The arrival of free consumer storage was predicted a while ago. As more market entrants arrived and as the complexity of delivering online storage declined the value of just storing bits and bytes would naturally go to zero.

The question was what would that mean for the market as whole?

Aaron Levie, probably vastly ahead of the curve, figured this out and has repeatedly said that he’s moving up the stack in terms of capabilities.

The “race to zero” in cloud storage: “We see ourselves really in a ‘race to the top.’ And what we mean by that is, we are in a race to constantly add more and more value on top of storage, on top of computing, to deliver more capabilities, more kind of industry-unique experiences, greater depth of our platform functionality to the industries that we’re going after….If people confuse us with being in the storage business or whatever, that’s a cost of just the fact that there are just so many companies out there, there’s so much going on on the internet. ”

Read more: http://www.businessinsider.com/box-ceo-aaron-levie-qa-2014-11#ixzz3J5i3xZLg

 

The recent partnership between DropBox and MSFT is probably an example of how early entrants most current valuable asset is the large number of customers they already have. This “race to zero” is not just a problem for the Storage as a Service vendors, this problem of zero cost storage is a problem more broadly for all Software as a Service  vendors. Customers will expect to store arbitrary amounts of data within a SaaS  and not pay for the storage. This will include back-ups, archives etc of their data.

The challenge facing everyone in the SaaS market though is that although storage is  free to the end-user, there is a non-trivial cost to buying and managing storage and that the cost of the management and support and maintenance of that storage will increase over time as more customers use that storage. And worse, the importance of the storage will increase over time as more customer depend on the data existing and being accessible over time.

The paradox facing SaaS vendors is that storage is free, but data is priceless and to store data you need storage! And so they will have to invest in their storage infrastructure, the question is how.

In the first phase of SaaS, vendors could legitimately build their own storage infrastructures. The ability to monetize the storage as storage made it possible for the SaaS vendors to hire and invest and innovate in storage infrastructure. And innovation was necessary because traditional storage infrastructure simply did not meet the requirements that the new SaaS customers had either in scale or in deployment type or in cost.

What this means is that if you are a SaaS vendor and the current model of building your own is the only model means is that you will have to become over time become an increasingly great storage company to meet your expanding business needs even though that is not where you should be adding value. This will require hiring a slew of technology experts to solve problems that is fundamentally outside of your core business.

And given that there are more SaaS companies than storage experts this will both drive up salaries in storage experts AND …  also create a market for storage infrastructure services.

Why will it create a market? Because hiring will be hard, and companies will look for products that meet their needs and the dollars will be big and entrepreneurs will try and satisfy that need.

And what will eventually happen is that SaaS companies will just buy storage infrastructure from infrastructure vendors who will be able to make bigger and deeper investments than any single SaaS player. A single storage vendor can leverage his storage investments across more customers and can make bigger investments than any single SaaS players. And SaaS players will naturally gravitate to those vendors that can provide a high quality storage solutions. My theory is that sooner rather than later SaaS companies will focus on leveraging technology built by storage infrastructure vendors instead of rolling their own.

Why will they buy instead of build?

Storage vendors are better suited to deliver low cost reliable storage because they have deeper understanding of supply chains and a deeper bench of people working on the problem of making storage efficient than any single SaaS provider does. In effect, a small number of storage vendors supplying a large number of SaaS vendors will provide more cost-efficient storage than every SaaS vendor building storage infrastructure on their own.

But it’s all about the people.

Look even if you don’t buy anything else I said, let me leave you with this thought: Hiring a bunch of guys who know storage is hard. Retaining those guys is even harder. It’s much easier to buy a product from someone whose job it is to hire and retain a storage team, especially if the storage is a product you use – not something you directly monetize. A product you buy is a cost that is easier to control – you can spend more faster and cut spending faster with no real impact to the quality of the product over the long term. A product you build is a team you have to hire and layoff when you want to manage costs and that will impact the quality of the product over the long term.

This is huge

The last 7 seven years of my career, I have been rather bearish on the storage infrastructure business. Ironically because storage is not monetizeable but very valuable and doing it cheaply and efficiently and reliably is very important to any SaaS vendor, and because it’s impossible for every SaaS vendor to do it properly, and because the number of SaaS vendors is going to explode, I believe for the first time in ages that Storage sold by infrastructure vendors to SaaS players is going to grow very rapidly …

So I am bullish on storage

And I suppose as someone who once declared that enterprise storage is dead, that is a surprising conclusion.

One of the more interesting questions confronting anyone who works at a box company, like I do, is what causes a vendor to get disrupted?

There are a lot of business reasons, and technical reasons covered in a wide variety of sources…

My pet theory is the following:

A box vendor produces a box that has to be deployed as a box because of what it does. For example, to switch you need a box that can sit between three physical cables and make decisions about where to forward the packets.

Deploying a box is a pain in the ass. Replacing a box is hard.

And the problem is that once you, as a customer, deploy a box, you realize that you need the box to do more stuff.

And the vendor starts adding software features into the box to meet that need.

And at some point in time, the box vendor believes that the value is the software and not the box. And they are partly right, except that the only reason the customer is buying the software from the box vendor is because they must buy the box.

And the box over time becomes an increasingly complex software system that can do more and more and more and more.

And software engineers hate complexity. And where there is complexity there is opportunity to build something simpler. And competition tries to break into the market by making a simpler box.

The problem with the simpler box is that if the set of the things a customer needs to do is A, and you can do A/2 – you’re simpler and incomplete.  Inevitably you will become as complex as the original box.

What causes the disruption is when the customer no longer needs to deploy the box.

To pick an example that I can talk about, many vendors in the storage industry used spinning rust disk drives to store data. When customers decided that they no longer wanted to use spinning rust to store data, vendors like Nimble and Pure started to win in the market because they stored data in flash.

Nimble and Pure certainly didn’t have the feature set of their competitors – how could they. The reason they won deals was because the decision criteria for the customer wasn’t software it was the desire to store the data differently on a different kind of physical media – flash. The combination of a customer desire to store the data differently coupled with a simpler box made it possible for Nimble and Pure to win in the market place.

To put it differently Pure may, for all I know, have A/5 of the features of the competition, but if the first order decision is that you want to store data on flash in an external array, then that is irrelevant because you’re not comparing Pure to a spinning rust array, but Pure to another flash array. And there Pure has an advantage.

The networking industry has stubbornly resisted disruption for years. And part of the reason is that the physical box hasn’t really changed over time. Parts of the industry have changed, and overall the same leaders are still winning.

However, there is a possibility of a disruption in the networking industry, in particular, in the modern cloud data center.

The reason being that for the first time in a long time, the fundamental network stack may be re-wired in a very unique way.

In an earlier post, I discussed thee Network Database. In a traditional network, every network element has to be a full fledged participant in the Network Database.

And like traditional applications that have to interact with a database to do anything interesting, network services must also interact with the Network Database to do anything interesting.

And it turns out that building an application that uses the Network Database is hard, unless your application fits into that model and … well … runs on the network element.

Companies like to whine that network vendors are slow, maybe they are – or maybe the problem they are trying to solve in the way they are trying to solve it is just hard and takes time. Having worked with folks in this industry, I am convinced of the hardness thesis rather than the laziness thesis.

SDN – has the potential – to disrupt the model of software applications being built as distributed services running on multiple network elements. For one reason: it actually makes building network applications easier because it aligns with how the vast majority of programmers think. Building applications out of distributed protocols is hard. Building applications on a centralized database is easy. And there are claims that well you’ll need multiple databases to scale, and it turns out that too is easy – after all that’s what the web guys have been doing for years.

And that creates an interesting disruption in the network stack. That is different than flash and disk drives but potentially as massive.

The value of the software stack that the traditional vendors have built over time begins to diminish as more services get built using a different model. One argument is that it will take time for the new services to be as complete as the old model. And that is true. If you believe, however that the new programming model is more efficient and expands the pool of programmers by a step function, then the gap may be closed significantly faster.

Having said all of that, I am reminded of a saying:

Avec des si et des mais, on mettrait Pari does une bouteille.

The Network Box vendors are making their strategic play as well, and the industry will change and we will most likely still see the same players on top ….