Small Is Beautiful update from August 2004

One of the biggest beneficiaries of the hot new storage networking market is the small- to medium-sized business (SMB). As demand for storage devices of all kinds drives, enclosures, switches, HBAs, and other gear – grows, prices have fallen far enough to allow smaller organizations to afford networked storage for the first time.

This is good news for the industry, of course. But it poses a challenge: Since the average SMB IT staffer is apt to be on information overload and salary underload (see Data Center Staff Are Revolting), it's unlikely he or she will have either the time or the inclination to become an overnight expert in storage networking. That means technology originally designed for large-enterprise applications – and teams of storage specialists – must be simplified for SMB consumption and adapted to smaller budgets.

How this is happening is the topic of the latest Byte and Switch Insider report – Storage for SMBs. In the course of researching the report, it became clear to me that the SMB market is evolving in two dimensions – that of the products themselves, and that of how they're sold.

Let's look at the products. One reason the market's ready for SMBs is that equipment is commoditizing. Yes, the dreaded C-word. Up to now, it's been an undesirable reference, even a dirty word, to vendors addressing the SAN segment, where we're used to thinking of products as specialized and expensive. Indeed, I used the C-word in conversation with Dan Colby, general manager of storage systems at IBM Corp. (NYSE: IBM) last year, and he balked – though he eventually conceded that it is taking place in the lower reaches of the market.

In his next breath, however, Colby told me: "You want SATA? I'll give you SATA by the end of the year, and I'll be OEMing the box, not making it myself." Sure enough, IBM went on to offer low-end SATA drives on the FastT RAID arrays from Engenio Information Technologies Inc. (see IBM Settles on SATA and OEMs Prop Up Dot Hill, Engenio).Now, call me naïve, but it seems IBM wouldn't be interested in OEMing a product unless it was a commodity that sold in sufficient volume to allow IBM to squeeze those margins. My point? Commoditization is upon us in storage networking, even if we're not always ready to call it by name.

One point: So far, this commoditization has mainly affected hardware. When it comes to SAN switches, for instance, per-port pricing seems headed for a par with Ethernet gear. But it may not be too soon to start thinking about how commodization is apt to hit software, as well. By the time most organizations get a second or third NAS device, for instance, they'll probably be ready to start thinking about management software and other applications typically associated with bigger boxes.

One source thinks commoditization is part of an ongoing process. Tom Clark – director of solutions and technologies at McData Corp. (Nasdaq: MCDTA), veteran of the connectivity industry, and author of a couple of major tomes on storage networking – says enterprise customers paid (in some cases through the nose) for cutting-edge, high-end storage throughout the nineties, enabling the industry to carry out R&D, get the technology robust, and now, half a decade on, bring the benefits of networked storage to a mass market at far more affordable prices.

Tom reckons that, if this commoditization continues (and there's no reason to believe it won't), we'll eventually see networked storage carry on into the SOHO market and even into the consumer market, as folks start to want backup for their TiVos or personal video recorders (PVRs). We're already seeing the advent of early appliances (see Storage Goes Home and Netgear, Western Digital Team Up).

My conversation with Tom Clark was an interesting one, in fact, but he had to cut it short to run a backup on his refrigerator... I hear Whirlpool may bring out some software to automate that process for you, Tom. It's going to be called Cold Storage Management.The advent of SMB storage networking is also affecting how products are sold. Given paper-thin margins at the low end of the market, vendors need to sell storage to SMBs by the truckload to earn a crust – a volume game not everyone's up to playing.

Of course, if you're Hewlett-Packard Co. (NYSE: HPQ), you know about shipping volumes of PCs and printers. Even IBM knows a bit about that market. EMC Corp. (NYSE: EMC), on the other hand, was a confessedly high-end kinda company and eventually realized that, if it were ever to exploit the Clariion business to its full potential, it would need help. So it went to Dell Computer Corp. (Nasdaq: DELL).

Indeed, don't we all? I'm writing this article on a machine I bought over the phone from them last Christmas, and these days the SMB market for direct-attached storage is much like that. As one of the interviewees for this month's report put it, "The tendency is increasingly to just pick up the phone and call Dell." Dell is, in essence, a big, efficient sales machine that assembles some things and OEMs others, a model that's worked well in the low-end computing world, where storage is turning up.

Now, EMC's not actually giving Dell the responsibility for marketing all the products it wants to sell into the SMB space – just somewhere between half (for the AX100 box) and a third (for the rest of the Clariion line). What EMC does want to do, though, is learn from the master about how to sell to SMBs.

A visit to Dell's Website demonstrates the state of the art: It's all old prices crossed through and new, lower ones in larger red letters alongside, with splashes saying things like "For a few more days only!"Dell and EMC's competitors, meanwhile, are relying on the more traditional channel partner approach to reach the 51 million SMBs that IDC reckons there are worldwide.

It's not unusual to see two-tier models, where master distributors help the vendors find the local VARs that have the ears of the SMBs in their area. SMB marketing is all about trust, after all: A small business's IT supplier becomes as vital a partner as its accountant or car dealer.

Bottom line? As storage networking moves into the world of SMBs, products and the way they are marketed are changing to fit the new model. New products and partnerships are only the start.

— Rik Turner, Analyst at Large, Byte and Switch Insider