Olivier Le Moal - Fotolia
If you follow the investment money in the storage world these days, you'll find it leads to the data protection and data management market. An avalanche of funding poured into private companies in that space over the past seven months, and experts predict those vendors will use the money to add data intelligence to their platforms.
A $250 million Cohesity funding round in June 2018 kicked off the funding splurge. Two months later, Actifio completed a $100 million round. Then, in mid-January 2019, a $261 million Rubrik funding round and a $500 million investment in Veeam Software dropped on consecutive days.
That's more than $1 billion invested in data protection and management in approximately half a year. The recipients are now putting that money to work challenging established market leaders such as Veritas, Dell EMC, IBM and Commvault.
The relative newcomers have already made their marks in data protection. Veeam, the oldest of the group, made its bones protecting virtual machines when established vendors were stuck on physical backup. Actifio made copy data management a major platform in 2011, and Cohesity and Rubrik did the same for converged secondary storage a few years later.
Established vendors followed the newcomers' leads every time, and still dominate market share. Now the upstarts have fresh funding to continue product development internally and through acquisitions.
How should the money be used?
Each of the four vendors have spoken about what they intend to do with their new funds. Actifio is focused on acquiring new customers, the Rubrik funding is going toward developing AI and machine learning technology, Cohesity will expand sales and marketing, and Veeam is making a hard push for multi-cloud.
According to Ratmir Timashev, co-founder of Veeam, "In the last decade, we have dominated the modern, highly virtualized space. We have a very aggressive [research and development] plan, and in the next 10 years, we will dominate the multi-cloud world."
Timashev and Rubrik CEO Bipul Sinha said they will explore acquisitions of smaller companies to add technologies to their platforms.
"I think a lot of it will be around sales and marketing, around how to garner as many customers as quickly as possible," said Phil Goodwin, research director at IDC. "Acquisitions are certainly possible -- to get into adjacent markets or new markets. We saw that with Rubrik and the Datos IO acquisition. It wouldn't be a big surprise to see some of them making acquisitions to get some of those newer market spaces."
Christophe Bertrand, senior analyst at Enterprise Strategy Group (ESG), also said acquisitions are possible, but it will take more than that for these companies to maintain momentum.
"For all of them, it will be a blend of go-to-market, accelerating of existing roadmaps and acquisitions," Bertrand said. "The people who will be most successful will be the people who understand how to integrate what they acquire to accelerate their roadmap and develop the unique skill sets they already have. It's easier said than done. You can't just acquire your way to market."
Bertrand predicts data intelligence will be the next big thing in data management. He doesn't believe it's enough anymore for backup data to just be backup data. Customers are looking for ways to derive business value and outcomes from that data, such as compliance and analytics. Bertrand believes vendors -- both the established and the new -- are gearing up for that.
"What's happening next is going to be business outcomes, and it's going to require a lot more intelligence and more understanding of the data," Bertrand said. "So what you're seeing is some companies positioning themselves for that next big step."
Bertrand said he expects data management vendors will invest in compliance, data classification, AI or machine learning capabilities, automation and cybersecurity.
"It used to be about data management -- where is it, how much does it cost, how much do I have, how do I compress it [and] reduce it," Bertrand said. "Now, it's about understanding what data you have and what you can do with it. I think five years from now, if all you're doing is backup and recovery, you're going to be out of business, because it's only one business outcome."
Virtualization changed everything
Goodwin said Actifio, Cohesity, Rubrik and Veeam emerged during the "third platform" era of IT, sparked by cloud and virtualization. Veritas, Dell EMC, IBM and Commvault had roots in the "second platform" client-server era.
"What we're seeing here is the market continues to be very dynamic, and one where we're seeing a lot of competition. That competition is really borne from the new platform," Goodwin said. "It's no longer just client server. It's virtual infrastructure, it's cloud-native, hybrid cloud, SaaS and all the different deployment models, which have subtly different backup and data protection requirements."
Vinny Choinski, senior lab analyst at ESG, said this created an opening for ambitious backup newcomers to establish footholds. That is how Veeam grew to close to $1 billion in revenue in 2018.
"When you modernize your production environment, you also have to modernize your backup environment," Choinski said. "If an emerging vendor is focused on that, they'll typically come to the market ahead of the curve. And if a traditional vendor doesn't keep up, they become obsolete."
Christophe Bertrandsenior analyst, Enterprise Strategy Group
For years, backup was considered "sticky" technology, meaning organizations were reluctant to rip and replace their backup software products. But Goodwin said more customers are willing to buy the best backup product suited for their environment rather than wait for their current backup vendor to come up with something for them. In the face of demonstrated demand, investors became interested, eventually leading to venture capitalist investment like with Veeam or the recent massive Rubrik funding.
"What we're finding is IT organizations and cloud service providers are increasingly willing to buy a best-of-breed product for a specific environment, so these newer vendors are able to directly target those newer application data protection requirements," Goodwin said. "And I think that's why you're seeing a lot of success for those companies, and, therefore, a lot of interest among investors."
Opportunistic data protection vendors are taking advantage of another trend: the diminishing role of the backup administrator, as IT generalists, virtual administrators and application owners share data protection responsibilities. Bertrand said this led to a demand for simpler user interfaces geared toward IT generalists, whose duties extended beyond just backup. Newcomer vendors were already ahead of the curve on usability, which, in the new market, suddenly mattered. When Veritas NetBackup underwent an interface facelift in a recent update, it showed how an old player had to play catch-up to the new blood.
"People used to have Ph.D.'s in backup. Now you're looking for IT generalists to perform a lot of these functions, and therefore, you need to have an easy-to-use interface and something that fully integrates with the workload," Bertrand said. "You have to give customers backup and recovery capabilities that look and feel and smell like what they're used to, that plug in directly to that environment."
New players well-positioned in the market
These newer backup vendors are enticing investors because they've each identified their market segments and carved out niches and found success in those areas of the market.
"What you're finding now is vendors like Rubrik and Cohesity are disrupting around hyper-converged infrastructure and secondary storage," Goodwin said. "They're really providing a different level of scale and implementation for data protection, in newer packaging and in ways that are proving to be disruptive in the data protection industry."
"They're driving the market up in terms of furthering capabilities, pushing the existing vendors to evolve as well," Bertrand said. "It's forcing everyone to compete."
That's not to say the old guard is sitting idle while Rubrik funding and other major investments launch. Goodwin pointed out that the traditional backup vendors are also finding rich markets to tap. For example, Dell EMC is focused on its purpose-built backup appliance, Commvault has invested in adding analytics and intelligence to its offerings and Veritas continues to invest in its integrated appliances.
"The question becomes: How do companies that have traditionally been second-platform vendors evolve and target newer markets?" Goodwin said. "The challenge for these organizations is to find those target markets that are growing rapidly and have significant size, and then capture the corner of that market."
Bertrand also pointed out that the established players still have significant advantages over the newcomers, such as large install bases and a broader set of capabilities within a single platform. And they're also investing in development, acquisitions and marketing to maintain their position.
"Don't think the incumbents are asleep at the wheel," Bertrand said. "The traditional players are making investments, coming out with new products, furthering a pretty deep trench."