The last couple of years it’s been a growing popular trend to virtualize server in the datacenter. Virtualization means big sales for data storage vendors, and EMC, DELL and NetApp are the companies best positioned to take advantage of the trend, according to a new report. Since the introduction of Virtual Desktops this market is accelerating even more, with virtualization of users desktop, storage requirements and needs will grow in 2010 and beyond is my take on the matter. We tend to focus on the Virtualization vendors with the likes of Citrix, Microsoft and VMware being the biggest players in the market. But, what about the storage vendors? They must see profits on the rise, since more virtualization equals more storage needs.

William Blair & Co. analysts Jason Ader and Dmitry Netis penned a 141-page report on the data storage sector that was released yesterday. Server virtualization, they wrote, “is the key technology development that will shape the future of the storage industry.”

In the near term, that’s good news for the vendors. “As servers become centralized and virtualized in mainframe-like grids, storage needs to become more distributed and networked,” Ader and Netis wrote. For every $1 spent on server virtualization projects, customers spend roughly $2 to $3 on storage, they said.

But in the long term, server virtualization could hurt the data storage vendors, “as it will result in a siphoning of management functionality from the storage device to the server, raising the risk that storage systems will gradually become commoditized just like servers,” the analysts wrote.

With data created by businesses and consumers doubling every 18 months, the $45 billion storage systems and software market should see mid-single digit growth, but vertically integrated stacks assembled by large vendors, which integrate compute, storage, and network layers, could place storage specialists at a disadvantage if the concept catches on, the report said.

While EMC and NetApp are best positioned, focused niche providers such as Compellent and Isilon “are also worth watching because of their innovative approaches to solving the problems of data growth and management,” according to the Blair analysts.

“Longer term, storage-centric players will have to contend with increased threats from diversified vendors such as HP and IBM that aim to collapse the storage function into their stacks,” they said.

EMC’s majority stake in server virtualization leader VMware gives the data storage giant a big stake in the server virtualization market while hedging against the commoditization of its storage business, the report said.

They predicted greater use of capacity optimization technologies such as deduplication, thin provisioning and tiered storage to increase utilization, and a transition to Ethernet-based storage networking technologies such as FCoE, iSCSI and network-attached storage (NAS).

“While the transition to Ethernet-based storage will not happen overnight, the implications for incumbent [Fibre Channel] infrastructure vendors are clearly negative,” they said.

So, while we are pushing to new hights when it comes to Server and Desktop Virtualization in our part of the industry, there are another part of the industry making big bucks on our effort to virtualize. Makes sense, and I hope the storage vendors gives their best effort to give us SANs and NAS’s that gives us the best performance, which we need due to several factors around virtualization and provisioning.

Check out the report here