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META Trend: Through 2006, storage management automation and process immaturity will limit net annual enterprise storage capacity growth to 55%-65% (67%-84% gross procurement), with price/capacity improving 35% per year. To effectively leverage and manage enterprise media assets, users will require a data/media center of excellence. Through 2004/05, software value-added functions, manageability, integration, and interoperability will be the primary enterprise storage differentiators.
The storage industry's inexorable trend toward consolidation has advanced with IBM-Hitachi's recent announcement of a joint venture that combines hard disk drive (HDD) research, development, and manufacturing along with related sales and marketing (Hitachi will initially pay IBM $2.05 billion and own 70% of the joint venture, buying the rest within three years).
Of more strategic significance, the two companies also formed a storage systems alliance to develop standards-based storage software and components for future storage systems and solutions. Both partners have publicly embraced the Common Information Model (CIM) and other emerging standards from the Storage Networking Industry Association (SNIA).
From its inception, the IBM-Hitachi alliance plans to adopt IBM's block-based, in-band approach to storage virtualization (based on SNIA's block aggregation model). Overall, we believe IBM will concentrate more of its efforts on critical storage management software (the alliance) while Hitachi will focus more on hardware (the joint venture).
The IBM-HDS agreement will have little effect on storage hardware's projected 30%-35% price/performance curve during the next three to five years. However, when projecting storage budget growth, users must include the rising storage software component that will be required to manage that rapid storage growth. Indeed, we project that growth in storage software costs will diminish the steep hardware price/performance slope to a composite price/performance improvement of only about 20%-25% annually, while yielding commensurate personnel economies.
Longer term (2004/05), we expect the promise of robust storage management software to deliver sufficient automation to drive material improvement in storage management productivity and efficiency,, which in turn will drive down enterprise storage's unit cost of ownership.
The IBM-Hitachi joint-venture agreement further consolidates the component storage market (in 4Q00, Quantum's HDD business was acquired by Maxtor). It also marks IBM's exit from the highly competitive HDD market, where during the past two years it has been eclipsed by market leaders Maxtor and Seagate (our research indicates that IBM's global HDD market share shrank from just under 25% in 2000 to its current single-digit presence).
Although IBM currently stands firmly behind its flagship Enterprise Storage Server (ESS) array subsystem (a.k.a. Shark), we believe that during the next 12-18 months competitive market realities will force this joint venture to expand beyond the base hardware component level to include the controller subsystem. Fundamentally, we believe that, without a competitive storage subsystem platform, selling robust storage management software (the real business value) becomes almost impossible. Sharing a robust common controller base will eliminate counterproductive intercompany hardware competition, and enable IBM to focus on solving users' strategic, increasingly critical pain point: heterogeneous enterprise storage management.
This will eventually (2004+) leave three primary high-end storage hardware vendors: Hitachi (OEMing to IBM, HP, and Sun), Compaq, and EMC. Although HDS/IBM will be EMC's major competitor at the storage systems level, ironically the joint venture promises to add a competitive alternative to EMC's main HDD supplier, Seagate, reducing its supplier dependency and ultimately its costs. We expect the new HP/Compaq entity to maintain its current dominant midtier market share (with the Dell-EMC partnership claiming a strong second) as well as begin to attack high-end enterprise storage.
The joint venture will also help Hitachi establish critical mass efficiency in the highly competitive, volume-dependent HDD market, with systems vendors HDS, IBM, HP, and Sun as "captive" customers for its drives. (Although the joint venture's HDD product must be globally competitive, it clearly has an inside track for its partners' business.) IBM will also benefit, exiting the money-losing, commodity HDD and storage component business to focus its significant resources on developing and delivering the real business value of robust heterogeneous storage management.
What's It Mean for the Future?
Near term (2002), we do not believe this Hitachi-IBM partnership will have any impact on the storage systems market. All major storage hardware systems vendors (i.e., Hitachi, IBM, Compaq, and EMC) have significant systems enhancements already well down the product development pipeline, which are expected to hit the market during the next 12 months and which will be unaffected by the Hitachi-IBM partnership.
Longer term (2003-05+), we believe the IBM-HDS partnership's strong endorsement of standards-based (e.g., CIM) storage management will further strengthen (but not accelerate the acceptance of) such standards efforts. Although we expect this de jure, standards-based storage management approach to eventually gain critical mass momentum (2004/05), in the interim, users will require an EMC WideSky-like near-term middleware alternative to deliver solutions and smooth the transition (and asset optimization) from older technologies.
Indeed, in the context of continued storage industry consolidation, IT organizations must target real, delivered, and often tactical solutions (versus promises) to manage spiraling enterprise storage growth. The Hitachi-IBM alliance's success will ultimately be measured in timely, robust, heterogeneous storage management rollouts -- a significant test for any adolescent alliance.
Business Impact: A clear understanding of the long-term implications of continuous (storage) industry consolidation will facilitate better, more accurate architectural decisions and minimize the risk of short-sighted and costly dead ends.
Bottom Line: Although storage vendor consolidation can threaten to reduce competition and consequent user choice and leverage, we believe the recent IBM-Hitachi partnership will prove healthy and beneficial for the industry's vendors and users. Users should focus near-term resources and procurement funds on proven, business-case-driven storage solutions, and be wary of any vendor promises of future glory 12-18 months out.
META Group of Stamford, Conn., is a leading research and consulting firm, focusing on information technology and business transformation strategies. For more information, visit MetaGroup.com.