EMC Kisses Microsoft's NAS

Under an expanded partnership with Microsoft Corp. (Nasdaq: MSFT), EMC Corp. (NYSE: EMC) will introduce a midrange NAS box based on Microsoft's Windows-Powered NAS -- a tacit admission by EMC that it couldn't break into the middle tier of the NAS market on its own.

EMC's Windows-based NetWin 200, to be available in the third quarter of 2003, combines a Windows server front-end with an EMC Clariion CX200 storage array. EMC says the new product will provide "an attractive price/performance entry point" for NAS customers in Windows environments. The system will use Microsoft's Windows-Powered NAS 3.0, which is based on Windows Server 2003 (see EMC Cozies Up to Microsoft, Microsoft Gets NASty, and Windows Soaks Up Storage).

Industry observers speculate that EMC is mainly hoping to stop leaving money on the table in situations where customers don't have a need for its higher-end NAS systems. However, EMC didn't divulge any details about the system's price/performance capabilities, except that the Windows NAS box would have a starting price of $50,000 for 1 Tbyte.

And how does the expanded EMC/Microsoft fit in with EMC's partnership with Dell Computer Corp. (Nasdaq: DELL)? Dell, which is EMC's single biggest reseller, already sells a line of its own Windows-powered NAS boxes (see EMC, Dell Keep Dancing).

Chuck Hollis, VP of platform marketing at EMC, says the NetWin 200 will probably be built using Dell PC servers, although EMC expects to also build versions using other partners' PC platforms, including Fujitsu Siemens Computers. He asserts that there will be minimal conflict between the NAS products of EMC's partners -- including Dell -- and the NetWin line because EMC's Windows-based NAS systems will be priced for a different segment. "Dell is very strong in the sub-$50K market," he says.In a note to investors, Goldman Sachs & Co. analyst Laura Conigliaro says the EMC/Microsoft partnership is "tailor-made for Dell distribution."

"We view EMC's deal with Microsoft as another opportunity for EMC to access untapped demand," Conigliaro writes.

Previously, EMC's lowest-end offering in the NAS space was the Celerra NS600, which starts at $167,000 for a 1-TByte system with built-in high-availability features (see EMC Darts Into Midtier NA$).

Why didn't EMC try to bring the Celerra operating system downmarket? Because, Hollis explains, customers weren't interested in such an offering: "Once we went down below [the $135,000 price point] it was clear what customers wanted -- they didn't want 'Microsoft compatibility,' they wanted Microsoft, the real thing... So rather than spend our efforts bringing Celerra downmarket, we're spending our time taking Windows NAS upmarket."

By using Microsoft's operating system for its midtier NAS systems, EMC will again need to maintain two parallel NAS lines. EMC will keep its higher-end Celerra product family, which are NAS gateways that sit in front of its Symmetrix and Clariion storage arrays. Microsoft and EMC did announce, however, that they will work together to ensure "compatibility" between Windows and the Celerra NAS family.EMC in part hopes to use the Windows-based box to regain share it has lost in the NAS market. In 2002, EMC's NAS revenue dropped 35 percent, and its overall market share fell 12 percent, according to Gartner Inc.

One thing is clear: The EMC/Microsoft deal affirms the ascendancy of Microsoft in the low-end to midtier NAS space -- and it leaves Network Appliance Inc. (Nasdaq: NTAP) the odd man out as the last major NAS vendor that does not license Microsoft's operating system software. Dell, Hewlett-Packard Co. (NYSE: HPQ), IBM Corp. (NYSE: IBM), Iomega Corp., and others use Microsoft's Windows-Powered NAS for their NAS product lines.

Indeed, some Wall Street analysts believe NetApp should be very concerned about EMC's joining the Windows-Powered NAS camp. "Although it is still very early, the expanded EMC-Microsoft relationship with products sold through Dell could represent the start of the most serious competitive threat NetApp has ever faced," Conigliaro writes.

But the fact that EMC chose to license Microsoft's Windows-Powered NAS has given competitors a chance to knock EMC's existing Celerra technology as a monolithic piece of software that it couldn't scale down.

"EMC is saying, for a certain profile of customer, their proprietary NAS doesn't cut it," says Mark Nagaitis, director of product marketing for HP's storage infrastructure and NAS division. He adds, though, that EMC has "validated" Windows as an enterprise-class platform.In addition to EMC licensing Microsoft's Windows-Powered NAS, the two companies are collaborating in other areas. Other aspects of today's EMC/Microsoft deal:

Today's announcement follows a previous, less formal alliance EMC and Microsoft formed in February 2000, under which EMC developed and tested configurations for the Microsoft architecture.

Todd Spangler, US Editor, Byte and Switch