Storage Vendors Feel the Squeeze

The storage sector has always had its periods of pricing pressure, but lately the pressure to cut prices has grown particularly intense.

A number of trends — among them the rise of low-cost IP storage, the entry of new players, and a glut of start-ups — have converged to squeeze margins among storage vendors.

“Besides the normal currents of price declines that this industry experiences on a regular basis, there are some undercurrents that are unusual,” says Arun Taneja, founder and consulting analyst at The Taneja Group.

For starters, Taneja told Enterprise Storage Forum, iSCSI – the new IP storage standard – is affecting Fibre Channel pricing by providing a low-cost alternative.

The rise of high-performance commodity systems is also pressuring vendors.

“In spite of what the virtualization players have gone through, the fact is today I can gang up modular storage, which is significantly cheaper than monolithic storage, and make pretty darn powerful storage infrastructures,” Taneja says. “As if this was not enough, we are currently at the delivery stage of products from literally tens of companies that were funded two to three years ago.”

“And while the buyer still has limited funds,” continues Taneja, “they learned over the last three years how to squeeze the last nickel out of vendors. All these factors are putting pressure on prices.”

“Pricing is becoming very competitive these days, but I would say that it’s being driven by the vendors in an effort to take market share, rather than [a result of] users absolutely demanding price reductions,” contends Nancy Marrone-Hurley, senior analyst at Enterprise Storage Group. “Of course, customers always want lower prices, but I am not aware of any mass uprising of customers protesting the price of FC ports.”

Perhaps no single event highlights the trend toward lower prices better than EMC playing hardball with McDATA , its own spin-off, over storage switch prices. Brocade got the ball rolling by cutting prices first in an effort to win EMC’s business, but in the end had little to show for it, as investors knocked Brocade’s share price 17% lower when it reported a year-over-year earnings decline last week.”I don’t believe that the price feud between EMC and McDATA was terribly constructive,” observes Marrone-Hurley. “It’s not too clear how much of that price reduction will make its way to the end users, and the forced negotiations only encourage McDATA to reduce their dependency on EMC. EMC may then push another vendor’s solutions, which may not be what the end user really needs.” “In the end, the end user may not end up benefiting from this situation,” Marrone-Hurley concludes.

Customers Benefit from Better Prices and Better Service

In other cases, the trend toward lower prices is clearly benefiting storage consumers.

QLogic recast the SAN landscape with dirt-cheap Fibre Channel switchesthat could help open a whole new market for SANs among small and medium businesses (SMBs) — and could also make Fibre Channel more competitive against IP storage in that market segment.”QLogic made a very smart, strategic move to go after the SMB market with lower-cost, highly functional FC switches,” says Marrone-Hurley. “I think this is a good move for the industry, as it should create a whole pool of new customers that in the past may have found SANs to be cost-prohibitive. These customers can then become potential buyers of value-added storage services and software, so overall I think it’s a good thing to bring costs down so the market can expand.”

Mike Karp, senior analyst at Enterprise Management Associates, sees another upside to lower prices: better service.

Commodity players like Gateway and Dell have put pressure on prices with their lower-cost entries and production processes. Dell is currently the fastest-growing storage vendor, with 68% year-over-year growth for its most recent quarter.Those lower-cost entrants this week drew HP into the low end, which undercut both IBM and the Dell/EMC partnership on price.”When you get a major player like that coming in, it buys a level of service that may not have existed before, and it provides customers with a growth path,” Karp told ESF.

Karp sees the movement toward Information Lifecycle Management (ILM) — where data is stored and protected according to its corporate value — as a result of pricing concerns.

“People are realizing that there is only so much money to be spent on this stuff, so you have to optimize it,” he explains. “Some of this stuff, you have to fight for with your life, and other stuff, you’d be crazy to spend more than a dollar a gigabyte on.”

Karp sees limits to the price-cutting, however. He notes that hardware comprises only 20% of storage costs, so at the enterprise level at least, ease of management remains a high priority.

“The door is open for lower-cost providers,” says Karp, “but not at the enterprise level — unless they’re easy to manage.”

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