Analysis: NetApp offloads FinOps assets to Flexera

NetApp, Inc. has announced that Flexera Software LLC will acquire its Spot FinOps assets in a sale valued at around $100 million (according to Bloomberg). This deal is much lower than NetApp originally paid for these companies and arguably reflects a lack of direction in the NetApp Cloud business unit since the departure of Anthony Lye in 2022. What does this transaction say about a future NetApp?

Background

Both NetApp and Flexera have made announcements on the sale of NetApp’s Spot FinOps assets to Flexera, in a transaction valued at $100 million, according to Bloomberg. Although there are no specific details, we believe that this means Flexera will gain the Spot Eco, Billing Engine and Cost Intelligence products, plus CloudCheckr.

In a post from February 2023, we highlighted the then structure of NetApp Cloud solutions, which were divided into four categories.

FinOps
- Spot Eco – reserved instance (RI) and savings plans virtual instance optimisation.
- Eco Reports – enhanced billing and reporting to manage RI and dynamic workloads.
- Cloud Analyser – finds anomalies and optimises public cloud usage through rightsizing, committed usage and purchasing strategies.
- Cloudcheckr – appears to duplicate the optimisation features of Eco but also adds security monitoring and compliance.
Containers
- Ocean Suite – Ocean, Ocean for Spark and Ocean for Continuous Delivery, three Spot capabilities for orchestration of container-based workloads.
Infrastructure
- Elastigroup – application scaling and rebalancing management.
- Spot Security – Security analysis and threat detection.
Desktop
- Spot PC – Desktop management and optimisation.

Flexera looks to gain the FinOps products, while we believe Spot PC was quietly closed down in February 2023. We believe the other Spot capabilities and Instaclustr will continue to be integrated directly into NetApp’s cloud offerings.

Acquisitions

During the tenure of Anthony Lye, NetApp’s cloud business went on a spending spree, acquiring many startups including Greenqloud (2017), StackpointCloud (2018), Cognigo (2019), Spot (2020), Talon (2020), CloudJumper (2020), CloudHawk, Data Mechanics (2021), CloudCheckr (2021), InstaClustr (2022) and Flyamynt (2022).

Some of these purchases were more expensive than others. Spot was acquired for $340 million, CloudCheckr for $347 million, InstaClustr for $500 million, while the remainder account for around $100 million (source: NetApp 2021 and 2022 annual financial reports – here and here).

In total, NetApp paid almost $1.3 billion to build a cloud management and optimisation business before Anthony Lye departed the company in July 2022. Of this, the FinOps assets represent at least $687 million, although there are other Spot products that were part of the acquisition and are not focused on FinOps, such as the security and automation capabilities. It does appear that in selling these products for $100 million, NetApp is essentially admitting defeat in the development of its cloud optimisation business and letting the assets go for a relatively bargain price compared to what they cost to acquire.

Strategy

What went wrong within the NetApp cloud business unit? As we highlighted in this blog post from 2022, NetApp appeared to be transforming itself, but into what wasn’t exactly clear. Over the five years that Lye ran the cloud business, NetApp made many acquisitions to bolster its hybrid and public cloud ambitions, which started with the successful integration of ONTAP across three major public cloud platforms.

However, as we reported in February 2023, the data storage and cloud businesses within NetApp increasingly looked like two separate entities, with little cross-communication between the two and a lack of clear messaging to customers.

The announcement of BlueXP in November 2022 provided a possible insight into the future direction of the “left and right brain” businesses. We discussed what this could mean in a post at the time (find it here). However, this model of operation has been quietly dropped, with NetApp now choosing to talk about Intelligent Data Infrastructure (IDI) as the long-term strategy of the business.

At Insight 2024, NetApp presented a partially completed strategy that implies the most useful features of the old cloud business unit will be gradually brought into the core cloud platform. For example, BlueXP now has Workload Factory and InstaClustr is branded as a NetApp product.

Hardware

Meanwhile, the NetApp storage team has not been sitting still. The company has refocused its traditional storage platform range based on the ONTAP storage operating system.

As we highlighted in a series of posts (see the end of this article for a list), the All-SAN Array was revamped, while a cost-optimised all-flash offering, the C-Series, was introduced in both AFF and ASA formats. As highlighted in this blog post, we believe that NetApp reviewed competing solutions and realised the gap in the market it was missing. As a result, the revamped ONTAP range has driven additional sales for the company.

Core Principles

It seems that NetApp periodically attempts to expand outside its core remit of on-premises data storage based on the ONTAP operating system. In the last 15 years, the company acquired SolidFire to gain a foothold in the MSP market. This was followed by its HCI strategy, which was eventually dropped. Then we moved into the cloud era, with the adoption of ONTAP in the cloud by AWS, Azure and GCP. This initial success drove the creation of the Cloud Business Unit and the myriad acquisitions we’ve already discussed.

The recurring theme of these strategic moves is the eventual failure of the attempts to move the business to more than just the core ONTAP solutions. Arguably, NetApp has been successful at gaining public cloud adoption for ONTAP, although this business still only represents 10% of revenue (but has returned to growth).

The Architect’s View®

NetApp’s cloud optimisation business never really felt like a core re-invention of the company. Instead, the plethora of acquisitions created a parallel company that appeared to be heading in a different direction to the storage business. After the departure of Anthony Lye, there was no clear strategy for how the IP gained would be moulded to address the needs of NetApp customers and to create a cohesive strategy for the entire company.

To be fair to the NetApp leadership, in the early 2010s, it appeared that the public cloud would assimilate the entirety of IT, leaving little or nothing for the traditional infrastructure providers to target. That prophecy has not come to pass, with significant relevance to on-premises infrastructure deployments, as the true cost of the public cloud has been revealed.

Building cloud optimisation tools for on-premises infrastructure is a defensive vendor strategy against the rise of the public cloud. In recent years, for example, HPE has acquired Morpheus Data, OpsRamp, Zerto, Quattro Labs, CloudCruiser and CloudPhysics. IBM has acquired Turbonomic, Apptio, HashiCorp (pending), and Pliant. The company has also invested in hybrid cloud consulting services. NetApp tried the same strategy with the Cloud Business Unit, looking to build a capability to provide reasons why on-premises infrastructure still has value in the current IT world.

As we can see from the revamped ONTAP portfolio, the need for on-premises storage is not dead. Competition is tough, but there are green shoots of hope with the demand for AI infrastructure, at least for the next 36-48 months.

Selling off the FinOps products draws a line under NetApp’s previous cloud strategy. Going forward, the focus for 2025 will be on Intelligent Data Infrastructure. This path will be much clearer for customers who will be focused on managing storage costs, delivering storage for AI, improving security and recovering from ransomware attacks. For the next few years, these are the areas in which NetApp should direct its efforts while we determine whether the obsession with artificial intelligence turns into a boom or bust.

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