TheStreet.com: Tell me a little bit about your history, Tom. How long have you been working at NetApp? What did you do before?

Tom Mendoza: I've been at NetApp a little over seven years. I came over when they started selling the product, if you will, of two years of engineering and I was brought in to run sales. I started out as VP North American sales and a couple of years later took over worldwide sales. We decided it was very important that we broaden our distribution, primarily to serve our very large customers who wanted to use us all over the world. It wasn't about finding a new market. The reason we went global was to service our customers.

NetApp's Tom Mendoza

Prior to that I was VP of sales at a company called Auspex. Auspex was aimed at a similar problem, but they did it with proprietary hardware because the company was founded in the late '80s and there was no standard bus technology to allow you to use off-the-shelf hardware. So they had to design and manufacture all their own hardware, which became a very difficult problem. They thought proprietary systems were the way of keeping a market, which has always been the wrong answer.

TheStreet.com: Sounds a bit like Sun (SUNW:Nasdaq - news - commentary), no?

Tom Mendoza: Or Ken Olson [at Digital Equipment]. So they came here and decided they could do it on open architecture and that was the beginning of NetApp. That was Dave Hitz and James Lau, the two founders. Prior to that I was at a company called Stratus Computer. I've been doing start-ups since 1982, and I've been in the tech business since 1974.

Most people selling computers at that time tended to be older people, older males -- that's just a profile -- and it was all sold on relationship. There was very little technology selling, if you will. If you think back to the IBM (IBM:NYSE - news - commentary), Unisys (UIS:NYSE - news - commentary), Honeywell (HON:NYSE - news - commentary) types. I got trained for two years at Burroughs (later to become Unisys), and then I went to Data General, where you found a lot of the people who have been the backbone of sales organizations at companies like Sun Microsystems and others.

I got into the transaction-processing game with Stratus in the '80s. In the '90s, when I left Stratus, I said to [Cisco (CSCO:Nasdaq - news - commentary) Chairman] John Morgridge, "John, I'm thinking about what I should do with computing." He said: "Move data, manage data, store data or sell insurance." That was very good advice. I chose to store data. My simple reasoning was, if you have a desktop on every desk, there's not going to be a lot of margin left in that. And once you build out the pipes for the network, the next big question has to be, where are you going to store all this stuff?

TheStreet.com: You mentioned the saturation of the desktop market -- the problem with shrinking profit margins that happens whenever you're in a competitive industry and you have saturation. How close do you think network storage is to that scenario? There's EMC, of course. There's Hewlett-Packard (HWP:NYSE - news - commentary), Hitachi, Sun, Dell (DELL:Nasdaq - news - commentary).

Tom Mendoza: If you don't get competitors in a market, it means you don't have a market. When I was at Stratus in the late '80s, our only competitor was Tandem. Inside the company, we felt very, very good that no one had entered our market -- until we realized that there was a reason why no one had entered our market. They'd figured out another way to solve the problem and our market was no longer going to expand. That's why Stratus and Tandem are no longer companies.

Five years ago, we were using Cisco as a model. They created a router market. They dominated that market and went on to spectacular results. Two years ago, if I went to different large organizations and talked to their CIOs, their No. 1 objection was, "Tom, your competitors are all saying network attached storage is not a market. I'm concerned about buying into a market that might not be there long term." Now every single one of those competitors is saying that they also believe NAS is a market and that they're coming into it. And people say, "Tom, you're the industry leader for NAS. How are you going to keep your lead?" It's a much better place to be than arguing whether we've got a market.

TheStreet.com: What have you made so far of Sun's attempt to get into storage? There was a big splash last fall when they announced the push.

Tom Mendoza: Sun has been extremely unsuccessful at storage for a long time. Let me keep it simple: No one would look at Sun storage for anything but Sun servers. No one. A year ago their public statement was that storage was not a market. They now realize that they're losing market share dramatically. We'll have more Sun storage on NetApp than Sun will this year. If you had Hewlett-Packard servers, would you call Sun for a quote on storage? I've never heard anybody say that.

One of the key things Cisco did is they did away with the general purpose operating system. They don't use Unix, which is 40 million lines of code. They don't use [Windows] NT, which is over 40 million lines of code. They use a very compact, dedicated code kernel, which they wrote, called IOS, which is about a million lines of code vs. 40 million. NetApp has its own embedded file system called WAFL, which is the same size as IOS. The challenge that these other companies have -- like IBM, H-P, Sun -- they have to have a different file system to run on their general purpose operating systems.

Bad Tidings Network Appliance falls

TheStreet.com: What do you make of Quantum (DSS:NYSE - news - commentary) and their little Snap storage appliances? Those products address a lower-end market than yours do. But that's similar to how NetApp originally attacked the storage market, with a simpler, cheaper technology. Quantum seems to be doing the same thing now. Do you fear competitors like that bleeding up into your market from below?

Tom Mendoza: I think that's a very good question. Network Appliance has been identified by many people, including Clayton Christensen, as a disruptive technology to all of our competitors. If you're familiar with the concept of disruptive technologies, from The Innovator's Dilemma, the people about to be disrupted always say they're low-end and underfeatured. Therefore they don't really compete with it. But disruption always comes from below. We think the Snap stuff is interesting. Our idea of the low end is not the consumer, it's not small business, it's the edge of an enterprise. So our idea of where our low end should be starts right where they stop. If they came up a little bit, they'd be at the low end of our space. We're developing technology along that route, and are always looking at technology along that route. Right now, it's not in our space, but we don't discount anything.

TheStreet.com: So where are things headed from here?

Tom Mendoza: Different companies are going to be leaders. There's been a dramatic shift now because of the economy. In the financial markets or with new start-up ISPs, the problem was that they had more money than they knew what to do with. In fact, in the ISP space, many of the vendors gave them the money to buy their equipment. If you went out to Wall Street and said to all the big brokerage firms and banks, "I can lower your total cost of ownership," the standard reply was, "We're making so much money, we have vendor relationships in place, and it's more important that we don't change anything."

That has 100% changed. In every conversation, the only thing that matters to people is, "Can you lower my total cost of ownership by delivering equal to better functionality?" I had a major CIO say to me, "Increase my revenues or drop my expenses, or I don't need to talk to you."

TheStreet.com: Along those lines, in your experience, are customers a bit more prepared to spend money than they have been in the past couple of months? Is that still as touch-and-go?

Tom Mendoza: It's still not what you'd expect. They're being cautious about rolling out major projects. They're doing more trials than rollouts. But they want to make sure what their own economic condition is.

Still Ahead NetApp since inception

TheStreet.com: A lot of tech stocks went way, way up at the very end of the last decade. NetApp went up higher than the vast majority of those. What effect has the crash in tech stocks had on the hiring climate in the Valley, which everyone knows was so incredibly tight just a short while ago? Has it made it harder to recruit talent or has it made that easier?

Tom Mendoza: When the market did crash, NetApp had a bigger problem than most because our P/E was over 600. And if your P/E is over 600 and the market truly crashes, there's no chance you're not going down hard. When companies like Cisco and Intel (INTC:Nasdaq - news - commentary) are going to $20, there's just no chance. People don't even know what you do, they just know they can't have a P/E ratio like that.

But the direct answer is that it's easier to hire people. No doubt about it. The question is how fast you want to hire and how fast you want to grow your organization in the current economy.

TheStreet.com: Why is it easier? Hasn't the lure of options disappeared because of the stock market decline?

Tom Mendoza: If it only happened to your specific company, the challenge you have is explaining why it happened to you and not to other people. Then you'd be in a bad competitive position. When it happens to everybody, the person getting hired is much more concerned with whether this company is in a market that's significant and has staying power. For a while, people thought, "Well, I can go anywhere and become a millionaire in a couple of years." And so companies that were more stable were often competing with unrealistic expectations. If I can go across the street and become a millionaire in a year -- well, I should probably do it, right? Now start-ups are on the other end of this conversation because they have to convince people they really can stay around.

TheStreet.com: Thanks for talking with us today, Tom.