November 17, 2009, 12:11 PM — In August, Tom Georgens took over as CEO at NetApp Inc., replacing Dan Warmenhoven, who had led the data storage vendor since 1994. Georgens, who was NetApp's chief operating officer, took command during what he describes as "a period of relative calm" after a time of turmoil. During the past fiscal year, NetApp's revenue has been down quarter over quarter compared with last year, and it laid off 6% of its employees -- about 500 people.
On top of that, over the summer, NetApp lost a multibillion-dollar bidding war with chief rival EMC Corp. to acquire the hottest data de-duplication vendor in the market, Data Domain -- a takeover originally architected by NetApp. Georgens discusses how the loss of that bidding war will affect NetApp, as well as what's in store for the company in terms of virtualization, cloud computing and other possible technology company buyouts.
Why the change of leadership at NetApp? I think there are a couple of factors. I think Dan has made it clear for quite some time that he was not going to be doing this past [age] 60. And I think as we went through this difficult period that one of the messages was he clearly didn't want to make the transition in the middle of a storm, so he was looking for a period of relative calm.
While the overall environment is hardly euphoric at this point, we've at least gotten to a point of stabilization, where the transfer [of power] can be positive. I'd say the other side is that as with any downturn, the market emerges different from when it went in. There are technology implications for us, in terms of go-to-market [strategies], and we're trying to drive a bunch of priorities in the company around those. I think making the transition now is symbolic that those things are now priorities and we need to change some of the things we were doing in the past. The way [Warmenhoven] describes it internally is that this is a new era for NetApp. The new era applies to products, go-to-market and apparently leadership as well.
When you say "storm," are you talking strictly about the economy or NetApp specifically? I think overall, from our competitive position, we feel pretty good. Over the past five years, we've experienced a 25% compound annual growth; very few companies have been able to do that. And we did 7% last year, which is certainly better than most, but not where we expected to be and not where we expect to be in the future. But if you look at our business last year, our top 100 accounts are the most economically sensitive almost by definition and, in our case, concentrated in a couple of industries. But once you get out of those accounts, we acquired more new accounts than at any year in our history.
NetApp brokered an acquisition of Data Domain, but EMC wound up buying that company out from under you. What kind of impact does that have on NetApp? It would be really easy for me to say we dodged the bullet [and] we shouldn't have gone after it in the first place. I'm not going to say that. Obviously, we would have loved to have had Data Domain as part of our portfolio. It's a good company, and it has good products.
What we were looking to buy is a backup solution for disk-to-disk. This was an opportunity for us to enter a new market that has a fair amount of growth, with a company that has some traction and some scale, and it was a very opportunistic transaction for us.
Frankly, I think our opportunity with Data Domain was going to come at the expense of somebody else, and I think EMC was concerned that might be them. But for NetApp, this was primarily an offensive strategy to enter a new market and use that to augment the growth of our core business, but EMC saw it as a defensive move, and they arrived at a different valuation than we did. Eventually, we drew the line and determined it wasn't worth it to us anymore.
How will NetApp approach cloud computing? I think it's unlikely that NetApp will be a cloud infrastructure provider. I don't see us as a data center operator. I don't think that's our skill set. I think our strategy will be to enable companies that want to build cloud infrastructures [for other companies].
I think the external cloud is very interesting to NetApp. If you look at NetApp's business, we're still a 12% or 13% marketplace player. And [of the] 5,000 largest storage buyers in the world, roughly only one-third of those are NetApp customers. So strategy-wise, or market-share-wise, there's plenty of opportunity for us to gain share. If we think about what it would take to double this firm, I think the go-to-market side is the bigger challenge. If you believe there will be this class of providers called cloud service providers and they're going to aggregate large amounts of end-user demand in one place, then winning those gives us a tremendous amount of sales leverage.
What will drive growth in the data storage marketplace as the recession ends? Over the last couple of years, we've seen more and more one-year renewals of service and maintenance contracts. That tells me that people are trying to wring one more year out of their equipment in these difficult times. So when this tech refresh happens, it's clear to me it isn't going to be like the last refresh in terms of people buying new versions of what they already have in place; I think they have a very different architecture in mind, and that includes virtualization. And those [vendors] that haven't advanced much, particularly in the midrange SAN space, are going to suffer in this coming tech refresh.
When you consider our integration with the virtualization tools, provisioning technologies, our de-duplication for primary storage, and our zero-space cloning for provisioning new virtual machines, we really have a very strong offering.
