What HPE's Billion Dollar Bet on Storage Means for Market Innovation

Rohit Kshetrapal is CEO of Tegile.

The storage market has been called a “chess match” of consolidation, and with good reason. Mergers, acquisitions and IPOs are dramatically reshaping the storage landscape – and have for the past two years. HPE’s acquisition of Nimble Storage is the latest move, further delineating the market between the tech giants and their patchwork of acquisitions and a startup scene that must punch above its weight.

The real question becomes, who will be able to drive innovation that businesses and consumers need – the tech giants or the startups?

Let’s take a step back first. Why has this seemingly quiet industry been the focus of so much VC and corporate interest of late? We all must recall that it was just 15 years ago that HP officially merged with Compaq. Processing power has grown exponentially and cost per device is down massively. But while networking and compute all experienced performance gains in that 15-year timeframe, storage has remained relatively stagnant. There is some irony in this – for businesses to truly run analytics in real-time or use data-driven personalization (i.e. Apple Music recommending your next favorite song), storage performance needs to be on or ahead of the trajectory of Moore’s Law. Until the advent of flash in the enterprise data storage market, hard disk performance was stagnant at best.

This demand for storage to support greater processing power resulted in a flood of VC funding to storage startups in recent years. Some succeeded and many failed in the face of strict competition and the traditional challenges of running a profitable hardware business. When the dust settled, a handful of reliable startups remained. When these startups began to steal deals from the likes of EMC, NTAP, IBM and HP, the tech giants were forced to pay attention.

That brings us to today. IDC estimates that flash storage will be a $20 billion industry by 2020. Yet, HPE’s storage business has struggled because of an aging product line, with revenue falling 13 percent just last quarter. This isn’t HPE’s first foray into storage acquisitions recently, let alone their famed acquisition of 3PAR in 2010. It recently bought SimpliVity for $650M in cash, before turning around and committing to buy Nimble for $1.09B.

But with all of this market consolidation comes complexity and challenges for both storage buyers and the companies that are merging. Integration issues, personnel changes and big company politics can severely inhibit innovation and agility, not to mention customer care and responsiveness.

For example, the most immediate impact of HPE’s acquisition of Nimble will be a period of uncertainty for shareholders, customers and prospects alike. Which products will rise to the top and which will be ride off into the sunset? How will sales channels change, and can current customers rely on support and services for nixed products? Both Nimble and HPE’s 3PAR product lines target a similar set of customers and workloads, so HPE will need to draw a distinct line between which technologies and products they embrace. They’ll also need to figure out how to bring them together effectively, as both have radically different functionality, operating environments and user experiences.

Until this dilemma is solved – and it will take quite a bit of time – the lack of guidance for HPE and Nimble resellers will create confusion in the market. We saw this when Dell and EMC merged, and although we’re only in early innings, we’re already seeing it with Nimble and HPE. It will take time and proper communication to calm the waters.

In the meantime, what does this latest acquisition mean for the pace of innovation and tech development in the storage market? This move by HPE signals that there is plenty of core enterprise data center storage business to be had, regardless of news indicating all applications are moving the the public cloud. Businesses depend on enterprise applications that can run faster and more reliably across finance, HR and database functions. Storage is often the wizard behind the curtain that makes business velocity happen. While the tech giants are caught up in reconciling new acquisitions with existing product lines and rigid sales and support business models, the startup scene may have its moment to get ahead.

There’s no doubt in my mind that innovation will continue since consumers and businesses are indirectly putting their dollars behind it. But from the chaos of this ever-changing storage market will come increasing challenges and competition between the tech giants and startup leaders.