NetApp is stuck in the middle:
The basic strategic challenge for NetApp is that the company is ‘stuck in the middle’ between the mega-vendors driving consolidation and the challengers driving point innovation. Fundamentally, NetApp suffers from the fact that it is, for the most part, still a single product line with limited growth opportunity in its core market. Its attempt to penetrate the data center with its “unified storage” message has met only moderate success and its WAFL (wide area file layout) is actually limiting its growth in different segments. While goodwill / sentiment towards NetApp is still very positive among the customers and channel partners we spoke with, the company’s revenue from large enterprise accounts seems down about a quarter year over year. At the same time, the company may feel exposed to the downside from cloud computing, given that Facebook and Yahoo seem to have turned away from NetApp. Meanwhile, arch rival EMC has relied on more than a dozen acquisitions for access to innovation and a broader portfolio, and has aligned itself closely with Cisco. In essence, NetApp seems very exposed and needs to increase its relevance to customers for continued growth.

Acquiring Data Domain provides some growth for NetApp but does not solve strategic challenges:
Data Domain not only provides NetApp with industry-leading storage efficiency technology but also, and this is often overlooked, provides a back door into EMC accounts.
• NetApp management estimates that NetApp, which has a leading position in de-duplication for primary storage, will have only 6 percent customer overlap with Data Domain, which dominates de-duplication in backup settings.
• On the offensive, NetApp can leverage Data Domain as a way to penetrate new accounts where EMC or HDS may be entrenched in primary storage, with the eventual goal of cross-selling NetApp primary storage into those accounts.
• On the defensive, Data Domain products can be cross-sold into NetApp’s large enterprise customer base (60-70 percent of NetApp revenue) and to international markets (45 percent of NetApp revenue, but only 22 percent of Data Domain revenue). In particular, this should prop up NetApp sales into top enterprise accounts, which have been underperforming of late.

With a cash pile of only a fraction the size of EMC’s, and lacking a track record of successful M&A, it remains to be seen though how NetApp will fare longer term as a stand-alone entity in a consolidating industry. Perhaps it might be driven closer into the arms of its partner IBM who already OEMs NetApp solutions.