Upstart Pure Storage Takes Aim at Giant EMC
From the startups playbook on how to make an entrance: Paint a target on the biggest rival; wait for sparks.
For Scott Dietzen, the CEO of Pure Storage, an upstart maker of enterprise data storage equipment, that magical moment arrived earlier this month when the head of EMC, the storage industry’s 800-pound gorilla, took a swing at Pure and a few other companies.
In comments to The Wall Street Journal, Joe Tucci, longtime CEO of EMC, called claims made by younger rivals like Pure looking to unseat it “bunk.” And while Tucci didn’t mention Pure by name, there was no mistaking who he was referring to.
In the $24 billion business for corporate data storage, EMC is the leader, commanding just under a third of the market. The majority of its equipment is based on traditional hard drives, on which companies store vast databases, business records and day-to-day operational data.
But hard drives are on the way out and are being replaced by flash memory, Dietzen argues, explaining why Pure’s spin on the business has upset incumbents. As a data storage medium, flash memory has always been faster than disks, and consumed less power. Just look at what’s in Apple’s Macbook Air laptop and numerous other notebooks. But historically flash has also tended to be more expensive than disks, and so used only occasionally in enterprise storage.
No more, Dietzen says. Pure has managed to pare down the cost of storing a gigabyte of data on storage equipment made with flash to between three and five dollars, which is about the same as it costs to do it on a disk. Next year the cost will come down to about two dollars, he says.
“There’s no reason to buy EMC’s disk-based products anymore,” he said over lunch at a neighborhood bistro on Manhattan’s Upper West Side. “There’s no reason to buy a disk array based on spinning disks. EMC was the gold standard, but its time is over. It’s the end of an era.”
Other benefits — efficiency in space and power — also make the CIOs of big companies happy. Flash reduces the cost of space and power consumption inside a data center.
While flash is quickly gaining attention, it is still expected to remain a relatively small portion of enterprise storage for the foreseeable future. Research firm IDC says that nearly all storage in enterprise data centers — 97 percent — will still be on hard drives by 2017, and that only three percent of it will be on flash by then.
Dietzen said interest and sales has been phenomenal. While Pure doesn’t disclose revenue, Dietzen said sales in 2013 grew 700 percent year on year. And sales keep increasing by 50 percent one quarter after the other. This week the company said it installed its storage arrays with 18 customers in a single week.
And last Thursday Pure released a new set of products that Dietzen says fills out a portfolio that can now go toe-to-toe with pretty much everything in the EMC arsenal. Pure’s main target is EMC’s VMax line of storage equipment. Pure’s product is 10 times faster than what EMC has, he says, and cheaper to operate over the long run. “You save so much on power that you get the storage for free.”
Pure’s secret sauce is a technology called de-duplication. In enterprise storage, data gets copied and recopied many times over. Imagine a big filing cabinet with 50 copies of each document scattered around in different folders. Practically speaking, you really only need one. That means the filing cabinet doesn’t have to be so big, nor as complex. Another thing Pure does well is compression, shrinking data files down to a more manageable size.
Customers are waiting to see if Pure is just the latest in a passel of startups with big promises and poor execution or if Dietzen has figured out how to change the data storage game.
Fusion-io brought flash to data centers in the form of insert cards that are added to servers from Dell, Hewlett-Packard, IBM and others in order to speed them up. Widely respected for its technology, its business story has been complicated and its fortunes have tended to rise and fall with its ability to land supply deals for big data centers operated by the likes of Apple and Facebook. Its shares have fallen 60 percent since its IPO two years ago, and it too has lost a CEO since then and is a frequent target of buyout speculation.
The biggest challenge will likely come from EMC. It paid $430 million for the Israeli startup XtremIO in 2012. And last week it paid an undisclosed amount for DSSD, another flash startup. After months of development work, the first XtremIO products started coming to market late last year.
Tim Stammers, an analyst who follows the space for 451 Research, a New York-based research firm, says EMC’s XtremIO product is selling well largely because its customers know and trust EMC. “It’s a case of buying from the local upstart car company or GM or Ford.”
It’s a fair comparison. After EMC released its first all-flash product in November it was, by EMC’s reckoning, the leader in the nascent market for flash arrays within six weeks. “By any measure, bookings or revenue, we believe XtremIO has comfortably surpassed every other all-flash array,” David Goulden, head of EMC’s infrastructure business, said on a conference call.
Yet the XtremIO product has some weaknesses that are giving Pure some running room. Its set of features isn’t yet complete, Stammers says. “Nearly everyone in the enterprise storage business has an all-flash box. But they don’t have all the features that Pure does,” he said. Pure’s de-duplication and compression features are fully baked. XtremIO has only one — de-duplication — but not the other, at least not yet. “Most of its features are still in beta. I’d characterize XtremIO as a developing threat to Pure.”
For his part, Dietzen is wary, but not worried yet. He respects the two flash companies EMC bought, calling them “good teams doing good work,” but he also speculated in a May 15 blog post that EMC bought them to keep them out of the hands of other rivals.
“We think we have a two-year technology lead on them in flash,” he said.
What’s likely to keep EMC executives up at night are people like Jack Hogan, CTO of Lifescript, a site devoted to women’s health issues. Lifescript sends about a half-billion emails a month to its users and conducts a lot of analysis on transactions they generate. Hogan says the company has over the last few years used a mix of storage products from EMC, and later from HP unit 3Par. Now he’s done with hard disks for good.
“We used to run three big cabinets of spinning disks,” he said. “They took up a lot of space and consumed a lot of power.” Those three cabinets have been replaced by two Pure boxes, taking up 40 percent less space in a data center. A power bill that used to run in the “high thousands of dollars per month” is now, he said, in the “low thousands.”
“We’ll never go back to disks,” he said.
Pure’s customers include LinkedIn, the professional social network; Workday, the cloud-based vendor of human resources software; and the Sierra Nevada Brewing Company. Another is USF Health, a medical school and health care facility in Tampa, Fla., where it used to take eight hours to back up a store of electronic medical records. Now it takes two. Investec Asset Management, a New York investment firm, deployed Pure arrays and reduced the physical footprint of its storage gear by 80 percent.
EMC appears to be feeling the heat. Last year it sued Pure Storage in a federal court in Massachusetts. The suit, which came days before EMC released its first all-flash product, alleges that Pure has hired a bunch of former EMC employees with the intention of poaching its customers. EMC called it “a nationwide pattern of collusion with numerous former EMC employees,” essentially saying that the only way Pure could be winning as often as it does is by cheating. The case is still pending. Dietzen calls it “a sideshow.”
To prepare for a long war, Pure has bolstered its coffers. The company has raised an unusually large amount of money from venture capitalists and institutional firms. Last month, it raised $225 million at an implied valuation north of $3 billion. The round included T. Rowe Price and the private equity firm Tiger Global — and one new investor, Wellington Management. The round brought Pure’s total capital raised to $470 million. Other investors include Greylock Partners, Fidelity Investments, Index Ventures, Redpoint Ventures and Sutter Hill Ventures. Two other investors worth noting: Samsung Ventures is the investment arm of Samsung, which happens to be the world’s leading manufacturer of flash memory. Then there’s In-Q-Tel, the tech investment firm that represents the U.S. government’s intelligence community.
An IPO could be in sight for 2015, Dietzen hints. “We want to be a public company, but for now we like being private,” he said.
For now, Pure believes it has enough financing to wage war against EMC on both flash versus disk and flash against flash. “They will compete with us on both fronts. Of that I have no doubt,” Dietzen said. “But we have a hardened, more complete product. That said, we’ll be watching their every move.”