NetApps boss hails HDS deal

Network Appliance president Tom Mendoza speaks to CRN about its OEM deal with Hitachi Data Systems and the storage market in general.

Tom Mendoza, president of Network Appliance (NetApps), last week spoke exclusively to Computer Reseller News about its OEM deal with Hitachi Data Systems (HDS) and the state of the storage market.

How is the deal with HDS going?
I think it is going equal to or better than our expectations. Our goal is first to demonstrate the technical capabilities of the two products. Second, user feedback has been very high, and third, since we just went to general availability, we are starting to receive orders.

The first two months met our expectations and 100 per cent of sales were in accounts that NetApps was not in before. I've been involved in some very big transactions where major banks that have Hitachi as their main storage provider for the data centre also want to use NetApps.

The other interesting note is that originally the deal was only with HDS. Hitachi Japan has now announced that it is doing it with us too, so that gives us a broad, worldwide scope to the agreement.

So will your channel partners be able to go into existing Hitachi accounts with Hitachi Japan and sell together?
They will now sell our products. We did this so we would not confuse the customer and to avoid channel conflict, but they are already asking for our support. In Japan, Hitachi is very strong in the financial markets.

So the number-one growth market for NetApps in the past year has been in financial services on a global basis.

Are you looking to expand the deal to go further, to cover more products and to target more verticals?
The strategy we are deploying is to give Hitachi a weapon to expand within their top 500 accounts globally, so it's not our goal to try to spread quickly. It's our goal to put in some significant sites that other people will think are significant so we can demonstrate the capabilities of being successful.

We are open and have an interest in discussions about extending this in a number of ways. I think there is potential for NetApps to offer other products to Hitachi, but we are going to take this one step at a time. We will get off the ground with the Gateway product and work together.

So at the moment the Hitachi channel is selling your kit. Will your channel be allowed to sell Hitachi kit?
No. Not unless we decide we're going to resell their stuff. But a number of our channel partners are their channel partners. However, we want Hitachi to be the sales vehicle. If they want to sign up people who currently sell our product that's fine by us.

Our primary focus is selling to HDS direct and through their current resellers. [Financial services] is a market we're not touching today, so it's not as if we're taking away something our guys had.

We look at them as another very large channel for us, a channel that is incremental, a channel that puts us much more in the data centre, because it says NetApps on that box when it goes in and that is very important in terms of branding.

What feedback have you had from either channel on the HDS agreements?
Our channel has been delighted with the deal because it's clear NetApps is now perceived as an enterprise player. Previously, just like our end-user team, resellers had to force their way in.

So having HDS push our profile into big accounts broadens the brand. We grew from $250m to $1bn in two years [1998-2000]. It used to frustrate me that we struggled to get into enterprise verticals.

The reason was they didn't have a pain point and budgets were still going up. But things have changed a lot now in terms of the economy. Seventy per cent of our business is now in enterprise.

We focused our sales force on a smaller number of big accounts, and in doing so we had to engage our channel in a more fundamental way.

One of the changes to the economy has led to an increase in consolidation. Can you see this happening in the storage market?
There's a couple of things that involve storage that are interesting. One thing is that the public markets for initial public offerings has practically closed, so you aren't seeing as many start-ups. We would have expected our biggest threat to be from a new company with new technology.

Most of their efforts are focused on trying to stay funded. Some technology from these firms will be absorbed by bigger players.

Is NetApps looking to buy up smaller start-ups with new technology?
The only type of acquisitions we are interested in are pure technology plays. It's engineering that we want, as opposed to an ongoing business concern. We are constantly looking to see what is available, but we're not making moves unless we're very certain.

What about a merger?
The only acquisitions that work in technology are ones where both companies desire it. We do not want to be acquired and we do not want to merge. Four years ago EMC was 26 times bigger than us [in product revenue]. Now it is less that five times bigger than us.

Do you still regard EMC as your biggest competitor?
No, I see it as our biggest opportunity. It is in most big enterprises and is more vulnerable now than it was a few years ago. When it started its relationship with Dell it did it for margin.

There is no strategy where doing business with Dell improves your margin, and Dell being at the lower end will cause everyone problems, most of all EMC.