This Document has limited distribution rights. It may not be distributed to the general public or shared beyond the employees of the licensee company. Upon the termination of an employee, whether voluntary or involuntary, access to this document must immediately cease. If the licensee company wishes to utilize this information in outward facing communications, please contact firstname.lastname@example.org.
In our Priorities 2017 predictions webinar, Neuralytix predicted that this year will see a tremendous number of mergers, acquisitions, closures, and generally mass consolidation of the IT infrastructure market. Already in January, we witnessed the acquisition of Exablox by StorageCraft, and the acquisition of SimpliVity by Hewlett Packard Enterprise (HPE). We also saw Violin Memory file for bankruptcy.
Consolidation of the IT infrastructure market is a reality that we must face. Challenges face vendors that have a single product (or single family of products), those who fail to partner, those who fail to acquire, and especially those who are vehement in their steadfastness towards being an “independent” vendor. Perhaps no other vendor has seen such a fall from grace as NetApp. The financial analysts are downgrading their views of NetApp, they essentially have one product family; they struggle to grow; and what growth they see, is primarily being used as secondary storage or archive. This is a vendor that failed as an acquirer, grew too big to be acquired, and developed partnerships that were opportunistic.
On the contrary, EMC, which was an acquirer, and good integrator of its acquisition; developed a joint venture with Cisco, in which they both had financial skin in the game; had a variety of products across different segments; and was not too proud to be acquired by Dell, at a time when customers are looking to purchase end-to-end solutions rather than point products.
So, the question begs to be asked: what about other (typically) younger vendors, who may also have a limited number of products or solutions? What should they be doing to remain relevant, particularly in the face of the trend towards customers preferring to purchase converged solutions? Neuralytix believes that public or private, vendors should not be afraid to develop partnerships that could even result in mergers. Larger vendors need to build or acquire complementary products and adjacent technologies. We also believe that partnerships with the few independent server manufacturers are critical – and not just marketing partnerships, but technical partnerships where there can be reliance on each other’s technologies to deliver unique solutions.
Take for example, Lenovo. Lenovo is a respected and leading server manufacturer that is now placed in a difficult position because the two hyperconverged infrastructure (HCI) software that they have developed a partnership with – Nutanix, and SimpliVity – now have better suitors. In the case of Nutanix, Dell EMC; and in the case of SimpliVity, HPE. Here is a server manufacturer desperately in need of a storage partner – although Lenovo has access to IBM and EMC’s products, it is not likely that they will get as favorable terms as they used to from EMC, now that its chief rival Dell owns EMC! As for IBM, their storage products are geared more towards the higher end of the market as opposed to the midmarket, where Lenovo is strongest. Regretfully, Lenovo is not likely to be an acquirer of technology, at least, their business model to date has been so; but a deep relationship with Lenovo is going to help a vendor get into its rich Chinese market, and the European market in which it still has great leadership.
On the flip side, software infrastructure vendors, such as those offering software-defined storage (SDS), should seriously consider “appliantizing” its software. This gives customers a choice of buying the software only option, or a complete solution that they can integrate quickly. We see this as critical for SDS players. At the same time, we believe that SDS players are most likely to sell through the reseller and system integrator (SI) channel, where the channel will bring its own preferred server brand to the solution. But the perception of a complete solution that an appliance brings should not be underplayed.
Speaking of the channel, younger, and smaller vendors must seek a way to work with the channel. An avoidance of the channel is disastrous – the cost of customer acquisition is too high, and although many younger vendors are not compelled to reach profitability in the short term, the cash burn rate does not make sense. The problem that Neuralytix observes is that the channel is being used incorrectly. Too often, the channel is purely a fulfilment agent. This too can be disastrous in the long term – in this situation, the vendor is giving away margin, through discounts; it is also absorbing the total cost of the customer acquisition; plus, the post sales cost of integration, deployment and training for both the customer and the reseller. Neuralytix recommends that vendors (even smaller ones) consider working with value-added distributors (VAD), such as Avnet and Arrow, to create unique end-to-end solutions that the VADs can use their marketing power to help push the solution. Ultimately, this will be a win-win-win situation for vendor, VAD, and customer.
There is no question that the market is consolidating. In 2017 alone, Neuralytix expects a number of start-ups to exit the market – some will be winners, and be acquired; while others will be losers, and simply disappear. For those vendors in a position to acquire, now is prime season to seek out technologies that will synergize with your existing technologies; or at the very least, complement existing technologies.
Surviving the consolidating market includes acquiring others; allowing yourself to be acquired; developing joint ventures with complementary vendors; and working in concert with the channel.
How are you intending to survive the consolidating IT infrastructure market?