Swerve to Software

Even as the global storage market itself moves from direct attached storage
(DAS) to network-based storage, storage major EMC Corporation has trained its
guns on software. A slew of acquisitions, a range of software products and
sizable investment in Research and Development–that’s EMC’s strategy to
boost its revenues from software.

In 1999, 63% of EMC’s revenue came from hardware. Out of EMC’s revenue in
2002, 59% came from hardware, 23% -24% from software, and the rest from
services. EMC plans to change the equation to 50%-hardware, 30%-software and
20%-services.

Network storage–both storage area networks (SAN) and network attached
storage (NAS)–and storage software markets combined are projected to double in
size by 2005, growing about three times as fast as the storage industry as a
whole.

Highlights 75% of the overall R&D investment is in storage software EMC has acquired seven software companies in the past two years A slew of storage SW solutions launched

According to IDC market analyst (APAC software research) Grace Lai, the
global storage software market is blossoming, and slated to grow at a CAGR
(compounded annual growth rate) of 24%. "There is an opportunity for
software in storage management. Storage is moving towards resource management,
all of which has a software base, away from just backup and archiving."

Acquire to conquer

About 75% of EMC’s R&D investment is in storage software. This
translates into over $600 million in 2002. And EMC currently ships an average of
12 software products with every networked storage deployment. In keeping with
this strategy, the company has also acquired eight software companies in the
past three years. In 1999, EMC acquired Data General Corp for about $1.1 billion
and the publicly-held Softworks for $192 million. In November 2000, EMC acquired
CrosStor Software in a deal valued at about $300 million. In August 2000, EMC
Corporation announced the acquisition of Avalon Consulting Group, the premier
supplier of rich media management software for the television broadcast
industry, In November 2000, EMC Corporation chief executive Mike Ruettgers had
said that software is one of the ways in which EMC would fend off increasing
competition. And then, the company’s pace of software acquisitions gained
momentum.

In September 2001, EMC acquired Luminate Software Corporation, a privately
held software company based in Redwood City, California, in a cash transaction
valued at approximately $50 million. Luminate develops performance monitoring
software for storage-intensive applications and operating environments.

In September 2002, EMC announced the acquisition of Prisa Networks, a
privately held supplier of storage area network (SAN) management software. Prisa’s
software is optimized for managing small to medium SAN environments. The San
Diego-based company was acquired in a cash transaction, valued at approximately
$20 million. Prisa brings to EMC revenue-generating products and an established
OEM distribution agreement with Dell that addresses an expanding market segment.

EMC down storage lane

Based in Massachusetts, USA, EMC was founded in 1979 as a supplier of add-on
memory boards. In 1990, the company introduced its Symmetrix range, providing
intelligent information storage systems based on arrays of small commodity hard
disk drives for the mainframe market. In 2000, it started focussing on network
storage. Starting with the launch of the Symmetrix Remote Data Facility (SRDF)
mirroring software in 1994, the journey towards software began. In 2001, the
company launched its Automated Information Storage (AutoIS) strategy. The second
wave of AutoIS unveiled in September 2002, is another step towards boosting
software revenues. EMC currently offers more than 35 software products.

On the software path

AutoIS is all about software, as well as the DAS transition. "A lot of
customers did not know how much storage they had etc. Our new software helps
them gauge capacity and actually takes them through the DAS to SAN transition.
We believe that SAN has good prospects in the APAC region," says George
Mele, director, software markets and products, EMC.

According to Gartner Dataquest, storage management infrastructure products
grew 15% last year, fueled by the demand for data replication software used to
safeguard corporate assets. Storage and device resource management software also
grew in 2001, reflecting market demand for better, more functional networked
storage management tools Carolyn DiCenzo, chief analyst for Gartner Dataquest,
says, "While disk array growth stalled in 2001, software continued to
deliver growth as companies looked to improve the security and management of
information storage."

So does hardware take the backseat?

After all, companies in new markets are likely to go in for direct attached
storage (DAS) at the first instance. (EMC describes Thailand, Malaysia, and
Singapore as mature markets. Philippines is less mature.) Obviously, the growth
of DAS is strong in markets that are not mature. In comparison, NAS growth is
stronger in mature markets. No, EMC has no plans to forego the revenue from
these expanding markets.

Manjiri Kalghatgi in Singapore

Treading with Caution

EMC Corporation entered India over 18 months ago. Today, its Indian
operations are headquartered in Bangalore, with offices in Mumbai and Delhi, and
it has 17 employees in the country. Its APAC vice-president Gary Jackson spoke
to Dataquest on the company’s regional plans

“If enterprises want to continue buying DAS, we are here to provide it. But our focus is on educating the market on the benefits of NAS” Gary Jackson

It’s a short while since you set up your Indian operations. What kind of
client responses have you managed to generate in this time?

We are still assessing the Indian market. In the past two years, we concentrated
on establishing ourselves and getting to know the Indian market. We should have
concrete plans in the next 24 months. Cost of products is an issue in India and
budgets are low. Airtel, BSE and Tata Teleservices are our clients here, apart
from EMC’s global clients. The Railway ministry is a significant account. Call
centers, software companies and mobile operators drive a lot of storage and we
see growth in this area.

What is your distribution strategy for India?

We are not convinced about the need for working with distributors in India.
Distributors are mainly interested in moving boxes. As EMC offers complete
solutions, this ‘package’ system will not work for us. Instead, we are
partnering with system integrators who are positively inclined towards
distributing our systems and integrating them as well. Apart from system
integrators like Wipro and HCL Technologies, our tie-up with Dell is another
mode of reaching out to the market.

EMC segregates accounts on the basis of overall potential and turnover.
Typically, in markets where we are established, there would be around 50
accounts at the high end. As is our strategy in other geographies, our top
accounts will be serviced through direct marketing. The mid-range accounts are
serviced by EMC along with its channel partners, and the SMEs by channels alone.
This would apply to India too.

On the arrangement EMC has with Dell...

EMC has tied up with Dell globally to offer storage exclusively on Dell
machines. As Dell’s strength lies in the SME segment, this alliance will help
us grow downwards. Dell is a very important partner in our SME strategy for
India.

Which are the verticals you are focussing on in this region?

The life sciences vertical calls for specialization. The focus on manufacturing,
financial services, telco, and government will continue.