Storage Start-Up Strategy and Market Maturity

NetApp shipped its first product 15 months after incorporating. We had a total of eight full time employees (three engineers), and we had raised $1.6 million. By the time we had become profitable and gone public, we had raised a grand total of $13 million.

Compare that with what more recent network storage starts-ups have raised so far:

BlueArc	$157 million
3PAR	$153 million
ONStore	$79 million
LeftHand Networks	$75 million
Panasas	$68 million
Yotta Yotta	$66 million
Zambeel	$66 million
EqualLogic	$52 million

(Consistent data was hard to find. Two useful sources were Storage Search and Byte and Switch.)

What is the message here? Were the first three engineers at NetApp (James, Byron and myself) all super-geniuses? Were the folks at BlueArc, 3PAR and the rest all idiots?

I don't think so. I think that the amount of money it takes to ship a new product says a lot about the maturity of a market. These numbers say that that the network storage market is much more mature and difficult to enter today than when NetApp started.

An engineer who joined NetApp from Zambeel told me that his time there was frustrating because every time they were about to ship product, NetApp would ship another release and Zambeel's marketing folks would add all of our new features to their requirements list.

On the one hand, you could argue that was bad planning on their part. NetApp was seven years old when Zambeel started - they should have predicted we would ship more stuff. On the other hand, NetApp had it easy. When we started, there was no such thing as a "storage appliance" and there was little competition for low-end file servers, our initial target market. See my entry on disruptive technology. NAS was a classic disruptive technology. It started as a low-end niche, where nobody else was playing, and moved up over time. The initial competition was Sun workstations configured as NFS servers, but Sun wasn't focused on low-end NFS. Auspex was selling much larger, more expensive NFS servers. And EMC was way up in the enterprise mainframe space.

I'm not saying it is impossible for a new storage system startup to be successful. My point is that the bar for entry is much, much higher today than it was when NetApp started, and that makes storage system startups an expensive bet.

I do believe it is a mistake for startups to take direct aim at companies like NetApp and EMC. They should identify a low-competition niche to get started in. BlueArc, in particular, screwed up by targeting "enterprise NAS" as its initial target market. NetApp already owned that space, with EMC a strong second. Strategically, both EqualLogic and Lefthand Networks made a much better choice by targeting IP SANs based on iSCSI. Since iSCSI is new, there are no entrenched players. Even so, both EMC and NetApp are selling way more iSCSI storage than either Lefthand or EqualLogic. So even though I prefer their strategy to BlueArc's, it remains to be seen whether they'll be successful.