An indisputable fact throughout the history of the storage industry is that there have really only been two companies that have succeeded as standalone storage pure plays—EMC and NetApp.  Now that Pure Storage has gone public and we are seeing lots of venture capital investments in the storage sector, the question everyone is asking is “are pure play storage companies viable in the new cloud market”?

Every other standalone storage company has either failed, been acquired, or was originally formed as part of a giant conglomerate. Now, with EMC set to be consumed by Dell, NetApp is the last man standing, and not in a particularly strong, meaningful stance at that. With publicly admitted struggles brought upon by the onslaught of cloud, NetApp is transforming itself and trying to figure out its place in a storage world.  Some insiders are even suggesting that Netapp should go private.   

Taking a close look at the combination of EMC and Dell reveals the two most acquisitive companies in the storage industry over the past two decades. EMC acquired Isilon, Data Domain, Data General—all multi-billion dollar, highly successful acquisitions by EMC; as well the sub-$500M acquisition of flash startup XtremIO in 2012 (the fate of DSSD remains to be seen); and the carcasses of the storage startup landscape, such as Cereva and Yotta, for pennies on the dollar.

Dell acquired Compellent and EquaLogic for billions, which have formed the backbone of the company’s storage push to date, and it remains to be seen which of these products make it out alive post the Dell-EMC product rationalization and integration process. Dell has also acquired storage startups such as Exagrid and AppAsure, with much less success. And while NetApp has acquired storage companies, none of them have ever amounted to any form of high powered sales engines, with Bycast, Spinnaker and Akkori being prime examples.

The key point industry insiders point out is that the companies most impacted by Dell’s acquisition of EMC will be startups.  Now with two of the biggest acquirers of storage consumed with in excess of $50B in debt that will take over half a decade to pay off, making the desired outcome for virtually every single storage startup out there—a “billion dollar” exit— highly unlikely.  

Storage startups have always been focused on what we talked about on theCUBE called “escape velocity”—either growing so rapidly that an acquisition is prompted, or, going public and having a wildly successful run as a public company. Increasingly, VCs have been focused on the former much more than the latter. Companies such as Violin and Pure were literally “built” on the premise that one day, like a knight in shining armor, some large company—be it HP, EMC, Dell, Oracle, IBM—would come along and pay them billions for their latest storage protégé.  Pure Storage recently posted solid revenue growth and their public valuation still remains very high over $3 billion.  With revenue growth and stable public valuation Pure Storage is the only remaining viable stand alone storage company that has a shot at “escape velocity” since Netapp did it in the mid 90s.   Pundits might argue otherwise on Pure Storage prospects—which was once “valued” by private investors in excess of $4B is losing over $50M a quarter as it struggles to survive as a public company, with Susquehanna Research recently giving the company a negative rating and a $10 price target.

Now Violin stock is on the verge of trading on the wrong side of a $1.00 and facing the possibilities being delisted from the NYSE.  The rest of the market of storage players all would-be acquisition candidates / IPO up-and-comers, are focusing on “flash storage” with the same value proposition—we have flash. Yes, every storage startup has flash media paired with an x86 server and all are purporting to offer “disruptive technology.” All are purporting to be “game changers” in that they can offer capabilities to customers that multi-billion dollar established enterprise IT vendors can’t even think of approaching. In this lineup of “what happens to them?”

But storage startups are not only being impacted by the lack of a “home” to go to, the unstoppable force of the cloud is creating major headwind for them. With AWS posting 80% year-on-year growth in its recent quarter, any storage company thinking that the cloud isn’t impacting them could be on the wrong side of history and possibly out of business fast.

Even VMware is not immune to the wrath of the public cloud, with Barron’s recently proclaiming that VMware’s business is being eaten alive by the public cloud.

The other factor impacting storage startups is their focus on building boxes at a time when increasingly successful companies today don’t even own their own infrastructure—they rent it in the cloud. And since none of these storage startups have a public cloud to offer, they can’t service that booming business need. The fact is the world’s fastest growing storage company, Amazon, sells no physical storage boxes and wants nothing to do with your data center.

As the storage industry shifts to public cloud storage consumption, only two industry giants offer both public cloud and on-premise infrastructure, IBM and Oracle. HP just shut down its Helion public cloud and the Dell-EMC combo does nothing to address the onslaught of AWS’ IaaS offerings.  Even if enterprises aren’t fully ready for cloud today, ensuring that your storage provider is will protect your investments, ensure your storage infrastructure is cloud-ready when you are, and ensure your storage provider will be financially viable.

As we move forward and EMC is folded into the Dell and the fate of NetApp is in question, one thing is brutally clear—the end of the standalone storage company is here.   Integrated solutions are thriving with companies trying to move further and further up the stack, and that’s a place that storage startups, with their limited resources and zero application expertise and IP have little room to grow on their own accord.  Stacks will further converge, storage startups will struggle, and only two companies will go down in history as being extremely successful pure play storage companies: EMC and NetApp – the jury is still out on Pure Storage.

Image source: Creative Commons photo by John Walker via Flickr