Zerowait Corporation

Uncertainty in the economy is driving many companies to review their costs. Some are focusing on their high cost storage infrastructures, because when things go into recession many companies need to understand why their costs are so high, and where their money is going. Whether the USA is in an officially declared recession, or just a business slowdown, many large NetApp clients are currently experiencing hard times.

Storage is one of many areas within a corporate data infrastructure where costs can be contained. By reviewing the performance requirements of their applications, and creating tiers of storage and support services, IT professionals can contain their cost per TB of managed storage, and even reduce it. Analysts watching the storage industry who are cognizant of the ebb and flow of IT spending know there are short term ways and long term ways of controlling storage infrastructure costs. More than one analyst has noticed that troubles within the financial sector which NetApp’s CEO mentioned could have a big effect on NetApp’s growth over the next few quarters.

“The company is a leading maker of network storage systems, whose earnings have declined four of the past seven quarters because of poor internal execution.”

“Despite the upbeat sales guidance at the analyst meeting earlier this week, the stock was downgraded Wednesday at the brokerage Robert Baird. Given management’s guidance for a slow start to the new fiscal year, many investors are wary about management’s ability to meet its lofty sales growth target.”

“At the end of the day, I believe that readers should continue to avoid NetApp at current levels. Management is trying to transform the company in a difficult domestic economic environment, and I don’t believe that the company will be able to achieve its lofty fiscal 2009 targets.”

While the market is in flux might be a good time to take a strategic look at your storage vendors’ plans for the next few years. Are your vendors aligned with your company’s IT road map, plans, and tech refreshes? How will your vendors weather a sudden downturn in the marketplace? How will their new products benefit your company?

Recently there has been an uptick in our tuning business, many customers call us and ask our engineers to tune their filers to get better disk utilization, increase their storage capacity or tweak their filers to get more speed or output from them.

Zerowait’s engineering staff is recognized for helping customers get the most out of their filers. Often we help our customers meet and exceed their current requirements without forcing them to buy a new filer.

As more NetApp customers embrace name space and virtualization technologies, they find they suddenly need to find a way of increasing their storage capacity to meet the new capabilities of their storage infrastructure. Zerowait can help customers find the right settings and configurations to meet their new capacity requirements without breaking their budget, so increasing your storage capacity does not necessarily accelerate your storage infrastructure’s appetite for your budget dollars.

First they shuffle the players in their executive suite, now they come out with a new Logo. I wonder when they will change their corporate philosophy?

I certainly hope this re branding works better than the New Coke did. Quite frankly, I always like the spinning disk idea of the NetApp look, this new look of a staple has me confused. What do staples have to do with storage? Perhaps this is all part of a Lock In Strategy like Hal Varian would describe? Staples as an icon to show how good NetApp is at locking customers into their proprietary technologies?

Recently Xyratex has lost its unique position of being the sole provider of disk shelves to NetApp. This is because the newest SAS shelves are coming from Dothill . If I were in Xyratex’s position, I would be very worried about future sales and profits because NetApp seems to be using a second supplier, which is always a good way to keep a primary supplier in line on pricing. As any businessman understands – competitive pressures typically keep prices lower. This is why NetApp tries to Lock In customers into its proprietary OS and systems. Once locked in to NetApp, customers have a harder time getting competitive pricing unless they are willing to change their operating systems completely, which is also expensive.

In difficult economic times customers need to be able to play vendors against each other. For example, over the last few weeks we heard from a human rights organization in England that wanted to extend the life and maintain their R200’s for a few more years. Their NetApp salesperson initially told them that their only option was to do a system upgrade and that they could not expand their storage on their R200’s. They came to Zerowait and asked if we could help them, and indeed we could. So we quoted them storage for their R200’s and then their NetApp sales person had a revelation and found that NetApp could provide storage for their R200’s, as an added benefit NetApp could meet the Zerowait price. I guess this proves that competition exists even within the NetApp market niche, because this well known customer was able to get better pricing from NetApp by introducing a viable competitive solution.

Over the last couple of years NetApp has allowed IBM to resell its NAS units under the N-series label. However it seems that IBM resellers have to get approval to sell a deal from both the IBM channel manager and the NetApp channel manager. It would seem that arrangement cuts competition quite a bit, since it provides very little reason to compete on price since the same company controls the approval process in the end. Can you imagine the Congressional investigations that would occur if Ford or GM made every dealer register every sales opportunity for approval and Price Variance Requests? Would there be competition between dealerships in this scenario?

If I were a manager at Xyratex I would do everything I could to diversify my sales away from NetApp, which is taking too big a portion of their total sales and introducing competitive pressures within their partnership. Similarly if I were in an IBM salesperson’s shoes I would be bristling at the thought of a competitor controlling my sales opportunities. The arrangements between NetApp and IBM, and NetApp and its suppliers do not build long term loyalty amongst the vendor and customer, because they are all built on controlling the sale rather than on providing outstanding long term customer service.

Sometimes an insignificant article on the back pages of a newspaper can have big effects on world business.

Chinese trade with Europe is about to be revolutionised by the rebirth of the old overland silk route – this time via rail. An alliance of rail operators from the Pacific to the Baltic have just completed a trial run, moving cargo from China to the EU in just 15 days – under half the time it takes to ship containers. The first train, carrying electrical goods, clothes and ceramics from Beijing, arrived in Hamburg late last week, five days ahead of schedule.

Moving heavy inventory around the world is expensive, Fed Ex and UPS do a great job for us, but sometimes we move a lot of heavy equipment to different locations, and it can get complicated. The company that figures out how to get the Containers or Piggy Back cars from this train directly to the European docks with a Roll on Roll off solution, and then onto a fast freight ship to the USA or Canadian East Coast rail lines is going to make a fortune.

It will inevitably happen in one way or another, because time is money.

Sam Ervin was Senator from North Carolina when I was young. I clearly remember watching the Watergate hearings on TV after school, and listening to him speak. What a voice. According to two new books about him, he had a unique way of describing information flow in a bureaucracy.

“It has been my experience” Ervin offered privately, “that the madam of a whorehouse is seldom a virgin”

When the folks at the WSJ quote Gartner about companies preparing to tighten their belts on IT spending it piques my interest.

Gartner yesterday advised clients to cut their tech budgets – even if they haven’t been told to do so by their CEOs. In retrospect, the move seems inevitable. Research companies have been tripping over themselves to release forecasts that show slowing tech spending. Last week, we saw our first forecast that showed a spending decline. That money has to come from somewhere, or, in this case, has to not come from somewhere. The budget-cutting advisory is either the mathematical corollary to a spending slowdown or a self-fulfilling prophecy. In a press release, Gartner gave businesses six tips on how to make the cost cutting go smoothly:
1. Start now. Don’t wait for evidence of a recession to show up on your bottom line.
2. Put the best people you have on the cost-cutting team, and don’t let them resume their regular duties until the new budget is in place. Tie year-end bonuses to how much they save.
3. Don’t second guess earlier decisions. No one project is to blame for the current situation.
4. Get an auditor to make sure the cost cutting is reflected in the overall business’s budget.
5. Share your results with the rest of the company on a weekly basis. Cost cutting is an act of necessity; people want to know that you’re making progress.
6. Have the legal department help you figure out how to get out of onerous contracts.

So how does this relate to Zerowait’s business? Our business has been growing very steadily for the last few months as companies look for ways to cut their IT and specifically storage costs while retaining highly trained staff. Clearly the CEO’s CFO’s , CTO’s and CIO’s of the world are now preparing for harder times on the way. To stay within tighter budgets a decision may have to be made between staff and hardware support costs, but the C level executive’s all know that storage and storage requirements will continue to grow. Given the recessionary times, How would that Madam in Sam Ervin’s quote keep her business running? Good staff is hard to replace, would she cut back on building maintenance costs and marketing expenses and keep her staff ? She certainly knows what it takes to produce revenues : ) .

Recession fears are mounting, and the bank panic in the UK at Northern Rock followed by the nationalization of the bank creates cause for concern. Some people say the business cycle is dead and other folks seem to say that it has morphed into other places because of securtization, globalization, and government intervention. Inevitably financial fears affect business, and planning in an uncertain market makes all business planning hazardous. How can a rational storage manager plan in these uncertain times?

NBER has recently published a paper which is very interesting and clearly states some of the problems that we are facing .

Banking Panics

Implicit contracts do not necessarily contemplate systemic problems, which may characterize the subprime crisis. There have been at least ten banking panics in U.S. history, but the last one, during the Great Depression, is a dim memory for most people. A banking panic occurred when depositors at banks had reason to believe that their bank held assets of possibly lower value than they had previously believed. Banking panics tended to be a peculiarly American phenomenon because the United States had many banks (because of branching restrictions), resulting in less diversified portfolios than might otherwise have been the case.

Banking panics are not irrational, as Charles Calomiris and I show ⁹. Rather, they are rooted in a lack of information. Panics have tended to happen near business cycle peaks; with a recession coming on, there would indeed be some loans that would not be repaid ¹⁰. Depositors would go to their banks and demand their cash back, because the value of cash is easily determined, unlike the value of bank deposits. But the banking system could not honor these demands, since their loans are illiquid, so redemption was suspended. In fact, suspension was usually illegal, but was tolerated during panics¹¹. The illiquidity of assets, and resulting plummeting prices should these assets be sold, meant that another solution needed to be found.”

The illiquidity does affect the storage business – because enterprise storage is expensive when new capital is costly. NetApp’s sales declines may be a leading indicator from the credit contraction in banking as Reuters says:

Chief Executive Dan Warmenhoven said weaker orders by U.S. financial services clients stung by the credit and mortgage crisis had spread overseas, with large banks including France’s Societe Generale (SOGN.PA: Quote, Profile, Research) cutting back on technology spending. Banks are among NetApp’s largest customers.

“We are less concentrated now, but the problem has spread,” Warmenhoven told Reuters in an interview after company on Wednesday reported fiscal third- quarter results.

“They’re squeezing down all their expense structure internally,” Warmenhoven added. Technology budgets “are on the table.”

NetApp, based in Sunnyvale, California, plans to add jobs in marketing and sales to boost its market share in fast-growing industries such as telecommunications and energy and lessen dependence on banks, Warmenhoven said.

“The strategy going forward is to expand broadly,” he said.

Most folks understand that storage is a horizontal business, but the fear of recession and credit crunch is also horizontal – it affects all business sectors that store information. Therefore growth of new storage products into other sectors which NetApp hopes for may be constrained by broad based economic fears.

Efficient storage management and extended service life are essential ways to maintain staff and infrastructure if we are in a worsening credit and business cycle. Some folks we work with say our business of maintenance, management and monitoring is countercyclical, which may explain one of many reasons that we are growing so quickly.

We are living in interesting times.

A successful business needs to have a clear plan, so that its customers and employees understand the direction the company is going for the long term. Our business is based in the belief that if we provide outstanding service and support to our customers we will earn their trust and our business will grow. Our Network Appliance business is continuing to grow because our customers want a reliable partner who can maintain their equipment for the long term, while NetApp is in the business of forcing their customers to upgrade their products by making new product sales. Our business relies on our ability to help our customers understand our long term vision of a strategic service and support model for their high availability storage equipment.

When NetApp came out with their separate Storevault division a couple of years ago, I thought that it was going to be doomed to failure. How could NetApp concentrate its efforts on two different markets? It just did not make any sense. Respected bloggers like Ben Rockwood thought it was an odd choice also…

StoreVault is to NetApp as LinkSys is to Cisco. NetApp wants this business to be entirely seperate and entirely self-sustaining. Thats why they put up so many brick walls. The diffrence of course is that LinkSys product sells at Fry’s for $100… StoreVault isn’t expensive but you don’t throw $10,000 at a storage solution your unsure about especially when it has a non-refundable policy.

If anyone from StoreVault is reading this… help me help you! Competing against yourselves is fruitless and avoidable.

But NetApp thought they could do it.
June 26, 2006
StoreVault: Storage for Small Businesses
NetApp has created a new division, called StoreVault, to provide storage systems for small and medium businesses (SMBs). The S500 is our first StoreVault system. It’s based on the same Data ONTAP software that we use in our enterprise systems, but with a management interface optimized for SMBs, including simple wizards for the most common tasks. (Pricing starts around $5,000. Maximum capacity 6 TB. Supports iSCSI, Fibre Channel SAN, CIFS and NFS, as well as snapshots and double protecting RAID.)

Enterprise Disease
One challenge of building an SMB product in a company like NetApp is that we focus so much on the requirements of giant enterprise customers, that it would be easy for us to get confused about the needs of small and mid-sized companies. Mid-sized businesses aren’t just stripped down versions of big enterprises. They have their own separate requirements, and simply creating a stripped down version of the standard enterprise solution isn’t good enough. Our CTO calls it “enterprise disease” when people who have spent too much time focusing on giant customers try to design products for smaller ones. We created a separate StoreVault division in part to protect our SMB team against enterprise disease.

Perhaps the market has changed and now it looks like NetApp to allow its SMB resellers to sell its high end Filers against IBM and NetApp sales folks?

February 14, 2008
NetApp Moves StoreVault Back Into Mothership
NetApp will widen the audience for the successful SMB system
By Mary Jander, February 14, 2008, 1:30 PM
Network Appliance is eliminating the boundaries that kept its StoreVault division a distinct entity inside the company.

“Today, StoreVault is focused exclusively on sales to small and medium businesses. We see a bigger opportunity to expand the target for the StoreVault platforms into remote and branch offices as an extension of our core FAS product line,” said Jay Kidd, chief marketing officer at NetApp. “Coupled with our FAS 2000 product, this now gives our NetApp and our channel partners a broader entry product line to sell.”

So this seems to suggest that CDW will now also sell filers.

StoreVault, a Network Appliance Inc. division, has inked a deal with CDW Corporation to sell its StoreVault S500 storage product to customers that buy through Web site and catalog advertising, but StoreVault resellers are concerned that the new deal may affect their selling strategy.

Under the terms of the agreement, CDW will add a new selling component to the StoreVault S500, which will entail advertising the product online as well as through its catalog. Customers can buy directly from CDW, which will not publish the street price of the product in ads to protect StoreVault’s 400 other resellers’ ability to charge in relation to their integration work. Instead pricing is available directly from CDW.

A clear plan requires teamwork and vision, how is this muddled sales and marketing plan for storevault easily explained to NetApp’s resellers, customers or employees? NetApp has at least one employee who sees the value of clarity in corporate vision. Rusty Walther writes. …

(1) Do you understand the vision and strategy of both our company and department, and do you agree with them?

Employees that fundamentally disagree with, or are confused by the strategic direction of a company or team are very easy to recruit away, since the “roots” they need to stay grounded simply don’t exist.

Can he explain strategic direction as exemplified by the storevault roadmap to the rest of us?

Yesterday I was visiting customers of ours around Washington DC. The traffic was bad, the weather deteriorated throughout the day, and I had a great time. It is always refreshing to sit down with customers who bring their colleagues in to meet with me and then allow me listen as they tell their colleagues about how great Zerowait’s service and support is. It almost takes all of the work out of selling when our customers recommend us so highly to their peers : ) . All I have to do in these situations is confirm that what our customer is saying is true, and that makes it a pleasure to be a sales person. It makes me proud of my staff for all of the hard work they do everyday to help customers solve their problems.

My next stop was at a government agency where we talked about network engineering concepts and how to improve storage reporting and create even better trending information than our current exception reporter program is now capable of. Our inventive customers are coming up with some nifty ideas which we will be incorporating into the next version of our monitoring program. Customers always appreciate when we incorporate their ideas into our systems which inevitably makes our service and support better for them. We deliver the services that our customers tell us they need at an affordable price. It makes everyone happy!

My final visit was with a customer that Zerowait introduced to NetApp back in the summer of 2000. Although we introduced the customer to NetApp when we were NetApp resellers and registered service providers , NetApp took the customer direct soon after Zerowait had done the missionary sales work and hosted the customer at NetApp’s Sunnyvale conference center. High Availability Storage remains a small business, reputation is important since everyone knows everyone. We have been working with NetApp equipment since 1998, so it is no surprise that Zerowait has a reputation for long term service and support, and we are working with this customer again after 7 years.

Quality service and support never goes out of style. Our customers understand our direction and dedication to the idea of providing long term affordable quality service and support. So even though the weather yesterday was frightful, causing the traffic to be ugly, I had a great day visiting our customers and friends.

I’ve been thinking about getting a new car and some of my buddies have recommended the Infiniti G35. So I eagerly checked out the specifications, determined what I wanted, and decided to do some price shopping. Logical, right? Easy, right? Uh-huh.

I went to their website www.infiniti.com and ran through it and came up with a couple of close by dealers: Winner Infiniti in Newark, DE and JBA near Baltimore, MD. Since my belief is that it’s a good idea to get a feel for the marketplace before making a purchase of this size, I sent the specification to both dealers and asked for quotes last week. Neither car dealer has provided me pricing yet. Winner won’t even respond to emails or phone calls. Three JBA salespeople have called me, but none will provide me a price. Rachel at JBA told me she would get me a price, but could not get the color I wanted, since they didn’t have it on the lot. I asked, “Does that mean you can’t order it? People used to be able to order cars with different features?” According to Rachel I am unable to order a car from the factory that I would like. If we don’t have it right here, you can’t have it, is their motto, I guess. By the way she has not sent me a price yet either.

What happened to customer service? Why can’t I order a car I want from Infiniti? What is so difficult about providing a price? We hear all the time from customers who are amazed at how quickly Zerowait comes back with a quote for them. They tell us it can take two weeks sometimes to get pricing out of other storage vendors. Has the inability to price items become passe`? Is Zerowait so unique? Is business so good that vendors can afford to just diss their customer quote requests?

I wonder why dealers can’t provide a price quote immediately–for cars or storage. Right now, I wonder what the street price of a G35 is. Can you imagine if NetApp made it this hard to order a filer or parts. Wait– they do! I wonder if Infiniti and NetApp have the same programming team working on their “Quoter” tools.