NetApp Passed EMC to Become the Largest Networked Storage Vendor (by Terabytes Shipped)

Last quarter was a great milestone for NetApp. We just passed EMC in terabytes shipped, to become the largest networked storage vendor. (I define networked storage as SAN, NAS and iSCSI for everything except mainframes.) Here are IDC's numbers for the seven largest vendors:

68,898 NetApp
66,581 EMC
61,050 HP
31,648 IBM
20,835 Hitachi
19,651 Dell
18,475 Sun

In terabytes shipped, the "big three" are pretty close together, but there is a big gap between them and #4. IBM is a factor of two lower. There is another factor of two drop to the next vendor below Sun, so you can think of the storage market as the "big three", the "medium four", and the "little guys".

Our jump to #1 in terabytes shipped creates a very interesting situation: There are three "first place vendors" in networked storage. HP is largest by units shipped, NetApp is largest by terabytes shipped, and EMC is largest by dollars collected. Analysts usually focus on dollars, which makes sense for understanding the market today, but to understand the strategic potential going forward, you can make a strong case that units and terabyte are both more important. You could argue that units are most important because that measures how many different installations you are helping customers with. Having more small units also positions you for a "disruptive attack from below." You could argue that terabytes are most important, because that measures how much customer data you are holding, and it represents the opportunity that you have to sell additional functionality. But in the long run, I think it's hard to argue that charging more money for less stuff is the best position to be in strategically.

My last blog on market share observed that for 2005, NetApp had 8.0% share by dollars, but 14.9% share by terabytes. Last quarter, we had 9.5% by dollars and 21.3% by terabytes. I'd love to claim that the difference is entirely because NetApp offers more terabytes for the money, but the real answer is more complex. I've found at least three reasons, besides "good value", that NetApp looks cheaper:

1. IDC's report on storage software shows $150m in file system software revenue for NetApp in 2005, which is odd since other vendors like EMC and Hitachi show no such revenue at all. The revenue is protocol licenses for NFS, CIFS and SAN. Other vendors bundle these protocols with their storage systems, but since NetApp has "unified storage" that supports all protocols in one box, we sell the licenses separately. Adding this in would bump NetApp's revenue by about 15%.
   
   (Since I discovered this, I've talked with the folks at IDC about moving this revenue from storage software to storage systems, since the current approach makes apples-to-apples comparisons difficult, but I'm not sure yet how that will turn out.)
   
   
2. Different vendors bundle different levels of support with their storage systems. For instance, EMC bundles three years of "premium support" with their systems, while NetApp bundles three years of "standard support". For EMC, I think the extra revenue for premium goes into storage systems, since it's bundled, but for NetApp into storage services. On the other hand, I understand that EMC is about to change the support bundle for CLARiiON from "premium" to "standard". I haven't figured out anything clever to recommend to IDC here.
   
   
3. Although I have no hard data, I believe that NetApp sells a much higher percentage of ATA disks than other vendors. We started early in this area, and with RAID-DP to protect against double disk failures, we have allowed customers to use ATA drives safely in a much wider range of applications than other vendors. Using ATA drives allows us to sell more terabytes for fewer dollars.

Summary: NetApp sells much more storage than it would appear based on revenue numbers.

That's enough geeking out on numbers for the time being.

[Quarterly numbers are from IDC's "Worldwide Quarterly Disk Storage Systems Tracker, Q2 2006 Release", August 2006. Annual storage system numbers are from IDC's "Worldwide Disk Storage Systems 2006-2010 Forecast and Analysis", May 2006. Storage software numbers are from IDC's "Worldwide Storage Software 2006-2010 Forecast", May 2006.]