As technology advances, data size increases, maintaining endless buyer demand for scalable digital storage. Over the years, Israel has carved its place as the hub for leading storage solution developers and a dominant force behind much of the exit and acquisition activity in this industry.
Major cloud players like Amazon, Google, Microsoft, and Facebook are continuously researching and working on data storage innovations to facilitate and lead major industry trends. Many of these conglomerates are looking to the Israeli storage ecosystem in order to stay ahead in the new frontiers of the storage space.
In this Q&A panel discussion, OurCrowd hosted a meeting of prominent minds from both the local scene and global ecosystem; the group below explores why storage is a challenging industry, what makes Israel a powerful player, and how the biggest acquisition in the industry offers clues into the future.
Introducing the Panelists:
Aaron Mankovski, Managing General Partner, Pitango. Previously Aaron founded and was a Managing General Partner of Eucalyptus Ventures. Prior to founding Eucalyptus, he served as Corporate Vice President of Orbotech Ltd. In addition, Aaron served as President and CEO of Orbotech Inc, HQ in Boston USA.
Gil Goren, Senior Vice President EMC Ventures. Gil heads EMC Global New Business Development activities in Israel and EMEA. He holds an MBA from Boston University and a B.Sc. in Electrical Engineering from the Technion. .
Ritu Jyoti, CMO, NooBaa. Ritu worked at EMC for six years, where she held significant positions across EMC NAS division, Technology Alliances and Global Solutions. She holds a B.Sc. engineering degree in Electronics and Communication from Ranchi University, India, and Executive education in Corporate Strategy & Strategic Marketing from MIT Sloan School of Management, USA.
What is unique about the storage industry that makes it challenging for growing companies?
Aaron: A big challenge is that customers are not willing to accept storage solutions unless they have all – and I’m underlining all – of the software features that are needed to operate in a data center. That’s why it took a lot of startups, including Kaminario [an Israeli flash storage startup & Pitango portfolio company], a lot of time to get to market. But once you get to market, like we see with Kaminario, the company growth is amazing. That’s the key issue, to reach to a full software set which is completely certified by the customers. It is very complex.
Gil: The storage industry has a very high barrier of entry. The buyers are very conservative and will always prefer a known and credible brand. The technology is the underlying infrastructure of enterprises’ most critical applications and, therefore, the requirements for stability and robustness are extremely high. The solutions in this space are very complex and require accumulated knowledge that is pretty rare.
Aaron: The second big challenge is price. In this industry, you can present a new technology, but at the end of the day the customer wants to know the per gigabyte price.
To the flip-side of that question, what about the storage industry is a big plus that startups in other sectors do not benefit from?
Ritu: As we say “History repeats itself”. Successful exits of storage startups in the last 10 plus years have boosted innovation and investment in this area. This has made securing funding and talent much easier for entrepreneurs in this space.
Gil: There is a strong symbiotic relationship between large companies and startups in Israel. In storage, like seen in the semiconductor industry here, multinationals “imported” the know-how and expertise in the technology, management skills, and processes which in turn enabled experienced individuals to start new companies…
How did the Israeli storage ecosystem get its start?
Ritu: I think Moshe Yanai sowed the seeds for it. EMC is the leader in enterprise storage, and its initial success in 90’s was primarily due to the Symmetrix product line, which was conceptualized and executed to success under the wings of Moshe.
Gil: Moshe Yanai returned to Israel from Boston after years with EMC where he defined the standards of the world of storage and started few companies that IBM then acquired. Then EMC’s series of acquisitions expanded the Israeli presence.
Ritu: In 2006, EMC bought Kashya for more than $150 million. Kashya, a provider of enterprise-class data replication and protection software was not only EMC’s first Israeli acquisition; it also spawned EMC establishing an R&D center in Israel. Since then EMC acquired more than ten startups in Israel overall for an amount exceeding $1 billion. All this feeds directly into the trend when technology giants acquire startups in Israel: It wets their appetite for more Israeli innovation. More often than not, by founding local labs, tech giants find themselves on the ground and able to identify additional opportunities in Israel. Consequently, the companies feel more comfortable conducting additional M&A activity in Israel.
Gil: It is a sort of a chain reaction that can’t be stopped at a certain point… For me, a magical moment was when XtremIO, one of EMC’s most important acquisitions ever, crossed billion dollars in revenue and became the leading product in our salesforce armor.
What’s your take on Dell’s acquisition of EMC? Does it impact the Israeli ecosystem?
Ritu: I am optimistic that the joint force will bring more value to the customers. They have complementary offerings and together they can be a one-stop shop for customers. By Dell taking EMC private, they will be shielded from the dirty laundry and scrutiny, hence they will have more leeway to focus on the right priorities and execute towards greater success. Dell has acquired two Israeli startups and EMC has done over ten acquisitions. Dell has seen EMC’s success as part of those acquisitions and I believe the joint force has smart leaders at the top to continue to drive the right decisions to succeed.
Aaron: If you look at the history, consolidations always create more opportunity because innovation is not being created at large companies. Especially in the last 30 years, innovation has been created in small companies. Therefore, I think that any consolidation like this is creating more room for innovation for young companies.