Ben Woo About Nimble Storage IPO

Nimble Storage says “me too!“
Posted by Ben Woo, MD, Neuralytix, Inc., in Ben’s blog

In my job, there are very few surprises. I am privileged to upcoming products, solutions, services and new technologies. After all, if I am doing my job properly, then I should have a good idea about what is coming up next. Add my own experience and initiative, and the result should be a good outlook of what is to come.

This is where my job as an industry analyst and a financial analyst differ completely. I’ve come to understand why there are two distinct jobs – an industry analyst looks purely at the technology, and while we take some financial considerations into account, generally, we are focused only on the technology. A financial analyst views the world in a completely opposite way – they look primarily at financial considerations and take technology considerations as one of many influences on their model.

Disclaimer: Neuralytix, nor the author, is authorized as investment advisers. This blog, or anything on this website, should not be considered investment advice. What you do with your money (or your clients’ money) is your responsibility.

So, when Nimble Storage recently announced their desire to go public, I have to say, I nearly fell on the floor with shock. I remember time, when technology companies went public after establishing some form of market leadership – whether in terms of technology leadership or revenue leadership. Consider IBM with the mainframe and the PC, EMC with storage, Dell with supply chain optimization, Oracle with its database, McAfee with its security software, Salesforce.com with its SaaS offering, etc.

What I have not understood about Nimble Storage is where it excels. During my tenure at IDC, I remember assigning one of my analysts to do a profile of Nimble Storage. I have a very simple criterion for profiles. An analyst must identify two to three unique differentiating features or functions before a profile will be published. After nine months, and multiple attempts, the analyst resigned to the fact that he/she could not even find one single differentiating feature.

Nimble Storage is what I would describe as a “me too” product. It offers a “jack of all trade” approach to storage. It is a typical hybrid storage system, with all the “must have” features and functions. To me, the solution has no market leadership other than being a cost leader (and based on its reported income, as loss leader).

In terms of its position in the market, it is one of over 100 other storage systems providers, all of whom claim similar or identical features and functions. Within the $33+ billion storage systems market, Nimble Storage’s $53.8 million in revenue represents roughly one-half of 1% of the overall market.

Putting this in some perspective, the total revenue for Nimble Storage in 2012 is equivalent to the revenue NetApp makes in two business days, or the revenue EMC earns in five hours on a single business day.

While the storage market has seen multiple IPOs in the last several years by storage companies, including:

• Data Domain (known best for its deduplication technology);
• Fusion-io (known best for its PCIe NAND flash solid state storage);
• 3Par (known best for its thin provisioning technology); and
• Violin Memory (known best for its flash storage systems).

Each of these companies are known for something. Two other companies likely to go public in the next year or so include Pure Storage (known for its full-featured all flash solid state storage) and Box (known for its storage-as-a-service offering).

I’m afraid, years later, I still fail to see the uniqueness of Nimble Storage other than its lower cost. While cost leadership is a viable approach to short-term market gains (in this case going from almost no market presence to a forgettable, insignificant and immaterial market share), I do not believe that this is a sustainable approach.

For Nimble Storage to survive as a viable concern, it must come out with some proprietary feature or function. Otherwise, it will always be the solution someone buys because they can’t afford something better. Simple cost leadership is an unsustainable proposition in this market.

So for a viable public company, I believe that there must be at least two of the following:

• Unique differentiation in the product;
• Multiple products, not just one product;
• Some sort of market dominance; and/or
• Material revenue (and preferably profitability).

I believe that Nimble Storage fails that test. All it would take to put Nimble Storage out of business is for Nimble Storage’s competitors (of which it includes, EMC, NetApp, IBM, HP, Dell, Oracle, HDS, Fujitsu, and at least 30 other more notable companies), to drop their prices by five or 10% to use their market leadership positions to “buy” the deal; and within a week, Nimble Storage would be out of business.