NetApp Still Figuring Out How To Cloud

Last week I heard from NetApp Co-Founder Dave Hitz, CTO Mark Bregman, and Cloud Business Unit SVP Anthony Lye about NetApps's latest adventures in cloud as part of the Cloud Field Day 2 event.

It's no secret that NetApp has been working to reinvent itself as the industry moves away from talking about the prosaic details of on-site storage infrastructure and spends a great time of time and energy on the nebulous concept of cloud. NetApp has been trying to chart a course to the cloud for some time, talking up its NetApp Dynamic DataCenter concept many years ago, and its Data Fabric since 2014, but nothing seems to have resonated strongly with the cloud world.

NetApp is still fixed in people's minds as an on-site storage company, which isn't a surprise to Hitz or Bregman, who were candid with the Cloud Field Day attendees about NetApp's need to change. Nor are they shying away from the magnitude of the task.

“I joined the company about two years ago,” said Bregman, “Part of what attracted me was the realization that the company had at the time that we really had to transform ourselves from a very successful enterprise storage systems company to a data company.”

“Our existing business is not going away,” says Bregman. “It's going to be around for a long time. It's just not where the growth is.”

Growth is something with which NetApp has struggled in recent years. NetApp was growing sales strongly up until fiscal 2012 when revenues stalled at $6.2 billion, hitting a high of $6.3 billion in 2014 before falling back to $5.5 billion in fiscal 2017.

[ychart exchange=”NASDAQ” ticker=”NTAP” calc=”revenue_growth” zoom=”5″ format=”real”]

In looking over the financials, there's nothing obviously wrong with NetApp's operations. Overheads are broadly in line with what they were when NetApp was growing strongly. Services now make up a higher proportion of sales (up from 19.4% in 2012 to 28% in 2017) and those services come with higher margins.

The issue appears to be the simplest of all, and yet also the most worrying: what NetApp sells just isn't as compelling any more.

The purchase of service-provider focused all-flash storage vendor SolidFire has injected some much needed freshness into NetApp's product portfolio and helped to repair some of the damage from NetApp being late to the all-flash game, which Bergman readily admitted. The cloud-heavy message feels similar, in that cloud is very much a thing that every enterprise is thinking about and every vendor needs to have a story to tell. Not all cloud stories are created equal, and when you're trying to revitalize a rather dusty ‘heritage' brand to something new and fresh, the story needs to be told well.

The need for major change was made very clear by Bregman and Hitz. They were clear that what they need to do with NetApp is a substantial re-wiring of everything from sales compensation plans to how software is developed internally to what the go-to-market messages are. One goal of the SolidFire purchase, according to CEO George Kurian at the time, was to bring some of SolidFire's culture of rapid software development into NetApp.

They also realize that the existing company needs to keep running while all this happens.

While it's tempting to dismiss these large, established companies as being unable to change and assert that they should simply cede the market to new players, that's not a practical reality for enterprise customers. Moving everything to a NodeJS+Mongo DB application written in under six months isn't a realistic goal. However, there is a lot that could be improved by taking the best of what new companies discover and incorporating it into the way you do things.

It's the detail of how you do this that becomes important, and that's something that still remains unclear from NetApp.

“We've put a lot of effort in the last six months into re-positioning the way we're perceived in the market,” Bergman said. While that may be true, I'm still unclear on what NetApp's new position is exactly. “The cloud is good” is not a particularly insightful nor helpful message when I'm trying to figure out why I should buy your products.

Hitz was keen to point out that NetApp has reinvented itself twice before. Once after the dot-com crash of 2001 from an engineering workgroup focus to a more general enterprise focus, and then again after the rise of VMware to take on a virtualization focus.

“Now as the cloud emerges, once again ‘there's this thing out there that's going to kill us and we're doomed,'” Hitz said. “We feel like, although it's a scary time, also we're well positioned. Data and data management is very, very central.”

“I think our size and focus on data makes us easier for a lot of folks to partner with,” he said.

Disclosure: I travelled to San Francisco as a guest of Gestalt IT as part of Cloud Field Day 2.

This article first appeared in Forbes.com here.