Too much information... but EMC pulls its weight

Stephen Pritchard looks at the US firm that tries to stop company systems from buckling under the pressure of their electronic data

The amount of new electronic data being stored worldwide has doubled over the past three years, according to research by the University of California at Berkeley. Greater use of email, presentation software such as PowerPoint, digital photography, music and video are creating a data mountain. Regulations, such as the US Sarbanes-Oxley Act, that require com- panies to keep more information, for longer, only add to the problem.

The amount of new electronic data being stored worldwide has doubled over the past three years, according to research by the University of California at Berkeley. Greater use of email, presentation software such as PowerPoint, digital photography, music and video are creating a data mountain. Regulations, such as the US Sarbanes-Oxley Act, that require com- panies to keep more information, for longer, only add to the problem.

This is great news for EMC. The market leader in data-storage hardware and software was the best-performing share on the New York Stock Exchange in the 1990s. But by 2001, it was posting a net loss of $508m (£265m).

Rapidly rising sales, driven by the demands of the dot-com boom, masked deep-seated problems at EMC. As the boom faltered, the company found itself exposed to competitors with cheaper products that were as good as EMC's Symmetrix line.

"EMC was a single-product vendor," says Robert Passmore, an analyst at research firm Gartner. "That was a good strategy in the 1990s, when it had uniqueness. By 2001, other companies had matched what EMC had to offer. Then the dot-com bust came and, instead of storage revenues growing, they fell in 2001; in 2002 they were flat."

Even though companies wanted to store more data, technical developments and price competition meant that this did not translate into greater revenues for storage hardware makers.

EMC estimates that the cost of storing 1GB of data (about 100,000 small word processor documents) is falling by 35 per cent a year. "IT budgets are growing at around 4 per cent a year, and we expect storage spending to grow by around 7 per cent" says EMC's chief executive, Joe Tucci. "But we think there will be about a 70 per cent increase in annual storage demands."

The problem for IT managers is how to meet this demand. EMC thinks the answer lies in software that helps businesses to manage their data. To that end, Mr Tucci has turned what was a hardware company into a business that derives 55 per cent of its turnover from software and services.

He has done this mainly through acquisitions, including storage software companies Legato, Documentum and Dantz. This, combined with a broader range of hardware products and a partnership with Dell, has restored the fortunes of EMC. It made profits of $871m on a turnover of $8.2bn last year.

"In 2001 we were a Symmetrix-only, high-end company," says Mr Tucci. "We had that product priced at about 50 per cent above the market. Today, we are priced in line with the market. Then, you would have said that our software was proprietary, and now 50 per cent of it is open. Then, you would have said that we had no professional services capabilities, and now we have over 2,000 professional services people."

Mr Tucci was forced to lay off one quarter of the workforce and introduce tight cost controls in 2001. Since then, EMC's much wider range of hardware has let it grow revenues four times as fast as the overall storage market, according to IDC, a research house.

In storage software, IDC ranks EMC as the top provider with a market share of 31.7 per cent, ahead of Veritas and Computer Associates. EMC's revenues have grown twice as fast as those of Veritas, which is being taken over by IT security company Symantec.

However, analysts say the company needs to prove that it can integrate all its acquisitions, as well as grow its market share with new and more challenging technologies. Chief among these is information lifecycle management (ILM), a capability that EMC acquired when it bought Documentum and, to a lesser extent, Legato.

ILM promises a way for companies to bridge the gap between the speed at which their storage needs are growing, and the slower growth in IT budgets.

ILM cuts data-storage costs by moving information from expensive, high-end storage equipment, such as EMC's Symmetrix, to cheaper disk systems or even to tape. ILM software can be set up to delete files if they have not been used after a set time, and to remove duplicate copies of identical data.

The danger for EMC is that companies will either fail to embrace the idea of ILM, or will prefer to buy it from specialist vendors or companies such as Veritas. Most of all, EMC has to persuade its customers to spend more on storage software. And it has to convince its sales force to focus on selling licences and services as part of a relationship, rather than just selling a box.

Mr Tucci believes he is winning both arguments. He disagrees with the suggestion that he has reinvented EMC's business model, but says that a successful company will always be a work in progress. "If you have to reinvent your model, you have failed," he says. "But I also believe no model is for ever."