Why Data Optimization is White Hot

As I discussed in my previous post, in the last month we have seen announcements or speculation on deduplication from IBM (speculation on Storwize acquisition), HP (StoreOnce) and EMC (Viper).  Yesterday, Dell jumped into the fray with the announced acquisition of Ocarina. Here is my view on why the action is occurring and with such velocity.

Economics

Usually around election time the old theme ‘it’s the Economy stupid’ gets hauled out. Well, the storage sector is a very competitive market and when economics are at stake – meaning P&L, earnings per share, gross margin, revenue and market share – things happen fast.

I’ll keep this short and to the point. Let’s look at two storage companies, ABC and DEF.  ABC is the industry leader. They sell $billions of primary storage at $10/GB and they operate at a 60% Gross Margin. Their competitor, DEF is the price leader and they sell $billions of storage at $8/GB and operates at a 50% Gross Margin. Their product P&Ls look like this:

ABC

DEF

REVENUE / Unit

$10

$8

GROSS MARGIN

$6

$4

Now, ABC adopts data optimization. Let’s assume they keep their prices the same, but deduplication enables them to lower the effective cost of storage by 60% passing on huge savings to their customers and gaining market advantage over their competitor. DEF does not adopt data optimization. The customers of ABC and DEF see effective cost of $4/GB and $8/GB, respectively.  Wow!   ABC is now the price leader and aggressively takes market share from DEF.

ABC

DEF

Effective Price / Unit

$4

$8

GROSS MARGIN

$6

$4

DEF can react one of two ways. They can cut prices, but they are already at a Gross Margin disadvantage or they too can add data optimization into their solutions.  It’s clear that the latter option is where the industry is headed.

I said I would keep it simple.  Economics - margin dollars and market share — are the reason virtually all storage vendors are moving to data optimization and why they are doing so at a fast pace.  Customers become the ultimate winners as they see their effective cost of storage dropping dramatically along with falling data center and storage management costs.  To storage companies ABC and DEF, as Senator Dirksen said, ‘a billion $ here and a billion $ there, pretty soon you are talking about real money’.

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