decline in storage revenue in January this year.

I am sure there are a combination of factors contributing – the economy and sales execution to name a few. However, when three industry bellwethers’ record double digit declines over the same period, there is a more fundamental shift at hand that cannot be ignored. The factors that have placed pressure on MSFT are affecting the storage industry and the strain on big box sales are starting to show.

It’s the cloud, stupid!

Over the last few years the cloud has evolved from curiosity to credible business alternative (For the sake of this discussion, I’ll stay focused on mid-market and enterprise firms that indulge in purchasing systems from the likes of IBM, Dell or HP). As cloud offerings have become more reliable and secure I see IT executives looking to offload more workloads and storage to the cloud. IT likes the idea of renting and having someone else deal with the burden of management instead of lining up a big capex check and dealing with ongoing management.

This shift is happening in two ways – (i) as companies grow and open new offices they are asking themselves – why not cloud? Can I provide the productivity and service levels without incurring capex and maintenance? (ii) The same question gets asked when existing h/w systems go EOL (end of life). I see more companies shifting to the cloud or extending current hardware longer in conjunction with cloud than go through a traditional refresh cycle (note the parallel with Window’s refresh cycles and the revenue MSFT used to drive from releasing new versions of Windows).

Therefore it’s not surprising to see big-box sales getting less predictable. In a recent survey of several hundred mid-market companies we gathered that less than 10% of company workloads and storage had moved to the cloud. Clearly, we are still in the infancy of this evolution but the effect is already being felt on traditional enterprise products. There is no turning back.

But is the cloud enough?

However, this only tells half the story. While the cloud is here to stay and renting beats buying for some things there are many reasons why on-premise storage is not going away. Yes, that’s true and I am sorry to disappoint those of you who believe otherwise.

Why? – Legacy, performance and security.

More than 90% of corporate data still resides on on-premise storage systems. While companies may evaluate moving certain workloads to the cloud they are not eager to sign up for the disruption and mass rewiring of their user behaviours and systems overnight.

Cloud will be adopted in manageable chunks; this is just how businesses adopt new technology. The bigger factors though are around performance and security. Many use cases require the performance levels that only highly optimised local storage can offer. If you are a construction or an engineering firm working on CAD drawings with 50 vectors I don’t see a cloud solution out there that can provide what you need today or in the foreseeable future, unless the laws of internet physics can be altered.

The other critical need though that argues for on-premise storage is security. Businesses are still not comfortable (and may never be) moving certain applications and data to the cloud. In the same survey I alluded to earlier, businesses said 65% of their data would never be moved to the cloud.

So where does that put us? With a conclusion that a new “normal” will prevail over the next few years (thanks Mr. El-Erian). Traditional enterprise models will be challenged (not just for MSFT) and the cloud will seep more into the consciousness and budgets of businesses. That’s right, we will live in a hybrid world with the newer cloud parts growing dramatically faster.

While it would be easy to call the slow death of big storage systems, quite to the contrary this new normal presents a tremendous opportunity for traditional storage players to make the transition. However, this change is multi-dimensional and won’t be easy.

The first change needed is mindset. Traditional storage companies need to grok the cloud. Its here to stay, it’s a part of the landscape not some pesky little nuisance that will go away.

Embrace or die!

The second is product. The future lies in software. The storage OS as we know it today needs to be rethought. It needs to evolve to solve a new class of problems for customers. On-premise systems need to be more “open” and be able to talk to the cloud, smartly moving workloads and data where needed to lower cost tiers. The storage OS also needs to become more device & protocol friendly.

CIFS and NFS access from a Windows, Mac, Linux won’t do. How about iOS or Android access to files on a storage array in your LAN? (again, note the parallel to forces affecting Microsoft). Every part of the enterprise stack is going more social today. Microsoft is said to be integrating Yammer into Office. A storage OS should facilitate collaboration across users from different departments and offices working together.

Last but not least, its about sales and compensation models. The storage industry sells through the channel and feet on the street. Every aspect of this value chain today is trained and incented to deliver capex based big-box sales. This is going to take time to change and retrain, but leaving the channel partners out is not a recipe for success. All this sounds like a tall order and change is hard. As parallels go one must credit the Redmond crew for it’s moves with Win 8, Surface, Azure and Office 365. Can the enterprise storage industry make this transition?

Time will tell…but in the meanwhile, I’d appeal to my friends in the press and blogging community to show Softie some love and shine the spotlight elsewhere!

Vineet Jain

Vineet Jain is the CEO and co-founder of Egnyte. Prior to Egnyte, Vineet founded Valdero, a supply chain software solution provider, funded by KPCB, MDV and Trinity Ventures. He has held a rich variety of senior operational positions at companies including KPMG and Bechtel. He has 20 years' experience in building capital efficient organisations.