Zerowait Corporation

Today the Fed cut its rates as the Politicians in Washington react to the growing credit securitization problems. There are plenty of people pointing fingers at each other, but the reality is that folks need to look to themselves now to see how they can maintain their businesses in these turbulent financial times. According to the Wall Street Journal even Yahoo is under pressure to grow earnings and will lay off employees to try to increase profitability.

Yahoo Inc. expects to cut staff in some areas under a drive to rein in its budget and focus its activities, people familiar with the matter said. The exact extent of any future layoffs at the Sunnyvale, Calif., Internet company isn’t known, though one person familiar with the matter estimated they potentially may affect hundreds of workers. Yahoo expects to finish 2008 with about the same number of workers as it had at the end of 2007 while planning to add staff in some areas deemed priorities, these people said. The company, which has experienced executive turnover and increased competition for selling online advertisements in recent years, now has about 14,000 employees.

According to the Blog of James Burke of NetApp, Yahoo email is run on NetApp filers. As a major customer of NetApp, Yahoo probably gets pretty good prices from NetApp for service, support and systems. But they may be able to save some employees jobs by tightening their budget on NetApp upgrades and software support costs. Are they going to look at cutting their support costs for their filers? I’ll bet their stockholders would appreciate it.

Losing technical support and institutional knowledge is hard on companies and their customers, because when systems go down, often the guy who knows how to fix things is no longer employed. Personally, I have visited many companies over the last few years that have been able to save technical staff positions by cutting their hardware support costs. When budgets get tight are you going to save people and cut back on support costs? Yahoo in the past has not been interested in the options we have provided them. When they contacted me in the past it was to purchase their excess NetApp inventory, not to cut their support costs.

Businesses have to adapt to the economic environment that they are operating in and faced with. Turbulent times are going to see businesses evolve in new ways to meet the challenges they face. I expect to see a lot more companies contact Zerowait as they look to adapt to these business conditions. Like many business people I have 20/20 hindsight, but my forecasting abilities are often myopic. In today’s environment, I will be cautious with our budgets as we grow in 2008.

Imagine what it is like to be a NetApp executive these days. IBM, one of your best business partners, has just purchased another company and seems to be readying to directly compete with you. Your company initiated a legal battle with Sun which has the effect of scaring current and potential customers. HP has publicly announced that it is aiming at your market. Dell, your jilted former partner, has purchased Equallogic to compete for your SMB and Midrange customers. And a friend of yours has been convicted, and is going to be spending some time in the big house. It is certainly a lot to handle.

IBM has purchased IV , an Israeli company that specializes in high availability storage, for about $300 Million. With ownership of this company, it is safe to assume that IBM will compensate its sales representatives better to sell their own product, than the products they resell for NetApp as their margin will be better. As the phrase goes: Salespeople are coin operated. Although this may take a while to gel, expect IBM’s move to cost NetApp sales in the Enterprise glass house where NetApp has relied on IBM’s gravitas as a major lead generator. In 2005 SearchStorage noted that there was no time limit on the IBM – NetApp deal.

“Interestingly, there is no time limit on the OEM deal with NetApp, which raises the question of how long IBM might be willing to sell someone else’s product?”

Sun and NetApp are fighting over patents and it looks like it will be a drawn out affair. This continues to worry IT decision makers: Where should they put their recession limited strategic storage investment dollars? NetApp’s lawsuit may have quite effectively legitimized ZFS in the marketplace. As Chris Mellor has pointed out

“Sun will have its ZFS market profile raised massively and have the opportunity to shift a boatload of ZFS-using Sun storage gear. Schwartz sees this as a win-win situation. Sun cannot back down from NetApp’s initial lawsuit and he’s going to ride the wild surf of the free software movement to help wash away what he and Sun perceive to be NetApp’s castle built on sand.

NetApp on the other hand will be under attack. Competitors will comprehensively rubbish its position and sow fear, uncertainty and doubt among its customers using the questions above and others.”

HP and Dell are also aiming for NetApp’s market position.
According Internet news HP has stated,

“We’re making deeper investments in our core technologies, and we plan to aggressively compete against NetApp,” he added.

When the PolyServe acquisition was first announced, industry observers noted that the technology buy-up would not only make HP a competitor to NetApp but also to heavyweights such as EMS and Hitachi Data Systems.

Even if HP just takes a few percentage points of business from NetApp by bundling storage with their servers it will have an enormous effect on NetApp, by breaking their grip on the market.

Adding to sales and marketing problems is Dell’s purchase of Equallogic. NetApp’s former partner is now a direct competitor. According to SearchStorage.com

“EqualLogic has always considered midrange storage titans EMC, Hewlett-Packard and Network Appliance its main competition.”
.Assuming that Dell packages storage and servers in some of their data center deals in the next few quarters, you can assume there will be an erosion of NetApp’s market share by a few points.

NetApp’s customers are looking for affordable alternatives and there are a lot of them out there now. As Robin Harris says:

“NetApp appears to be the most vulnerable. Their largest customers are ripe for conversion to a more scalable architecture and lower costs. No matter how much NetApp discounts, their costs are higher than commodity hardware. They can fight for a while, but not forever. They have to be competitive and their big customers have to believe they will be competitive.”

And on top of all of this one of NetApp’s old friends, Greg Reyes, has just been sentenced to jail for stock option backdating.

What a way to start a new year.

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2008 is shaping up to be an unusual year. It has been many years since our economy has faced the problems caused by a credit crunch and uncertain monetary policy simultaneously. When combined, these issues may reveal some unintended consequences of the way High Availability storage manufacturers have approached the marketplace over the past few years. Whether we are in a recession or going into a recession, macro economic concerns are causing corporations to cut back on their IT expenses, or at least look into how they can contain costs if they need to in the next few months.

Over the last few days I have been visiting several customers with large storage infrastructures who are concerned by the costs of maintenance and upgrades from the manufacturer of their storage infrastructure. On one visit this week, the storage manager asked me “How can you provide service and support for half of what NetApp charges?” I thought about his question, and answered “Perhaps you should ask your NetApp sales representative how come they charge twice what Zerowait charges?” This customer wants to make certain that his staff can maintain their high availability service levels, while living within the rules imposed by a cost conservation 2008 budget.

The fundamental requirement of a storage infrastructure is that it must provide high availability at a reasonable cost. In good times, the costs of acquisition and maintenance could be justified and amortized over a 2 year or 3 year time frame. When the business cycle turns toward hard times, can you stretch your infrastructure to work for a 4, 5 or 6 year time frame?

If we are in a business downturn, customers may need to partner with vendors that help them maintain their equipment for the long term to conserve their precious financial resources. A company that is basing its revenues on selling new products and ‘sizzle’ may have trouble providing affordable service and support for the long term. The service and support business niche that companies like Zerowait inhabit, is diametrically opposed to the new product sales business. Unit sales businesses often compensate sales representatives with a commission on unit sales goals. Often service and support companies pay compensation on meeting service targets, which are longer term. This longer term view aligns a service company’s interest with companies that look to squeeze strategic value out of their IT infrastructures. Companies pinched by the business cycle in 2008 may look for vendors with a long term business model.

Commission salesman and marketing pros are often looking for quick solutions and catch phrases to find ‘the low hanging fruit’. Tough times will require studious reviews of technical documents and rethinking of storage capacites, ROI time frames, and costs structures. This is hard work. My conclusion after visiting many clients last week is that there are many companies that are staffed with innovative employees, with drive and creativity, which will be able to maintain and grow their storage resources in today’s tumultuous business economy.

Over the last few years Zerowait has recommended that customers consider either redeploying their storage infrastructures or redriving their hard-drive carriers rather than just replacing them wholesale with new, larger drives and disk shelves. Our point of view was treated with enthusiasm by our growing NetApp customer base. However, most consultants and columnists treated our opinions with proportionate derision based on the compensation they, or their companies, received from the storage and array OEM’s. Therefore, it came as quite a surprise when an old buddy of mine sent me an article from IDC that contained this statement: “…existing storage infrastructures that normally would have been decommissioned should be redeployed as subsystem components within the storage 3.0 model to protect and extend the useful life of existing storage subsystems …” IDC # 209702 vol1

The message is getting out! Because Zerowait is a specialist in NetApp equipment, with long-term knowledge of the products, we can help customers when they want to maximize their storage without breaking their budget. Regularly, we hear from NetApp users that the OEM, instead of simply selling them a few drives, will only provide them a quote for a new shelf and drives. The problem is that this often causes the filer to exceed its published maximum raw capacity. In other words, this is a subtle way for the OEM to force customers to upgrade their head unit when all they need is some drives.

Zerowait’s customers have learned that we are here to provide them with long term service and support of their storage infrastructures, not to force them to move on up to the latest models. We help them understand what they are being quoted by the manufacturer and recommend ways for them to get the most out of their NetApp storage investment. Often, the OEM sales force recommends a solution that is a long-term, cost-effective solution, but sometimes there are alternatives available simply by redeploying the customer’s own equipment. This is where Zerowait can save the customer a lot of money while maintaining the high availability and reliability they need. As we enter another tumultuous year of expanding storage requirements—and shrinking maintenance and management budgets—customers need to be aware of all of their viable alternatives for storage.

A few weeks ago a NetApp power user who was considering giving his NetApp infrastructure to the grim reaper called us with his problem. NetApp refused to sell the customer 72 GB drives which they needed to provide their Oracle Database the spindle count it needed for performance reasons. Complaints by the customer to his Oracle DBA’s about a lousy Database design were not winning him any friends, and were falling on deaf ears in management. NetApp’s solution was to sell him larger drives. But if he went with bigger drives he would not be able to stay below the Raw capacity limits of his Filer and would therefore need to upgrade the head unit, incurring huge costs. He just wanted some drives! So he began looking at alternate sources for storage of his Oracle DB. In a conversation with one of his peers, he learned about Zerowait. Out of desperation he called us to learn if Zerowait could help him. We told him we have a large stock of refurbished 72GB drives and can ship right away. After a series of questions and answers he wanted to check our references. I provided him with a list of reference customers for him to contact and he said he would.

Subsequently I learned that our customers told him that Zerowait’s folks really care about the details and provide them with excellent follow up on issues. He told me how he was pleasantly surprised by the comments he heard about us and wanted to give us a try. He told me he was recommending to his purchasing folks that they place an order with Zerowait.

We got the order and delivered the product on time and as specified. After a few weeks the new customer wrote me: “NetApp filers are great for databases because you can quickly provision storage, tightly integrate the host and the filer with the SnapManager suite, and change filer parameters to handle different database workloads.” The same customer goes on to say “Zerowait is great because they can provision equipment faster than Network Appliance, procure equipment that means your specific needs, and provide parts at a lower cost than Network Appliance.”

Our customers recognize that Zerowait provides them with a unique blend of NetApp hardware and outstanding high availability service and support. Our commitment to independent high availability service and support is what separates us from resellers and distributors of NetApp’s products. We recognize that NetApp makes great products; our focus is helping our customers maintain them for the long term, and helping these customers get the most value and performance out of their NetApp investments.

Outrage is building in NetApp’s reseller channel as NetApp continues to redefine resellers’ best accounts in an effort to build their own representatives’ sales figures. NetApp acts towards resellers as if they are a missionary sales force working to generate leads and create house accounts for NetApp’s direct representatives, instead of facilitating the reseller’s long term revenue growth. Resellers’ sales forces need to make a living and provide long term value to customers. However, NetApp seems to care more about unit sales and providing sales incentives to promote unit sales than long term service to resellers and their end users.

One reseller was telling me recently that NetApp would not let them quote Software Support only and that they must include hardware support also. I replied that many resellers and NetApp itself provides ‘SSP’ only quotes. I showed him the evidence and he chuckled at recent comments by NetApp that say they are trying to build a new relationships with their channel partners. Resellers know that NetApp seems to change its reseller stance with the tides.
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2001
“The most critical factor for channel success is to have executive support and sponsorship. For example, what we are achieving at Network Appliance is changing the company’s business model, leveraging the channel to move the top line. This requires a change in attitude, affects our corporate culture and requires new processes that will lead to success with our channel partners.”
2002
“… the company is implementing a new pricing model, including lower list prices for commodity products and an across-the-board increase in partner discounts. Our discounts are off gross revenue to encourage partners to not discount off list price,” he said. “We feel they can achieve [discounts] in excess of 20 percent if they don’t drive the street prices down.”
2003
“We always said it was a matter of time, not when we would do it…”

” NetApp’s goals for bringing its appliances through distribution are two-fold: let the distributors take care of administrative details so NetApp can focus on its core business, and use the distributors to expand its business to even more solution providers. Our channel sales are growing three times the rate of the rest of the company,” he said. “We can’t scale without partners.”
2004
“Network Appliance (NSDQ:NTAP) is preparing to offer solution providers customer leads for the first time. Starting Oct. 1, NetApp will provide leads to its channel partners.”… “It’s the first time NetApp has ever done a lead-generation campaign with the channel,” he said. “I’m not sure if I should be proud of this, or embarrassed.”
2005
“The VIP reseller program and initiatives are an important component of the Network Appliance strategy to attract and retain the industry’s top storage-focused resellers…”
2006
“The StoreVault line will have only one sales channel: VARs. ‘This is the only go-to-market vehicle for us,’ Krishnan said. ‘No CDW (NSDQ:CDWC ). No e-tailers.‘”
2007
“StoreVault, a NetApp (NASDAQ: NTAP) division, today announced it is adding CDW Corporation (NASDAQ: CDWC), a leading provider of technology products and services to business”

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In a discussion I had with a NetApp direct customer a few weeks ago I was told
“Our discount structure with NetApp is 40% off Hardware and 65% off Software”. This seems to be quite an aggressive pricing structure and it is more than the discount off list that many resellers seem to be getting. When a vendor provides this type of discount off their list pricing to end users it makes a mockery of the list prices that they publish. One customer recently was quoted software support by a reseller and NetApp and found the pricing difference of almost $20,000.00 . While this is significant in itself, the customer is trying to justify the pricing over a 36 month period and is concerned about the additional “tax” on his 6 TB of data. NetApp is turning into a very expensive storage platform when Software support is added in to his costs.

Robin Harris wraps up some of NetApp’s problems well,

“NetApp needs to focus on their long-term marketing problem: NAS is a commodity. They’ve got 5 years to re-invent themselves for a world of Internet-scale data centers.”

NetApp’s sales management hierarchy historically has taken a very short term, tactical approach to working with resellers. Their pricing, discount structure and history of abrupt changes in channel marketing strategies creates an atmosphere in which resellers are disincentivised to build any strategic customer relationship. Storage is a long term investment for most customers, and creating long term relationships is very important to both resellers and end users. How can a customer make a strategic storage decision when the sales force is concentrating on monthly or quarterly numbers?

Loyalty is priceless and Is neither sold nor bought. Alas, how few who seem to know Its value as they ought.” Thornton W. Burgess

Over many years in business (18), and many transactions (thousands), with many customers (hundreds), Zerowait has learned that customer loyalty is earned not purchased. As Darrell Zahorsky says – “Forget about customer relationship management software, customer loyalty programs and cards. Customer loyalty can’t be bought. It must be earned.”

So I was surprised to see that NetApp is going to try to buy Loyalty from its resellers now,

“To promote loyalty from its channel, NetApp has packed the programme with many attractive purchase conditions and bonuses. The company is keen to point out though that the new programme is more than just a list of partner gifts and its main focus is product know-how, which it aims to improve through a comprehensive curriculum of education and certification training. Partners new to the programme should work their way through the ranks starting as authorised, becoming gold, platinum and platinum elite until they finally reach the heights and accompanied rewards of being named as a star partner.”

NetApp has changed directions on its resellers many times in the past and it looks like its newest direction is to try to buy them off. Manufacturers need to provide resellers a long term commitment to ensure their profitability, not a continually changing kaleidoscope of changing programs, pricing schedules, and packages.

Manufacturers need to understand that resellers and integrators need to have a long term partner that can be relied on, because they are making a long term commitment to learn how to integrate a reliable strategic solution for their customers. How is an end user to judge the long term reliability of a partner that a manufacturer recruits with “attractive purchase conditions and bonuses.” ?

Imagine if you were a small company with a limited budget that had to build a big storage and archiving application to provide Storage As a Service (SAaS) . Being a small company without layers of hierarchy allows you to be creative. So you go to the internet and do some research and find out that there already is a lot of support for ZFS out there and it runs on OpenSolaris and BSD.
What are you going to do about switching? You are going to need some pretty specialized switching also and proprietary storage switches can get really expensive. So what can you do?

When Cisco says it is going to open stuff up a bit we need to pay attention..

“SAN JOSE – Cisco’s plan to open up its venerable IOS routing software to customers and third-party developers is a bold move designed to further the company’s push to make the network the epicenter of the virtual data center.

Cisco plans to “componentize” IOS – developing only one implementation of a specific function instead of several, depending on the image – dynamically link IOS services and move the software onto a Unix-based kernel. Cisco then plans to open up interfaces on IOS to allow third-party and customer-developed applications to access IOS services.”

Here is what Cisco Senior Vice President Don Proctor says they are going to do…

“If you look at the portfolio today for the enterprise you’ll see that we have solutions at every layer of the stack, all the way up to applications with our collaboration applications. What we’re doing with some of the SaaS assets with WebEx is creating a new kind of information work space for the knowledge worker that allows them to build business mashups with the collaboration applications that we provide and the business applications provided by other suppliers.”

Interesting times.

A few months ago I hosted a dinner party for about ten of our customers in Los Angeles. During the dinner our customers compared war stories of infrastructure problems they had encountered and discussed various strategies for negotiating with vendors for better prices, and also how to increase their system reliability while not breaking their budgets. I was astonished by how many of these customers were playing with ZFS at the time but I never expected to see ZFS going mainstream so quickly.

So today when one of our customers sent me the link to this article and pointed out the solution that Arizona State University came up with I was pretty surprised.
“Some users looking for new disaster recovery tools have encountered frustration. ASU is charged with storing half a petabyte of video footage from the Apollo space missions and replicating that data between two sites for disaster recovery. ASU ran into two limitations on its NetApp filers: a 16 TB file system limit and the fact that researchers move file directories around frequently, something that can wreak havoc on performance when hundreds of terabytes of data are attached.

ASU tried NetApp’s OnTap GX product to overcome the file system limit and provide a global namespace, but Scheib grew weary of the fact that OnTap GX doesn’t support NetApp disaster recovery tools, such as SnapMirror. Scheib found other clustered NAS systems beyond his budget, especially when it meant losing investments in the NetApp storage already on the floor.

In the end, Scheib designed his own architecture using open source ZFS layered over the NetApp filers, spanning the two locations. ZFS is a 128-bit file system with an exponentially larger namespace, and its performance allows for the quick movement of folders and directories. Because ZFS spans the two sites, data replication can be accomplished by dragging folders from one directory to another. The actual migration of data over trunked Ethernet pipes takes much longer, but users still have access during the process.

The irony of pairing ZFS with NetApp, when ZFS creator Sun Microsystems Inc. and NetApp are suing each other over the file system, isn’t lost on Scheib, but he isn’t concerned about that. “By the time that’s settled, I hope there will be more prepackaged alternatives to meet my particular needs.”

This really surprises me because NetApp considers ASU one of its quotable and reference clients.
2005
“Cost savings and reliability prompted us to look to NetApp to provide a scalable storage infrastructure for the IDEAL project,” said Samuel DiGangi, assistant vice provost of Information Technology at Arizona State University. “ASU continually strives to give back to the surrounding communities, and IDEAL is the next step of that initiative, encouraging lifelong learning and eliminating educational barriers.”

2006
“Supporting the nomination for the award was Network Appliance, Inc., a technology vendor for the project. NetApp extended its congratulations to ASU in a news release the day the award was announced. Elisa Steel, vice president of Worldwide Integrated Marketing at Network Appliance, said, “We are thrilled that ASU’s innovative approach to creating the IDEAL project has garnered them recognition.” The company’s file storage servers are one of several components of the IDEAL system, which includes equipment from IBM, Sun, Cisco, and F5 Networks.”

Perhaps NetApp started getting too expensive to maintain in 2007,
“Google has economies of scale that we don’t have,” Page said.

The university has already been able to transition two of its four full-time engineers who had managed the 4 terabyte (TB) NetApp storage system to other functions, according to Page. As soon as the migration is complete, the other two will be reassigned as well. Once the NetApp filer is also reassigned, Page said, the switch to Gmail will save the university $350,000 per year in storage, maintenance and personnel costs.”

As architectures grow more complicated storage managers are going to be put under a lot of pressure to reduce costs while maintaining reliability. Is NetApp going to be able to compete when they are being pinched on multiple sides by pressures technologies like ZFS and services like Gmail? We live in interesting times for technology companies and storage managers.