NetApp Co-Founder Dave Hitz Talks Cloud

Dave Hitz co-founded NetApp in 1992. He’s now executive vice president there in a strategy directing role. I sat down with him recently to talk about the road ahead for NetApp, and how the big trends in technology — cloud computing, virtualization, and industry consolidation — are hitting NetApp.

The company announces earnings tomorrow, after an impressive run-up in its stock price that has handily beat rival EMC, as well as giants IBM and Hewlett-Packard.

VB: You co-founded NetApp nearly two decades ago because you felt existing systems were to large and complex. There was opportunity for specialization. Does the current cloud computing trend take us back in time? And what does that mean for NetApp?

DH: We still sell storage in both cases. Centralization does mean pricing pressure, but opportunity too. In the old days storage was a last minute decision. You bought everything else from IBM, so you just slapped on their storage too. Now storage becomes foundational.

Thanks to VMware and virtualization, storage has to be able to follow those virtual machines. This has changed NetApp from an after-thought to a front-end feature in the data center.

It’s a little ironic. EMC bought VMware, but we’re benefiting. We’ve got around 15% market share, so there’s still plenty of upside for NetApp. EMC has 30% of the market. Is that really the cap for the number one storage provider? Probably not.

How do business models change in the cloud?

We tend to over-estimate what we can do in the short-run and under-estimate what we can do in the long-run. There are real challenges to completely going cloud, and outsourcing data centers. Europe is already looking at this. Can you move your employee data across country lines?

Outsourcing has to provide the same service as you could do in-house 20% cheaper. So 10% of that comes from cost savings the outsourcer generates and the other 10% is their margin. That sounds like a horrible business to me. Yes, telecos are already in this business and there will be big winners and some craters.

Any predictions on winners and losers?

When we look back 15 years from now, I bet there will be surprises. I’ll just throw this out there: Facebook. Why not run a small business CRM system in Facebook? It would start out as a low end product, then move up.

Data is the most important thing in all of this. In the 1980s it was about putting a PC on everyone’s desk. In the 1990s, we had to network them all together. Now we’re seeing the digitalization of data.

Are we doing to see more consolidation in the technology industry, prompted by cloud computing?

It is very tempting to want HP or IBM just do a cloud for you. This stuff is hard. Yet, in the history of the computing industry, this hasn’t happened. Look at the success of Cisco and NetApp. Nobody is going to buy HP or IBM’s storage unless they’re already buying their servers. And the big guys would much rather push business to us than to one of their similarly-sized rivals.

Also, if you’re Accenture, are you going to recommend HP? You are competitors. There’s more nuance to this than people think.

What is the impact of flash storage on NetApp?

Flash is taking off when you look at cameras and mobile devices. But it is much more expensive than disc storage. Most applications can’t afford to run on flash. But you can put flash on top of slow, cheap drives – which is 60% of what we ship – and get great performance gains with little added cost.

Are we all sort of over-hyping the shift to cloud computing? How much really changes here?

Getting a new application inside a data center used to take months. Thanks to virtualization it is pretty much instant. That’s money-saving, but also increased flexibility.

But what does cloud computing really mean? We’re much farther along than we think and IT departments are in denial. Think of how you spend your hours. The bulk is in the cloud, meaning outside of your IT system.