NetApp Tiers Up

Network Appliance Inc. (Nasdaq: NTAP) -- looking to sink its teeth into a bigger piece of the midrange storage pie -- today announced it has signed distribution agreements with Arrow Electronics Inc. (NYSE: ARW) and Avnet Hall-Mark (see Avnet, Arrow Distribute NetApp).

Arrow and Avnet Hall-Mark, two of the largest technology distributors in North America, supply resellers with products and also provide training, marketing, and sales support. NetApp says its adoption of a two-tier distribution model will augment its current channel program and help it increase revenues without increasing its own infrastructure and to add resellers in markets it doesn't currently cover via existing channel partners.

"The move to distribution for NetApp is not about building a channel; it's about scaling and growing the business," says Leonard Iventosch, VP of channel sales at NetApp. "We believe our distribution partners can take us to the next level."

Arrow or Avnet will offer specialized storage offerings based on NetApp's software and hardware, including those geared around storage consolidation and business continuance.

Currently, NetApp's revenues are about 65 percent direct sales and 35 percent from indirect channels. The company says its long-term goal is to make that a 50-50 split.Analysts say NetApp is shifting to a two-tier distribution model to more efficiently attack the midrange of the market. According to IDC, the addressable market for storage systems priced between $15,000 and $50,000 is $4.5 billion -- a segment that NetApp has, until now, had a limited ability to reach.

Just two weeks ago, EMC Corp. (NYSE: EMC) expanded its own channel program to provide new financial incentives to resellers. Arrow and Avnet Hall-Mark, incidentally, both are participants in the new EMC Velocity program (see EMC Intros Partner Program).

"Both [EMC and NetApp] have decided to offer product in the midtier of the market, and they both have to increase their distribution in this area," says Harry Blount, an analyst with Lehman Brothers.

But Blount adds that EMC's partnership with Dell Computer Corp. (Nasdaq: DELL) could give many resellers pause about the prospect of competing against it, and he notes that NetApp doesn't have a similar OEM partner in the midrange space (see EMC, Dell Feel the Love).

NetApp charges value-added resellers (VARs) about $2,400 for professional-level technical certification but doesn't charge an annual fee and claims it provides free access for resellers "to our execs as needed to help drive business together," says Iventosch. By contrast, he says, EMC charges roughly four times that for equivalent training, plus an annual fee and fees for access to EMC "executive mentors."But EMC spokesman Rick Lacroix says this is spurious information about the company's reseller programs. EMC's Proven Professional certification programs cost between $2,000 and $5,000 depending on the product, he says, and the company does not charge an annual fee, nor does it charge for access to its executives. "I don't even know where they got that one," says Lacroix.

Separately today, NetApp announced that its storage systems have been certified to work with McData Corp.'s (Nasdaq: MCDTA) Fibre Channel switches -- another step toward the FAS900 becoming accepted for SAN-attached storage deployments (see McData, NetApp Converge NAS, SAN).

Todd Spangler, US Editor, Byte and Switch