Full disclosure: I work for NetApp (so, yes, I am biased in some capacity). But this post is not in any way related to the opinion of NetApp.
The recent history of the IT economy in the past 20 years or so has been pockmarked with scars of bubbles that have burst in grand fashion. The first one I remember was the dot.com bubble of 2000. This was back when all of these internet-based startups were getting crazy amounts of VC cash and spending it like it was going to disappear the next day. That’s when you started seeing “corporate culture” taking priority over things like “making a profit.”
Then, the bubble burst. Companies went under. The out of hand spending caught up with companies and we saw an economic downturn.
The Great Recession
The next bubble I remember was the housing and financial crisis in 2007-2008. That led to the “Great Recession,” which had reverberating effects on the IT industry. People lost jobs and companies slowed or stopped buying. Stocks absolutely tanked.
I remember these bubbles mostly because they both affected me. The dot com bubble affected me because it happened just as I graduated from college. Finding a job in IT was tough and when I did find one, it was far from lucrative.
The Great Recession affected me because it was right at the start of my NetApp career and I saw a lot of co-workers and colleagues move on to other places.
But this blog is not about economics. It’s about innovation…
The Storage Bubble and Innovation
I’m going to be purposely vague here and not name names. I don’t want to turn this into a pissing contest, and honestly, I can’t make criticisms of specific startups as I don’t have a full understanding of their offerings. It’s not fair to them and is intellectually dishonest. I just go by what I read in press releases and their marketing. This doesn’t apply to all storage startups, as there are definitely some real innovative products out there and some real good talent working at these companies. I have a lot of friends and ex co-workers at startups. But there is also a lot of redundancy disguised as innovation.
They call it a bubble because it is destined to burst.
What I’ve seen in the past few years is a huge increase in companies that are attempting to re-invent storage. Many of these companies were started by people who worked at the big storage companies like EMC, HP, NetApp, etc. Nearly all of them claim to be innovating in some manner that their bigger competitors are not.
The question is, what do they mean by innovation?
The basic definition of “innovation” is a new way of doing something. For me, I’d say that doing things a different way is fine, but it should be done better. For example, Tesla has innovated automobiles by creating an EV that people actually want. But how are startups innovating storage?
Some of them are coming from the angle of all-flash. Others are using hyper converged architecture. Some are doing hybrid arrays. Almost all of them are trying to incorporate scale out. And, right now, you can’t move without tripping over a new storage startup.
They’re bursting into the room like the this guy:
And like that guy, they’re bringing a whole lot of Kool-Aid with them.
But how many of them are truly innovating? Most of what is out there is already offered in some capacity by the bigger vendors the startups claim aren’t innovating any more. Is offering the same stuff in a different package innovation?
Not only that, as these “innovative” startups offer new releases, you are starting to see that the features they are adding are precisely the same things many of them had been preaching were legacy offerings in the first place. And as they grow, they start to become what they hate – legacy.
Matt Watts has written two fantastic posts covering these concepts:
Another one to check out is Gerald Coon’s “Why am I so hard on startups?”
When I think about the notion of innovation, I think about what motivates it. I think it comes down to two things.
- The desire to invent and create something better
- The desire to make money
Some startups feel an awful lot like Zynga. If you’re not familiar with them, they’re a game company that basically took other game ideas and re-branded them as their own, with the “innovation” of implementing them on social media platforms like Facebook. Ever get a Mafia Wars or Farmville request? You can thank Zynga for that.
Not only do they take other game ideas as their own, they buy companies that do the same. Words with Friends, the Scrabble rip-off, is a prime example. Hasbro is a big company and probably did not see the opportunity in making a mobile app for their games. Another company did, stole the game idea and then Zynga bought them.
The innovation was presenting a new platform, but is that true innovation?
Does it matter? Zynga cashed in, partnered with Hasbro and Words with Friends remains insanely popular.
Consumers didn’t care. They got what they wanted – cheap, easy access games that they loved. Hasbro got what they wanted in the end – some one to push them to into a new space and keep making money off of their intellectual property. But it’s hard to call what Zynga is doing true innovation by doing something identical to someone else, but just slightly differently.
Are startups learning from past mistakes?
If we do not learn from our history, we are destined to repeat it.
As these startups grow and become more and more popular, they start to face a lot of the same challenges every growing company faces. Those big companies that they are targeting? Guess who they’re now hiring people from.
The people they’re hiring? Some are pretty good. But some might just be chasing the IPO cash out. That hurts the carefully constructed culture that made them successful and appealing to start with.
The culture? Some of it feels an awful lot like the same mistakes we saw with the dot com parties. Startups are burning through cash faster than they are making it. VC firms are opening the wallets left and right. Is it a mirage? Is it sustainable? How much work/life balance is being traded for the promise of stock options?
Don’t believe me? Go read some of the Glassdoor employee reviews of these companies. Keep in mind also that some companies’ HR departments encourage employees to write glowing reviews.
What startups are also starting to see is that growing is not easy. As your customer base grows, so do their demands. That agility you had as a startup begins to vanish as you start acquiring enterprise customers that require stability that you can’t get by spinning up a patch for your software every time you hit a bug. Being “disruptive” starts taking on more than one meaning (and not in a good way).
That innovation you tout disappears as 15 other “innovative” startups come out of stealth, selling the same ideas your company is selling. Zynga gets Zynga’d.
Oh, and those large legacy companies? They’ve noticed the market share you’ve stolen and the uninformed insults/FUD you hurled their way and they are PISSED.
They focus their lasers at you and intend to annihilate you.
Meanwhile, startups start looking towards IPO and have to open up the books to investors and the public. Which includes their competitors.
I don’t envy the startups, especially not the ones that aren’t as successful and innovative as they claim to be.
What happens from here?
The question, of course, is if we are really in a storage startup bubble. I think we are. There are too many offerings doing the same or similar things, which dilutes the market and often leads customers to just go back to what they were most comfortable with.
This is especially true when the story the startup is selling is not compelling enough to cause the admin to want to use a new solution that is relatively unproven. I’ve heard stories of startups that are burning through VC cash by essentially giving product away just to get their foot in the door. It’s a risky gamble and has paid off somewhat for these companies, as they get to reap the benefits of the “vendor lock-in” from other vendors they warned their customers about during the sales pitch. (See what they did there?)
I think the storage market is going to self-correct and adjust for growing trends. These startups will either fold, consolidate or get bought up. What was once cutting edge is already falling to legacy as new storage technology rolls out, such as Intel’s 3D Xpoint and Seagate’s 16TB SSD drives.
The bubble will burst, but hopefully, for everyone involved, it’s a gentle one.