Do You Believe the Hype(rconvergence)?

Unjustified Hype

In 2001, the Segway human transporter was released after being developed at a cost of over $100 million. It had been billed as “it” or the next big thing before being released to the public. The inventor, Dean Kamen, claimed that the Segway “will be to the car what the car was to the horse and buggy.” This was a big assertion and was accompanied by equally lofty sales projections of over 40,000 units per month with the possibility of Segway achieving a billion dollars in revenue faster than any other company.¹ Fast forward six years and Segway had only sold 30,000 units. Despite technology that could be considered revolutionary, people simply didn’t embrace the Segway as the personal transport device that the founder had hoped.²

HCI Hype

The hyperconverged infrastructure (HCI) market has been the subject of a great deal of hype, as well. Over the last 12 months, there have been new product releases, increased investment and acquisitions. In March 2016, Cisco announced HyperFlex as its offering leveraging Cisco UCS servers, Fabric Interconnects and a file system from Springpath. In September 2016, Nutanix, acknowledged by many to be the market leader, went public raising over $200 million and seeing the stock price rise 131% on the first trading day.³ In October 2016, EMC Dell announced an expanded VxRail product line. In January 2017, SimpliVity, another market leader, was acquired by HPE for $650 million.⁴

So has market performance lived up to the early hype? According to Statista, the market for hypercoverged solutions is expected to be $2.4 billion in 2017 with a growth rate of approximately 25% per year.⁵ The vendor with the leading market share, Nutanix, reported revenues of $166 million in the most recent reporting quarter in 2016 with an expectation to eclipse $700 million in sales in fiscal 2017. In order to put these results in perspective, consider them in the context of traditional storage revenues.

HCI vs Traditional Storage

According to IDC, the market leader in revenue, Dell EMC, sold $1.7 billion in external storage arrays in Q3 2016 while the 2nd ranked manufacturer by revenue, NetApp, sold $587 million.⁶ The combined sales for the top two vendors in this space was $2.3 billion for the quarter. The top two manufacturers sold nearly as much in one quarter than the entire HCI market was projected to sell in an entire year. The overall traditional storage market was over $20 billion in 2016. The loftiest projection for HCI is hardly more than 10% of traditional external storage in 2017.

A closer look at the sales results over the past year might shed some light on the reason for hyperconvergence investments despite the lower sales volume. The overall legacy storage market declined 6.1% in quarter over quarter results in Q3 between 2015 and 2016.⁷ The projections for 2016-2018 for the enterprise storage market predict no sales growth or even declining sales. On the other hand, the HCI market is expected to increase from $702 million in 2015 to a projected $2.4 billion in 2017 representing growth of over 200% in two years.

HCI solutions vary by vendor but the basic premise is to converge storage and compute and, in some cases, networking into a single platform managed by single tool or interface. In theory, the solutions are easier to provision, easier to manage and easier to scale than traditional siloed server, storage and network approaches to enterprise deployments. The hyperconvergence solution involves software that is provisioned on top of hardware. Generally, the hardware consists of servers from manufacturers like Dell, HP and IBM. Many of these same server manufacturers are also legacy storage manufacturers. By embracing HCI, they can transfer customer spending from one bucket to another while moving to a market that is growing from one that is contracting. For public companies, revenue growth can be even more important than higher profitability.

The Impact of the Cloud

The storage manufacturers are responding to customer demand by shifting resources to their HCI offerings but what is driving customer demand for HCI offerings in the first place? Perhaps it is the same answer to seemingly every IT question- the cloud. The relative simplicity of cloud provisioning has begun to change the expectations of users regarding the complexity of on-premises solutions. Resource provisioning can be completed in some cases with one or two clicks in public cloud provider environments. Gone are the days of allocating disks, creating RAID groups, provisioning volumes and setting LUN security in cloud environments. Vendors like Nutanix have embraced the one-click philosophy for provisioning and market the relative simplicity of configuration and management. This simplified approach reduces training and support requirements, decreases provisioning time for new services and, ultimately, reduces cost. Customers determine the winners in the vendor product offerings and today simplicity is overtaking complexity.

Final Thoughts

In the end, the Segway has a place in every tourist destination and mall in America but it never has accomplished the mainstream acceptance in the general public that would have made it bigger than the automobile. It is an effective tool that was designed with extraordinary technology but it never made a dent in traditional modes of transportation.

HCI solutions should have a much bigger impact on the future of computing than the Segway had on the future of transportation. Based on growing adoption by a user base demanding easier-to-use solutions, HCI enjoys the market demand the Segway never achieved. In addition, HCI is being pushed by the same companies seeing their traditional storage displaced. The results could have been different if the car makers had pushed the Segway as an alternative to their products and had produced and marketed it but they didn’t. Only time will tell if HCI will revolutionize the IT world or if it will be relegated to a small role in the overall IT infrastructure.

In a future post, use cases for HCI will be explored. Until then, if you would like to learn if HCI could be a fit in your environment, contact us today.