NetApp Squares Off With Redmond

Network Appliance Inc. (Nasdaq: NTAP) is refreshing the low end of its lineup with the FAS250 entry-level storage appliance -- which supports both iSCSI and NAS protocols -- taking sharper aim at a market segment where Microsoft Corp. (Nasdaq: MSFT) is surging.

With the FAS250, due to ship this summer, NetApp will be competing more directly with Microsoft partners that license Windows Powered NAS. They include Dell Computer Corp. (Nasdaq: DELL), Hewlett-Packard Co. (NYSE: HPQ), IBM Corp. (NYSE: IBM), and Iomega Corp.

Most recently, EMC Corp. (NYSE: EMC) announced that it will develop a Windows-based NAS box for the midtier market, leaving NetApp as the only major storage vendor that isn't incorporating Microsoft's NAS operating system into its products (see EMC Kisses Microsoft's NAS and Microsoft Gets NASty).

Now NetApp is striking back with a device that supports both file-level NAS access and block-level iSCSI via the same Gigabit Ethernet interface -- a capability Microsoft doesn't currently support, but the company promises iSCSI will be available for Windows Powered NAS 3.0 later this summer.

But Zane Adam, director of product management and marketing in Microsoft's Enterprise Storage Division, says it doesn't make sense to combine NAS with iSCSI target functionality in a single storage device. "I don't know of many customers who would want to use their NAS in an IP SAN," he says. "What you want is scaleable hardware in a SAN, and NAS at a certain point hits a limit."So far, NetApp has been one of the most vocal supporters of iSCSI, announcing support for the IP storage protocol on its F800 and F900 systems immediately after it was approvedby the Internet Engineering Task Force (IETF) in February. Other storage systems vendors, including Dell, EMC, and HP, are proceeding more tentatively (see NetApp Blitzes on iSCSI and HP: iSCSI Still a Year Off).

NetApp CEO Dan Warmenhoven, who announced details of the FAS250 on the company's earnings call on Tuesday, said the system integrates a filer head and storage enclosure into a single 3U-high unit and supports up to 1 Tbyte of storage. He said the system will be begin shipping "in a few weeks."

Prices for the FAS250, which will run NetApp's Data OnTap software, will range from $15,000 to more than $30,000, depending on storage capacity and add-on software options. That lines up very closely with how many Microsoft NAS systems are priced.

Unlike NetApp's F87, the FAS250 can be upgraded to any of its higher-end appliances without requiring data migration. Company representatives would not provide additional details about the system until it's officially announced.

John Roy, an analyst with Merrill Lynch & Co. Inc., says the FAS250 is clearly designed to stack up head-to-head against Microsoft-based NAS systems."They're going to be aiming at the half-terabyte and above target market, where they think they'll be competing more with Windows Powered NAS," he says. He points out that it's NetApp's first product with a SKU (Stock Keeping Unit), a number that is used to provide inventory-tracking for large distributors.

At another point on the earnings call, Warmenhoven argued that Microsoft's inroads in the NAS arena were largely an illusion. He said Microsoft's apparent market-share gains in the NAS space -- as of last October, it represented about 32 percent of the overall NAS market, according to IDC -- were mainly the result of a "reclassification" of servers running Windows NT as NAS devices.

"If somebody has a Microsoft Windows server, running file and print service, of which there are millions installed today, it is classified as an NT server. But if they upgrade that to Windows Powered NAS, all of a sudden, it gets reclassified to a NAS appliance," he said. "And therefore, you'll see the NAS market show enormous growth, and Microsoft's share growth accordingly, where in fact, it is nothing more than the simple upgrade from an NT OS to a Windows Powered NAS -- exactly the same technology underneath."

However, Microsoft's Adam says this statement by NetApp is "absolutely bullshit." When a customer buys a Windows Powered NAS system, he says, "it's not an upgrade -- it's a new hardware sale. There's no 'reclassification' going on... Sometimes our NAS competitors have a hard time accepting the momentum our software has been getting."

NetApp says it expects to sell the FAS250 mainly through its current channels, which include its direct sales force, systems integrators like Accenture, and distribution partners including Fujitsu Ltd. (OTC: FJTSY), Siemens AG (NYSE: SI; Frankfurt: SIE), Datalink Corp. (Nasdaq: DTLK), and Forsythe Solutions Group Inc.Warmenhoven said it's the first of a family of storage systems for what he called the "distributed enterprise environment," and he specifically mentioned that NetApp is not targeting small and medium enterprises at this point.

Roy says NetApp is expecting to win business in large branch offices: "They want to sell 10 to 50 in one batch."

Todd Spangler, US Editor, Byte and Switch