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NetApp turns to transformation 2.0 strategy

George Kurian, CEO of NetApp

SANTA CLARA, CALIF. – BlackBerry is one company often mistaken for dead. NetApp may not be in the same category but company leadership at the storage vendor want to avoid that kind of market perception.

BlackBerry is still around and this year NetApp will be celebrating its 25th anniversary in business.

NetApp founder Dave Hitz alluded to all the slings and arrows thrown at the company over the years. At a high-tech media event, he hosted, Hitz, who is still an executive vice president for the storage vendor he help found back in 1992, said the first attempted kill shot for NetApp was with cloud.

“Cloud is the biggest disruptor in the past decade,” he said. Instead of falling on its collective sword, NetApp positioned itself for hybrid cloud.

The next threat came from cloud providers like Amazon Web Services and Microsoft Azure. The market is quickly moving to storage on the cloud and customers enjoy the flexibility of scaling up capacity when its needed and then scaling down when not.

And, this new challenge is where NetApp intends to pivot again.

And, NetApp instead of laying down turned to becoming experts at data access.

“It’s not easy to get data, keep data and if lost its hard to get it back. The biggest mistake NetApp made as a company was underestimating how pervasive the Internet is,” Hitz added.

According to Hitz, when Apple shipped the iPhone a decade ago it changed everything and made IT a part of consumerism. “You expect to interface with your car through a touch screen display because of the iPhone.”

Customers are demanding the same experience with on-premise storage. On-premise environments need to act like AWS and Azure.

NetApp now has consumption based pricing and the business now has been transition to respond similar to a cloud provider.

NetApp CEO George Kurian has been tasked to lead this new transition for the company. Kurian called this new journey NetApp Transformation 2.0 and this new approach will rely heavily on the channel.

“This is a fundamental declaration of intent. NetApp needs to change and it needs to change fundamentally,” Kurian said.

Six months into this journey, Kurian has shifted company focus from its mature product line to strategic products like the new FlexPod SF, which was released earlier this week. Kurian said customers are spending more of their dollars on these types of products because it changes the cost discussion as well as efficiency.

Going forward look for NetApp to align with other new customer trends such as big data.

Kurian outlined a five-point plan for Transformation 2.0. They are:

  1. Define the transformation strategy;
  2. Focused on the innovation portfolio in product and services;
  3. Radically improve cost structure to expand margins and invest for growth;
  4. Evolved the leadership team and organization structure and drove disciplined exaction; and
  5. Deliver on commitments that will return the company to revenue growth with improve profitability and cash flow.

So, how is Transformation 2.0 performing after six months?

Well… revenue for FY 17 has not changed and remains at $5.5 billion. However, Kurian reported that the revenue mix has shift and strategic solutions now form 70 per cent of the company’s revenues. And, the strategic products sales have grown 24 per cent.

Kurian has done this by expanding product margins by 370 basis points.

The channel will be playing an increased role. Kurian said, NetApp will be leveraging a broad ecosystem of channel partners that will include solution providers with expertise in digital transformation.

“Digital introduces new touch points. So, you can’t be asking the customer to come to you anymore instead you need to be where the customer is going in business like a mobile phone with a banking app,” he said.

Under Kurian’s plan NetApp is working on reimaging the physical storage business with digital ideas. One example, he mentioned is the garage door opener vendor. This company puts an antenna on the garage and it collects and sends information back to the company. Now it knows when the user opens and closes its door and this data can be provided to others to learn more about commuting patterns or shopping patterns.

The Transformation 2.0 strategy has data as its cornerstone and it will be playing and integral part in how NetApp integrates its common architecture for on-premise or the public cloud. One of NetApp’s flagship technologies is Data Fabric that ties in all disparate data systems into one common architecture, for example.

The company is making this technology open and it wants channel partners to contribute to the solution to break down data silos at organizations.

For the channel, NetApp is changing its coverage model and aligning more resources towards the big data opportunity. This will include – as mentioned earlier – new consumption-based pricing models. Kurian has drawn a line in the sand on what accounts will be direct and everything else will be channel led.

Direct sales compensation has changed to accelerate a strong, open partner ecosystem. Look also for NetApp to bring out renewal contracts for the channel that are zero touch.

Transformation 2.0 also brings a new philosophy where NetApp will approach the market with partners but will not lead with a storage discussion, but a data discussion.

“We need to talk more in the language of data than the language of storage. We believe this pivot is where the market is heading,” he added.

“Data is going to be the lifeblood of organizations and as I look at the next 25-years I believe it will be the transition point for NetApp.”