What storage trends are you seeing in the SMB market and how is Iomega addressing them?
We are seeing huge growth in network-attached storage (NAS) coupled in the SMB space with a requirement for enterprise level services. They are not getting those levels of service yet, predominantly due to costs. We are trying to bring these services down to SMB because we have been playing in that space for a long time. Small companies are in a situation where they lack IT knowledge, they lack the funds to have an IT headcount and they most likely have a lack of interest although they understand it is vital for them to have IT infrastructure in place. As an SMB, you want to invest your resources somewhere other than IT.
The role we have as a company is to work out how we can bring those enterprise services and applications to SMB. We purchased a company last year called CSCI because it had a firewall VPN solution. We are not interested in firewall boxes but we are interested in the managed services. That means we can create a secure environment for SMBs with 2-3 sites to communicate between one and another. There are two alternatives to this solution. Either an SMB can go to a company like Cisco and get their VPN solution, but picking up the tab for that is going to be very expensive; or they can do it through the Internet, but that does not offer a secure environment.
This firewall VPN solution is one type of service that we can provide. There's a heap of others that are really interesting - email security, for example, and we have recently announced a partnership with Postini. They are the largest email security provider in the US and provide three sets of products - spam filtering, email archiving and email encryption. For the moment, they are focused on the corporate segment and have partnered with us because of our SMB knowledge.
Then there's business continuity, disaster recovery, Web hosting. Managed services are a fast-growing category because of the needs of SMB but today it is highly fragmented and you have different brands for different services. You don't have a single brand that can be an umbrella for all of these services. If you put yourself in the shoes of an SMB customer, he doesn't want to get email security from one company, disaster recovery from another and a VPN from yet another. He wants an easy solution with a single bill that's going to work; if it doesn't work he wants somebody there to fix it within reasonable metrics.
This is where we are seeing growth but it doesn't mean we are moving out of our core hardware market. It just offers us an opportunity to bundle our network attached hardware offerings with managed services.
That sounds like the job of a reseller. Is this a channel play?
It is, very much so. From a reseller perspective it is very difficult to generate margin today from purely selling hardware. They are looking to diversify and go into services. Today, they are focusing on services like rollout or onsite support but the beauty of managed services business is that they sell a contract over 12-24 months. For every month of that contract, they get their share of the redemption because the model is based on an annuity stream. The reseller benefits from that because he can balance his low-margin hardware business with services.
When will you make this managed services model available in Australia?
For the moment it is only available in the US although we are currently rolling it out in the UK. It is taking quite a lot of time to launch because the concept is still fairly new and you need to set up the infrastructure to support it. We will implement it in Australia but probably not until the second half of 2008. It has been live in the US for six months and had quite a lot of wins in the franchise space with thinks like car dealerships and food store chains. It is very attractive to these types of business because they are typically small companies that lack IT knowledge and have multiple locations.
What have been the challenges associated with getting this model off the ground?
Putting the infrastructure in place, because you always underestimate what is needed, but it is also a different type of sale to hardware and people are not used to the concept because it is new. Once users and resellers understand the benefits they will adopt it but we need to go through that phase. Timing is everything in the IT industry.
How does the arrival of a heavyweight like EMC affect the competitive landscape for SMB storage vendors?
There are so many companies looking to get into the SMB space but not a lot of people know how to service it. EMC's definition of SMB is probably 500-1000 seats. They have been talking about SMB for some time but we are yet to see them get there. However, it's important that we stay on our toes.
How do you see the storage market developing in the next 2-3 years?
From a technology standpoint there will be a war between hard-drive and flashbased technologies. Solid state drives have a huge amount of benefits because there are no moving parts, the speed is phenomenal, they can handle changes in temperature and they will not be damaged if you drop them. I think the solid state market is going to cause a lot of long-term problems for the manufacturers of 2.5- inch notebook drives; especially if you look at the price curves. If you look at the storage market outside of hardware, what is going to be out there? For the moment, very few people feel comfortable with the concept of offline storage but that's psychological and cultural more than anything else. The future of storage could be online with no need for hardware. It's just a question of getting over the culture shock but why is a company like Seagate acquiring a company like EVault? That tells you where the storage market is headed.
Surely trends like this are a threat to a hardware company like Iomega?
Either it's a threat or a huge opportunity for partnership - we are obviously looking at the latter. No company can do everything perfectly so you need to be strategic and understand what you can provide for a partner, what they can provide for you and what you can provide together for the customer.