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Dark Matter in the Cloud – The Private Cloud

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Private cloud storage represents the hidden high growth market

Astronomers say 27% of the universe doesn’t emit or interact with electromagnetic radiation and hence can’t be observed (NASA’s Science Mission Directorate) – so that while scientists know this matter exists, it’s “dark” or unobservable.

Likewise in IT, the prime movers in the data center may not be clear if you look only at the top line growth on charts.  To some extent, market movements have been “dark” until recently.

The data center storage market is projected to grow at a healthy 15% compound annual growth rate (CAGR) (TechNavio) -and as much as 40% in other estimates – despite profound shifts in the types of storage that today IT teams are buying.

IT Brand Pulse’s Frank Berry’s graph depicts the sea change in the storage industry at a glance.  Traditional CapEx-based enterprise storage for on-premises use will continue to decline significantly, despite the emergence of new next-gen data center players. His chart corroborates IDC’s latest predictions showing a 2.8% year-over-year decline in external storage system sales in Q1 2017 alone and continued total enterprise storage sales market declines.

The conventional wisdom is that in this bifurcated market, where there are traditional on-premises storage resources on the one hand, and off-premises public cloud resources on the other, one’s loss is the other’s gain, as traditional storage moves to the cloud.  Indeed, the graph shows a 25% CAGR for OpEx-based public cloud storage – a figure aligned with other market sizing and other facts such as the whopping 78% growth in revenues of original design manufacturers (ODMs) who sell to hyperscale public cloud providers.

Yet the two trends don’t seem to add up.  The decline in traditional storage is not fully offset by the growth of the cloud and misses a gaping chunk of the market, shown in green.

What is missing?

So what’s missing? The answer lies with private cloud storage, along with a new business model for on-premises offerings that emerged in late 2016 and likely still too “dark” to be seen on the chart.  Many companies are opting for both Public and Private (on-premises) storage, creating a new, hybrid model.

IT Brand Pulse projects private and hybrid OpEx cloud storage is a hyper-growth sector that will comprise 23% of the total $50 billion enterprise data storage market by 2020 – up from 4% in 2016.  This reflects buyers’ view of private and hybrid clouds both as making it easier for IT teams to make the leap to the cloud, and a way to mitigate against vendor lock-in.  It also echoes the Future of Cloud Computing Survey by VC firm North Bridge where 59% of respondents stored more than half of their data in a private cloud – versus 28% in a public cloud.

Furthermore, the green curve encompasses the rise in what IT Brand Pulse and Moor Insights highlighted as a hyper-growth opportunity that emerged – “On-Premises-as-a-Service” (OPaaS) storage.  OPaaS offerings are a new class of IT that is set to take-off and grab another 25% of enterprise storage spending by 2020 (IT Brand Pulse data) – an estimated 60% CAGR for the period 2015 through 2020. They represent the best of two worlds. Infrastructure stays on premises, where governance and compliance needs can be met readily, for the many organizations where this is an issue, and yet IT pays only for what they use in flexible OpEx not rigid CapEx.  Although early movers like Zadara Storage have been in the market since 2014, since late 2016 enterprise IT leaders such as Dell EMC, HPE and Microsoft have validated the market with on-premises-as-a-service compute and storage offerings.

These new private cloud OpEx storage solutions represent a blurring of the lines of sorts between private and public cloud models, and a market response to what caused the runaway success of hyperscale public cloud platforms a decade ago.  They’re a sign that the IT buyer’s needs are causing the market to evolve, as the fundamental changes to the business model as well as the technology behind today’s data centers may soon be “seen.”

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Noam Shendar

Noam Shendar, COO of Zadara Storage, has more than 20 years of experience in storage and chip-level engineering, product development and business planning, and holds a patent on a digital television technology. He was formerly senior director of business planning and product management at LSI, leading a new product group in the Engenio storage unit (now a part of NetApp). Before that he was director of corporate strategy for LSI, a strategy director for MIPS Technologies, and VP of applications engineering for iBlast, an entertainment technology startup. Earlier he held research and engineering positions at Intel Corporation’s Microprocessor Products Group.)
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