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Introduction

A lot of speculation has surfaced around the future of NetApp after the resignation of Tom Georgens, now former Chairman and CEO on June 1, 2015.

In this Insight, Neuralytix examines the opportunities and challenges for NetApp in the future.

The “Must Dos”

Obviously, NetApp needs to look for a new CEO. This will be a critical hire for NetApp, not only because great companies need great leaders. Just as importantly, the new CEO will need strength to change and re-charge the steadfast culture within NetApp that took it to its heights, and now, challenges its leadership. Neuralytix believes that the new CEO must, amongst other things, do the following:

  • Go beyond operations leadership. NetApp operations is effective and efficient. Helped by the logistics capabilities of Jabil and Xyratex, NetApp has made the order to implementation fast, simple and effective. So, the challenge for NetApp is simply not operational.
  • Create a relevant vision. Neuralytix believes that NetApp’s innovation has dramatically slowed over the last several years. Additionally, over the last 10+ years, NetApp has been riding on the coattails of many of its partners – first there was Microsoft, then Yahoo!, then Oracle, then VMware, and to a lesser extent, Cisco. What NetApp has never articulated is where their customers need to go. In fact, Neuralytix argues that there is too much “listening to customers,” and not enough leading the customers.
  • Make some family. Using the basic spectrum of acquaintance – friend – family, NetApp has many acquaintances (ISV partners, for example), and even friends (consider Cisco, Fujitsu and to a lesser extent VMware). But Neuralytix argues that NetApp is in need of “family” – partnerships that are willing to invest efforts by NetApp. Specifically, Neuralytix believes that NetApp needs to acquire, be acquired, or form an extremely strong long-term partnership with a server and services vendor (think Fujitsu-Siemens). Absent this “family”, NetApp will be left out in the cold. Despite being a majority of IT capital budgets, storage (like servers) are now a commodity. It is the integration and convergence of IT infrastructure augmented with software that generates value and margin and delivers not only an IT solution, but a business outcome.
  • Change the culture. Not everything has to be organically invented within NetApp. Yet, for the entire history of NetApp, it has completely relied on the mantra that “it must be invented at NetApp” for a solution to be any good. That has to change IMMEDIATELY. NetApp cannot remain a two product company – its FAS unified storage solution and its E-series SAN storage. Although NetApp argues that it has alternative solutions, those solutions contribute a peripheral value to NetApp overall.
  • Learn to act and acquire quickly, and integrate even faster. It is no secret that NetApp has had a terrible reputation of acquisition and integration. It took NetApp over 10 years to integrate and deliver the technologies from its acquisition of Spinnaker. NetApp has yet to achieve its initially stated ideals for the acquisition of ByCast. There have been numerous acquisitions that NetApp have made, that during the last several years with internally called “Tower Two” products.
  • Evolve from being “JASS.” Despite the huge contribution NetApp has made to the storage industry over its history, NetApp is quickly diminishing into Just Another Storage System (JASS). Almost all of its innovations are now table stakes – from snapshots to multi-tenancy. Neuralytix believes that many of NetApp’s customers continue to invest in NetApp because it has a good reputation for quality and stability. Larger customers have built processes around NetApp technologies, and are willing to pay a premium for its reputation, for now. However, with so many new entrants into this already hyper-competitive market that offer, or at least claim, to have similar or superior product to NetApp at a significant discount to NetApp (for example, Nimble), NetApp will be hard pressed to justify its premium over the medium to long term. Storage is a commodity, while data is an asset. Enabling data will enable customers to grow and become more competitive. NetApp cannot stay being just a storage vendor.
  • Must transform from a storage vendor into a data management provider. Neuralytix believes that for NetApp to continue as a storage-only vendor could result in a negative trajectory for its business. Neuralytix urges NetApp to take a broader view of its opportunity around enterprise-wide data management, in the vein of data lakes. Although consistent of NetApp to be a follower in terms of announcing new technologies and opportunities, Neuralytix believes that the data lake market is nascent enough to support NetApp. In many ways, NetApp already owns part of this market. Significant amount of non-production data is stored on NetApp (making up for NetApp’s growth over the last several years). Now, NetApp has the chance to help its customers take advantage of the value that is trapped inside its filers – by way of big data, analytics, and the ingest of metadata.

To succeed, NetApp will need to hire aggressively from its competitors, or maybe even from outside the industry to bring new thinking and a new culture to NetApp.

Neuralytix anticipates that NetApp may lose market share (based on revenue), but sustain and increase its market share based on capacity, which is really the only true measure of success). Finally, NetApp will also need to convince institutional investors to accept negative financial performance in the near future, in exchange for long-term gains.