It's official - EMC's bid of $2.1 billion beat out NetApp... but don't count out NetApp just yet.
EMC paid a large premium for a narrow segment of the storage market - Data Domain's annual sales is around $300 million. Even if Data Domain sales double in the next two years, it will be awhile before the profits of those sales offset the cost. In the end, EMC will make it work.
But what about everyone else? Here is my short list of winners and losers in the Data Domain battle:
- NetApp - WINNER - $2.1 billion was too much for NetApp but there is value in NetApp acquiring another dedupe vendor. W. Curtis Preston suggested Exagrid and Sepaton could be had for a fraction of Data Domain.
- Cisco - LOSER - Now that EMC is a bit bloated with their new prize, EMC got a whole lot more expensive to buy if they were on Cisco's radar.
- IBM - WINNER - The possibility of IBM acquiring NetApp is suddenly more appealing... and they don't need a dedupe product.
- Quantum - LOSER - No matter what EMC says, there is no way they are going to be able to sell two different target dedupe products. Always a possibility for NetApp to acquire since they share some of the IP Data Domain uses... but who wants to buy a tape company these days?
- FalconStor - TBD - Will EMC continue to use FalconStor's VTL? They don't have to, but it's much more elegant for the enterprise customer than Data Domain alone.
- HDS - LOSER - First they lost their partnership with Diligent when they were bought by IBM, now they will probably lose Data Domain. Of the big vendors, HDS has been the worst at articulating a consistent dedupe strategy so they will continue to play musical chairs - and customers will end up buying some other product.
- HP - TBD - HP needs to commit to a dedupe solution by buying Sepaton (which is their 'go to' solution right now) or move on to something else.
- Sepaton - WINNER - They are now the hot dedupe product if there's a buyer
- Exagrid - WINNER - If SMB dedupe is interesting, then they are it. Otherwise, they will continue to be a sleeper and possibly losing deals to backup software vendors that already do dedupe (like CommVault and CA)
- CommVault- TBD - They have been over-hyping their dedupe capabilities by likening themselves to Data Domain. Dell and NetApp might be intrigued, but they could do better by shopping elsewhere. Does anybody really want to buy a backup software company these days? Is the market for backup software really growing enough to make a difference?
OK... there's my short list... did I miss anyone?
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written by joseph martins, July 09, 2009
NetApp - WINNER - $2.1 billion was too much for NetApp but there is value in NetApp acquiring another dedupe vendor.
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What, precisely, is the value in NetApp acquiring a dedupe vendor? What leads you to believe such an acquisition will have any impact at all on NetApp's bottom line, or on shareholder value that cannot otherwise be achieved by merely OEMing the technology? NetApp needs to focus on its core and put the $1.9b in nearly flushed down DD's toilet to better use. Given the current trend in overvaluation, NetApp makes a better prey than predator.
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Cisco - LOSER - Now that EMC is a bit bloated with their new prize, EMC got a whole lot more expensive to buy if they were on Cisco's radar.
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At least some homeowners and vehicle owners understand that they won't always recover their original investment in the resale of their property. Irrational owners tend to overvalue their property and rational buyers tend to undervalue it. The $64k question is, will EMC's valuation get a bump from its DD acquisition and how will the bump compare with its $2.1b investment?
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Assuming for a moment that the days of bogus Goldman valuations are behind us, the needle shouldn't move far...certainly not up by $2.1b. If EMC gets "a whole lot more expensive to buy" it will not be due to a single acquisition, but rather its integration of a number of complementary acquisitions. In that context, Cisco isn't a loser, but a winner. The total amount of time and investment EMC will have put into its portfolio and accounts may actually be higher than it's valuation. Time will tell. High or low valuation, an EMC acquisition would push Cisco to the head of the class.
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HP needs to commit to a dedupe solution by buying Sepaton
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Why? What is the logic behind it? Does HP really need to commit? Does anyone? Of course not. There is really no good reason why dedupe technology must be acquired when an OEM arrangement is fine. And those who do acquire such technology (ahem, EMC) would be wise to continue to license it to recover some of their massive over-investment..
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And, if we're going to talk about commitment, companies such as IBM and EMC are practicing polygamists are they not?
In my opinion, you've read way too much into the significance of the DataDomain acquisition. It's simply not that important.
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written by Alex Sons, July 09, 2009
I did some more research and it seems EMC is paying in dollars for DD, not in shares.
Although anyone can argue that Data Domain has a lot more customers and marketshare than Diligent had at the time IBM bought it, the future value of a dedupe solution for either firm seems to me more or less comparable. I can't help thinking IBM had the better deal here.
Future will tell if EMC's shares will go up or down, and analysts will tell us if either one is due to the DD acquisition...
Although anyone can argue that Data Domain has a lot more customers and marketshare than Diligent had at the time IBM bought it, the future value of a dedupe solution for either firm seems to me more or less comparable. I can't help thinking IBM had the better deal here.
Future will tell if EMC's shares will go up or down, and analysts will tell us if either one is due to the DD acquisition...
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written by Jan Polking, July 09, 2009
Joe:
A coupke of points...
Either you believe that deduplication is a significant growth market for storage companies or you don't. If you don't, then the rest of this doesn't matter. If you do, then you should consider the costs of OEM'ing vs. owning the technology. Look at HDS - no strategy except for OEM and they are getting their butts handed to them. Look at EMC which OEM's Quantum.... clearly they do not think that the OEM path was the right one.
As far as HP goes... what happens to their dedupe business if Sepaton gets bought by NetApp? All of a sudden they are playing the same game as HDS.
But... if you look at what IBM and EMC have done by buying the technology, you have to guess that the rest of the industry is looking to do the same thing. You can pretend that OEM is enough, but that is not how the industry is reacting.
A coupke of points...
Either you believe that deduplication is a significant growth market for storage companies or you don't. If you don't, then the rest of this doesn't matter. If you do, then you should consider the costs of OEM'ing vs. owning the technology. Look at HDS - no strategy except for OEM and they are getting their butts handed to them. Look at EMC which OEM's Quantum.... clearly they do not think that the OEM path was the right one.
As far as HP goes... what happens to their dedupe business if Sepaton gets bought by NetApp? All of a sudden they are playing the same game as HDS.
But... if you look at what IBM and EMC have done by buying the technology, you have to guess that the rest of the industry is looking to do the same thing. You can pretend that OEM is enough, but that is not how the industry is reacting.
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written by Chris Fricke, July 09, 2009
EMC wins Data Domain... and the loser is... Data Domain customers. Maybe that's unfair but I wouldn't be surprised if DD products suddenly go up in price once the EMC stickers go on. Of course I haven't heard... maybe EMC is planning to leave them relatively intact?
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written by joseph martins, July 09, 2009
I don't believe dedupe is a significant growth market unto itself. It's simply a single cog in the IT machine, a line item on an RFP.
It's a causal fallacy to suggest that HDS's performance is a result of its decision to OEM. In my opinion, HDS is hurting because it [consistently] fails to correctly identify its value proposition and effectively delivered on that value. One part of that challenge is forging the right relationships.
Similarly, can we be sure that EMC's pursuit of Data Domain is result of dissatisfaction with their decision to OEM? I'm confident that you cannot credibly support that claim any more than I can support the notion that EMC pursued DD to put NetApp in its place. As I have written in other forums, if EMC is wise it'll encourage competition and innovation among its dedupe assets and OEMs (not drop Quantum as some have implied). Customers deserve some flexibility in choosing the technology which is right for them.
I pretend nothing. OEM is enough for most.
The reaction of the industry is hardly surprising. I'm sure many executives dream about building the next IBM. Eventually they go on to write books about why they failed - Amazon is littered with examples. Perhaps more executives should strive to build the best companies they can, and recognize that the best isn't always the biggest.
It's a causal fallacy to suggest that HDS's performance is a result of its decision to OEM. In my opinion, HDS is hurting because it [consistently] fails to correctly identify its value proposition and effectively delivered on that value. One part of that challenge is forging the right relationships.
Similarly, can we be sure that EMC's pursuit of Data Domain is result of dissatisfaction with their decision to OEM? I'm confident that you cannot credibly support that claim any more than I can support the notion that EMC pursued DD to put NetApp in its place. As I have written in other forums, if EMC is wise it'll encourage competition and innovation among its dedupe assets and OEMs (not drop Quantum as some have implied). Customers deserve some flexibility in choosing the technology which is right for them.
I pretend nothing. OEM is enough for most.
The reaction of the industry is hardly surprising. I'm sure many executives dream about building the next IBM. Eventually they go on to write books about why they failed - Amazon is littered with examples. Perhaps more executives should strive to build the best companies they can, and recognize that the best isn't always the biggest.
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written by Chris Fricke, July 09, 2009
Dedupe probably shouldn't be its own market at all. It won't be for long but it is right now because there are still dedupe companies building dedupe products. And while I do believe the use of dedupe in its various forms will continue to see major growth, I don't think it will be an independent growth market any more than thin provisioning or replication is. As the dedupe independents are bought up or die, the function of deduplication becomes a feature - or a layer - of a single vendor storage solution. The process is already well on its way to completion.
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written by joseph martins, July 09, 2009
I should clarify that I agree with Chris (the use of dedupe will certainly continue to grow rapidly), but I simply don't believe it'll contribute much to the bottom line of vendors (who offer it) - especially as users come to expect dedupe to be included at no additional (or minimal) cost.
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written by Jan Polking, July 09, 2009
I think the difference of our opinions rests on "what should be" versus "what is". I agree with you and Chris in principle, the reality among the big vendors, however, is that dedupe is where the growth is. There was more to EMC buying DD than just making sure NetApp didn't have them... $2.1 BILLION is an insane amount of money to stick it to the competition.
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written by Geoff Champion, July 10, 2009
With $19B in cash I dont think this will be a millstone round EMC's neck at all.
Quite the opposite $2B + working in their favour rather than sitting doing very little.
Dedup is going to be big, not huge but big.
Most customers are looking for smaller footprints for all their data and this is one way to do that.
Also tape backups are so clumsy and need so much human intervention. Again Dedup will help here as well.
EMC now have Dedup at source and Dedup at target. Who else can offer that?
A very good aqusition in my books.
Quite the opposite $2B + working in their favour rather than sitting doing very little.
Dedup is going to be big, not huge but big.
Most customers are looking for smaller footprints for all their data and this is one way to do that.
Also tape backups are so clumsy and need so much human intervention. Again Dedup will help here as well.
EMC now have Dedup at source and Dedup at target. Who else can offer that?
A very good aqusition in my books.
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written by joseph martins, July 10, 2009
I agree that EMC didn't invest over $2.1b just to stick it to NetApp.. My earlier comment was a bit of sarcasm about unsupportable claims.
The vendors may believe dedupe is where the growth is, but in cases where dedupe is an embedded feature of their products (as opposed to standalone) they'll be hard-pressed to quantify dedupe's contribution to their bottom line - especially if they find themselves eventually unable to price it separately. Short term, EMC may see a bump in revenue from DD appliances, but I suspect that'll gradually give way to DD IP embedded in its other products.
It'll be interesting to see how it plays out. I wonder if we'll see the emergence of free "entry level" dedupe, and a more efficient, tunable premium version.
IMO, it's not all that different from what happened to entry-level RAID in the 90s. Whereas I used to buy low-end (but still expensive) RAID cards for my home-built servers in the early-to-mid 90s, by the late 90s I could buy motherboards with "adequate" embedded RAID for about the same price as boards without it. RAID, as a cost to me, disappeared.
The vendors may believe dedupe is where the growth is, but in cases where dedupe is an embedded feature of their products (as opposed to standalone) they'll be hard-pressed to quantify dedupe's contribution to their bottom line - especially if they find themselves eventually unable to price it separately. Short term, EMC may see a bump in revenue from DD appliances, but I suspect that'll gradually give way to DD IP embedded in its other products.
It'll be interesting to see how it plays out. I wonder if we'll see the emergence of free "entry level" dedupe, and a more efficient, tunable premium version.
IMO, it's not all that different from what happened to entry-level RAID in the 90s. Whereas I used to buy low-end (but still expensive) RAID cards for my home-built servers in the early-to-mid 90s, by the late 90s I could buy motherboards with "adequate" embedded RAID for about the same price as boards without it. RAID, as a cost to me, disappeared.
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written by Geoff Champion, July 10, 2009
I agree joseph, EMC did not pay $2.1B to stick it to NetApp.
$1.8B was a fair price for DD.
So sticking to NetApp only cost $300 million.
No sarcasm here at all.
$1.8B was a fair price for DD.
So sticking to NetApp only cost $300 million.
No sarcasm here at all.
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written by joseph martins, July 10, 2009
Zod,
$1.8B was a fair price? By what measure? Frankly, I thought $1.6b was too much.
$1.8B was a fair price? By what measure? Frankly, I thought $1.6b was too much.
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written by Jan Polking, July 10, 2009
Zod: I'd be curious to know why you think $1.8 billion was a fair price?
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written by Geoff Champion, July 17, 2009
A number of reasons.
Now EMC have DeDupe solutions at source and target.
DeDupe as a service rather than a product will enhance EMC customer offerings.
As DeDupe takes hold customers will be removing tape storage in favour of disk, EMC will get a good share of this market.
NetApp is a competitor and EMC have has strengthened their position in this market space by ensuring one of the better DeDupe solutions is theirs and not a competitors.
This adds to EMC's customer offerings they can now offer just about any software and service that is storage related period.
No other storage vendor can offer as much.
Customers want to make their storgage efficient and cost effective again this adds to EMC's wide and deep portfolio of product and service offerings.
EMC now have more IP and patents and have got a few more of the best software engineers in the business, if they can keep them.
I think the biggest issue with the way people look at this and any other acquisitions is they focus on the here and now and the bottom line, although price is important. We need to look further down the road how will any acquisition help strengthen a company in the future. Over the past few years and especially the last year or so EMC have maintened much of the market share kept customers and actually grown when other competitors have struggled. The main reason for this is their strengths in all areas of the storage market not just disk. They offer end to end solutions for any storage solution you care to mention. This is mainly down to acquisitions and the strength that this brings to a business. EMC are very lucky in the fact that at the top they have Tucci with his vision but also the experience to go after another business get it and intigrate into their own. That comes from around 40 acquisitions or so since 2000. Also you have to go for the right acquisition that fits what you want to be offering to customers next year, the year after and the year after that, again you can thank Tucci for that.
One last point, this size acquisition makes EMC that much bigger and less likely to be acquired themselves.
OK so they may well have paid over the odds but I am sure that they think it is worth it to beat NetApp to finish line.
I look forward to the next acquisition.
Now EMC have DeDupe solutions at source and target.
DeDupe as a service rather than a product will enhance EMC customer offerings.
As DeDupe takes hold customers will be removing tape storage in favour of disk, EMC will get a good share of this market.
NetApp is a competitor and EMC have has strengthened their position in this market space by ensuring one of the better DeDupe solutions is theirs and not a competitors.
This adds to EMC's customer offerings they can now offer just about any software and service that is storage related period.
No other storage vendor can offer as much.
Customers want to make their storgage efficient and cost effective again this adds to EMC's wide and deep portfolio of product and service offerings.
EMC now have more IP and patents and have got a few more of the best software engineers in the business, if they can keep them.
I think the biggest issue with the way people look at this and any other acquisitions is they focus on the here and now and the bottom line, although price is important. We need to look further down the road how will any acquisition help strengthen a company in the future. Over the past few years and especially the last year or so EMC have maintened much of the market share kept customers and actually grown when other competitors have struggled. The main reason for this is their strengths in all areas of the storage market not just disk. They offer end to end solutions for any storage solution you care to mention. This is mainly down to acquisitions and the strength that this brings to a business. EMC are very lucky in the fact that at the top they have Tucci with his vision but also the experience to go after another business get it and intigrate into their own. That comes from around 40 acquisitions or so since 2000. Also you have to go for the right acquisition that fits what you want to be offering to customers next year, the year after and the year after that, again you can thank Tucci for that.
One last point, this size acquisition makes EMC that much bigger and less likely to be acquired themselves.
OK so they may well have paid over the odds but I am sure that they think it is worth it to beat NetApp to finish line.
I look forward to the next acquisition.
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written by John Martin, July 21, 2009
Well straight off the bat I'd say
1. Puredisk - certainly dedup at the source, and as far as I know they have some kind of deduping backup to disk target for NetBackup
2. NetApp - Snapvault/OSSV is more "non dup" than dedup, but you still get most of the benefits of reduced I/O and transfers, plus FAS dedup at the target, plus they (or we, I'm from NetApp), have deduplication on their (our) current VTL offering.
3. TSM - similar kind of "non dup" for a lot of their backups, plus dedup at the back end
4. CommVault - I think they've got something similar too.
Given that it's not such a differentiator, I cant figure out why EMC wanted DD so much, maybe they didnt, but couldnt be seen to lose once they started. I heard the Quantum product had a number of quality issues, but then again so did (does?) NetWorker, and that didnt/doesnt stop EMC from selling that product.
At 1.6Billion DD was a little pricey, but still made for good economics which is I guess in part, why NetApp made the offer in the first place, at 1.8B you'd have to make some assumptions about leveraging your existing field force to accelerate sales (which kind of goes against the "leave them alone" approach), at 2.1B, you'd have to assume that there will be some pretty serious pressure applied somewhere to make the numbers work out .If I was a DD rep/field guy, I'd be a little worried, and If I were working at EMC after they fired a bunch of people and then reduced everyone elses pay, I'd be a little peeved that they didnt spend some of that 2.1B on me.
1. Puredisk - certainly dedup at the source, and as far as I know they have some kind of deduping backup to disk target for NetBackup
2. NetApp - Snapvault/OSSV is more "non dup" than dedup, but you still get most of the benefits of reduced I/O and transfers, plus FAS dedup at the target, plus they (or we, I'm from NetApp), have deduplication on their (our) current VTL offering.
3. TSM - similar kind of "non dup" for a lot of their backups, plus dedup at the back end
4. CommVault - I think they've got something similar too.
Given that it's not such a differentiator, I cant figure out why EMC wanted DD so much, maybe they didnt, but couldnt be seen to lose once they started. I heard the Quantum product had a number of quality issues, but then again so did (does?) NetWorker, and that didnt/doesnt stop EMC from selling that product.
At 1.6Billion DD was a little pricey, but still made for good economics which is I guess in part, why NetApp made the offer in the first place, at 1.8B you'd have to make some assumptions about leveraging your existing field force to accelerate sales (which kind of goes against the "leave them alone" approach), at 2.1B, you'd have to assume that there will be some pretty serious pressure applied somewhere to make the numbers work out .If I was a DD rep/field guy, I'd be a little worried, and If I were working at EMC after they fired a bunch of people and then reduced everyone elses pay, I'd be a little peeved that they didnt spend some of that 2.1B on me.
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I think Data Domain is at its' top in market share today. Although the market itself will show growth in the years to come, the per TB licensing schemes will get under pressure as raw disk capacity becomes cheaper and cheaper. A stiff competition between major storage hardware and backup software vendors (EMC, HDS, IBM, NetApp, CA, CommVault, etc.) for dedup solutions will not help either.
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EMC itself also is at its' top in market share today. EMC doesn't need Data Domain to get into markets they would otherwise would have troubles to sell to. So no gains there, too.
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I think the real winners primarily are the Data Domain stock holders. They're getting much more for their investment than they otherwise could have expected.
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Currently it is not clear to me if EMC will buy Data Domain using a stock swap or paying with solid cash. When paying by a stock swap the biggest losers will be the current EMC stock holders. If EMC is paying in cash (likely using a bank or investors loan) this could become a millstone around EMC's neck of which the current EMC competitors could benefit greatly, and likely most of which IBM.