Data storage business holds much promise

September 10, 2001

BY MICHAEL KRAUSS

My closet at home is a mess. So is my filing cabinet at the office.

As a kid, when I took the elevated train into downtown Chicago, I watched as the warehouses adjacent to the old railroad yards swept by. To me, the storage business was old-fashioned and burdensome. It looked like back-breaking work, and it was low margin - not a suitable business for a knowledge worker.

Even today, as an adult, I walk past the California Closets store at the mall. I just can't force myself to pay money to have someone organize my storage space. (And with the economic downturn, my guess is a lot of people are delaying closet reorganization.) On my computer, the mess is even worse: My desktop is cluttered with file folders, my "C" drive is disorganized, and my data isn't backed up. It's a wreck, and yet it's also an opportunity, which is why I called Gil Press.

I think of Press as the preeminent marketer of storage. He's a marketing director for EMC, the Hopkinton, Mass.-based electronic storage solutions provider. EMC has been called one of the new four horsemen of the Internet age by The Street.com. The companies - including server maker Sun Microsystems, Inc. in Palo Alto, Calif., software provider Oracle Corp., based in Redwood Shores, Calif., and optical equipmenet maker JDS Uniphase Corp. in San Jose, Calif. - have enabled the Internet revolution to occur.

EMC, like Intel and Microsoft before it, picked up on an opportunity that IBM laid on the table. Intel out-marketed IBM by branding and building a business marketing central computer processing chips. Microsoft out-marketed IBM by taking control of the PC operating system market. And EMC out-marketed IBM by introducing branded storage devices technically superior to traditional IBM peripherals.

In a recent telephone interview, Press described how EMC came to own the storage market through consistent marketing prowess and technological innovation. He described how storage devices initially were an afterthought: They were slow, dumb and presented a barrier to rapid data input and output, a gating factor slowing many business applications. But EMC technicians listened to their customers and made storage devices more intelligent by placing software on the device that speeded the input and output of data to the processor.

Their work in software led to the development of a series of storage applications that EMC markets as freestanding products. EMC storage devices were among the first to connect to a central monitoring station and could literally phone home, Press reported, to alert maintenance of impending failure.

"Repairmen would often show up on the client's premises before the client knew there was a problem," Press says. "It led to high product reliability and customer satisfaction."

It also helped EMC grow from $67 million in sales in 1986, the year it went public, into a global behemoth generating $8.9 billion in revenues in 2000.

Like the other new horsemen, EMC is suffering in today's environment, announcing second quarter revenues of $2.02 billion and profits of $109 million, off 75% from the prior year. Its stock has plummeted from a 52-week high last September of $104 to a low just under $18 in July. Hoped-for growth in revenues to $12 billion this year looks impossible.

(Still, that's not nearly as bad as fellow horseman JDS Uniphase, which boasted a share price of $153 in March 2000 and sold for just under $10 per share in July, after writing off a record $44.8 billion in acquisition.)

Overheated and volatile capital markets aside, EMC is an interesting company, and Press is an interesting marketer. And storage capacity is going to continue to be an important product. Experts say each of us may generate a terabyte (a trillion bytes) or more of stored information, enough to fill 50, 20-gigabyte hard drives on my Gateway home computer. That's also equal to about 500 million pages of text, since an average page of text takes up about 2,000 bytes of storage. Considering the movie downloads, mp3 files, medical and financial records that we'll be keeping, a terabyte per person may be conservative.

Author Fred Wiersema, in his book The New Market Leaders, predicts world demand for storage capacity will grow to 10,000 perabytes (or 10 million trillion bytes), or 50 times today's total capacity. With annual storage costs running about a penny per megabyte, that's an annual global business worth $100 billion.

Which brings me back to Press and the kind of marketer it takes to withstand the downturn and believe in the long-term opportunity: According to Wiersema, "EMC has reinvented itself five times in the past 10 years," which explains why Press says he looks for marketers who demonstrate initiative, have a sense of urgency and are results-driven, even in a downturn. His colleagues are team oriented, adaptable and comfortable with change.

"Everyone says, 'Look at the Internet bubble; it's going away,'" Press says. "But look at the established companies; they haven't stopped investing. They're going to reshape everyting they do based on the availability of real-time information, either for better communication with customers, to sell products more efficiently or to provide new services. Information isn't going away."

And neither is the requirement to store it.

When I listen to Gil Press, I'm reminded why technology marketing is so different from packaged goods, consumer durables or financial services. I see why technology marketing is a realm all on its own: The opportunity is still so vast and unproven.

When I ride the train home tonight, I think I'll look at those cold storage warehouses just a little bit differently than I did when I was a kid. Maybe the storage business is more profitable than I realized. We won't know for sure until this economy rebounds.

Michael Krauss is a partner with Chicago-based DiamondCluster International. He can be reached at news@ama.org.