Author: Steve Denegri, Storage Consultant, Financial Analyst
A study on data center electricity usage published a year ago by the Environmental Protection Agency (EPA) continues to receive attention in the storage industry. The study illustrates that storage is not keeping pace with servers and networking equipment as it relates to the amount of energy each of these hardware categories uses in the data center. In fact, the EPA study shows that storage is consuming an increasing portion of the data center’s power budget as networking equipment and servers are maintaining a steady appetite for electricity, not a good trend in these times of skyrocketing utility costs. No wonder the EPA study recommends that the storage industry dramatically improve upon its power management semantics for disk and tape systems. And the industry pundits are taking this data and running with it, with talk of underutilized storage resources and customers not getting the most of the equipment they’ve purchased, as if that’s a new theme. Regardless, many vendors in the storage industry are salivating at the thought of bringing new energy-efficient products to market, believing that this problem has all the ingredients of a paradigm shift that could rearrange the competitive playing field.
However, these vendors would be better off recognizing that this heightened attention to energy efficiency is less indicative of a new growth opportunity and, more likely, portends an uncertain future for the industry, as a whole. Countless industries have reached an energy ceiling over the past half century, only to realize, soon after, that revenue potential had peaked. What follows is a survival contest that only Darwin would love: more combinations at the top of the food chain and significant consolidation or closed doors among the multitude of suppliers. As revenue potential falls, those who are fortunate enough to survive must remain in cost-cutting mode in order to stay competitive.
Where is the Storage Industry Going?
If this, indeed, is the direction that storage is headed, the coming decade will see a massive shake-out in the enterprise computing industry. The storage industry, in particular, is very vulnerable to this outcome. The simple fact is that the storage industry has and always will be an OEM-dominant industry, whereby 70% or more of the sales to end users are sourced from fewer than ten vendors. Consequently, dozens of companies compete to supply product to this small number of very powerful OEMs. In this regard, storage closely parallels the automotive industry, one that’s dominated by five or six vendors. To get a glimpse of the future of storage, the automotive industry saw a major transition to energy-efficient products beginning in the late 1970s. Since that time, the automotive industry has seen its supplier-to-OEM ratio shrink by a factor of five. If your company is one of the many suppliers to OEMs in the storage industry, then you should recognize that this “green” trend, over the long term, bodes poorly for your company’s existence, and consequently, your personal livelihood. The cold, hard truth is that an ample supply of energy is necessary to grow any business over the long-term, and the storage industry is shying away from the harsh reality that a sufficient amount of energy is, unfortunately, not available to keep the industry growing.
Instead of elevating the rhetoric on the essential need to expand the capacity of the power grid, the storage industry is incomprehensibly embracing the energy efficiency paradigm, deploying marketing strategies that resemble those of the oil and gas industry. The websites of storage companies these days make mention of carbon footprints, green initiatives, and environmental stewardship, clearly having no idea that they are using buzz words that highlight the industry’s dire state. A recent press release from one OEM actually boasted of its efforts to generate electricity at its headquarters from burning its employees’ garbage! With this as the most suitable example, the world is deploying utterly ridiculous new strategies to generate electricity, none of which have any scale to them. Unfortunately, the storage industry is buying into this nonsense.
What Do Customers Really Need?
There will be those who argue that the storage industry is only doing what the customer wants. For example, in its ever-increasing appetite for computing performance, customers are being forced to conserve energy in order to facilitate the necessary degree of computing scale for their businesses. Adding more servers and storage resources results in an exponential level of growth in electricity usage, which is an undesirable effect since utility costs are said to have grown 30% over the last five years. So the storage industry reasons that it must redesign its products to allow more resources to be utilized at increasingly lower levels of power consumption per unit of storage capacity. This will allow its customers to expand while maintaining more control over the power budget.
However, the storage industry is blind to its customers’ true needs. All vendors in the industry should take heed: what the customer really wants is lower utility costs. Here’s a great example to prove it. In a study by The Uptime Institute called “The Invisible Crisis in the Data Center: The Economic Meltdown of Moore’s Law”, a report which was published at roughly the same time as the aforementioned EPA study, the authors cite that the three-year cost of powering a server exceeds the purchase cost of the server beginning next year. Imagine buying a new car faced with the dilemma that the gas required over the first three years of ownership will exceed the cost of the vehicle. Now consider how the storage industry would respond to the problem: furnish the consumer with frequent refreshes of new models of vehicles that get more miles to the gallon. Chalk up yet another example of the storage industry furnishing its customers with products that they do not really want. The customer wants cheaper gas, not the financial burden of a new car every few years.
Would the typical storage vendor agree with this deduction? In order to grow the top line, the storage company might say that it will relentlessly focus its R&D effort towards providing new product models and accompanying software that gain more benefit per watt of electricity with each successive product generation so that the customer sees increasing energy efficiency over time. In reality, the storage vendor might say, the customer is “stuck”: they have no choice but to frequently rip up and replace/upgrade storage equipment in order to contain utility costs. So the customer’s power dilemma actually provides job security for employees and provides greater visibility to top line growth.
If this is the attitude of any storage provider, they are in for a rude awakening. In fact, they should ask Intel or AMD how they’re coming along with this strategy. These two companies are finding that Moore’s Law will soon be downgraded to theorem status, because you can’t increase compute performance at the necessary pace for very long without an ample supply of electricity. Likewise, the storage industry will quickly hit a wall, because the vast majority of energy improvements are bound to come about in the first few generations of product. Those storage vendors who are hoping to blaze a new trail in the quest for energy efficiency should re-familiarize themselves with the law of diminishing returns. The return on investment (ROI) for the R&D that will be necessary to expand the storage benefit per consumed watt will, almost certainly shrink over time, resulting in lower and lower profit margins. Flat to shrinking revenue and declining ROI are the ingredients of a decaying industry.
What Can We Learn From Research?
Let’s reference one last, key finding of the study by the Uptime Institute, which found that 2010 will be the year that the benefits of server virtualization will peak, meaning that the number of servers used in the data center in 2008 has, for all practical purposes, now been fully optimized. Therefore, the number of server units per data center will soon start increasing again. The EPA study found that servers, as a whole, had decreased their portion of the power budget between 2000 and 2006. However, since server virtualization benefits have largely been realized, the amount of electricity needed to power the data center is on the verge of increasing even more in the coming years, meaning that electricity requirements will continue growing at an exponential pace.
In order to satisfy the demand, the Uptime Institute suggests that “multiple thousand-megawatt” power plants will be needed once the server virtualization benefit phase ends. Consequently, you would think that the largest consortiums representing the storage industry would have already formed working groups with end customers that speak to the need for more power plants. Instead, these organizations boast of their “green” initiatives promoting energy efficiency that they wrongly think will be adequate to offset the unending explosion in demand for electricity. It’s quite fascinating. Green computing is almost the equivalent of battling a raging inferno through the design of smaller matches. If only these consortiums realized that by hailing their energy-efficiency activities, they merely appear content with a reputation of environmental responsibility as they proclaim their industry’s doomed state. In fact, without more power plants, the typical storage industry consortium had best realize that its membership numbers will soon be on the decline. As the automotive industry’s experience proves, the number of suppliers to the storage industry will soon fall off of a cliff.
There will also be those who say that energy efficiency is an important responsibility, and that customers benefit tremendously from the availability of such products. There is no denying this. In the late-1990s, when oil prices returned to levels not seen since the years prior to the 1970s oil crisis, consumers certainly benefited from the lower expense required to fuel their tanks. However, data center computing has achieved its favorable reputation and widespread adoption thanks to its performance, not its energy efficiency. Said another way, the Indianapolis 500 isn’t won by the driver who can make the most laps on a single tank of gas. If, going forward, data center computing is hindered by the need to expand performance not unabated but rather at a predetermined rate of consumed electricity, then the industry simply can’t expand much further, it’s that simple. Furthermore, if the industry’s fears of being labeled an “energy hog” outweigh its determination to expand the supply of energy to its customers, it may as well pack it in now. Either the industry wields its influence to expand the power grid or else faces the consequences associated with a shrinking opportunity – those are the choices.
In the grand scheme, it’s mesmerizing to consider the possibility that the peak in the storage industry will come about not by technological limitations with regard to areal densities, not by the commoditization effects of TCP/IP networking, but rather by something as simple as the lack of available electricity to facilitate growth. Furthermore, the fact that the storage industry, in light of all its tremendous innovations over the last fifty years, is content in letting this happen is even more disconcerting. Consider the dire state of the automotive industry, storage vendors: do you really aspire to follow their lead?
Steve Denegri is a storage consultant and financial analyst whose experience in the storage industry dates back to 1995. He has been a senior financial analyst at two investment banks: Morgan Keegan and the Capital Markets Group of the Royal Bank of Canada, specializing in industry research that covered both enterprise computing and data center infrastructure. In addition to his involvement with the SCSI Trade Association, Steve has worked with Fibre Channel Industry Association and Storage Networking Industry Association along with ANSI T10 and T11 communities in speaking and consulting roles. Steve earned his B.S. in Mechanical Engineering and has a Masters degree in Business Administration.