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Summary:

Dell agreed to acquire 3PAR for $1.15 billion for one simple reason: 3PAR is the only smaller independent company that competes at the high end of EMC’s product lineup, letting Dell join EMC, IBM, and Hitachi Data Systems at the high end of the storage market.

This morning, Dell agreed to acquire 3PAR for $1.15 billion for one simple reason: 3PAR is the only smaller independent company with a viable competitive offering to the higher end of EMC’s product lineup. The high end of the storage market has long been dominated by EMC, IBM, and Hitachi Data Systems. Dell just turned that trio into a quartet.

In October 2001, Dell and EMC inked a 5-year pact for Dell to resell EMC storage solutions. It was the height of the Fibre Channel market, and Dell needed a way to maintain account control across both servers and storage. The partnership appears to have worked well, as it extended far beyond the initial term.

However, Dell could not rest having such a large portion of its business controlled by a partner and potential competitor. In part because the original Dell and EMC deal was centered on Fibre Channel storage, Dell acquired EqualLogic, the independent market leader for iSCSI storage, in 2007 for $1.4 billion. Fibre Channel tends to dominate the higher end of the block-based storage market, while IP network based iSCSI products fit well in the small to mid-sized enterprise arena.

With the major technology players working fast and furiously to lock enterprise customers in a soup-to-nuts stack across servers, networking, and storage, Dell had little choice but to boost its portfolio in the high end of the storage market. And again, 3PAR is really the only smaller company with a product that can stand shoulder-to-shoulder with EMC, the traditional go-to player for high-end storage solutions.

There are other trends working in 3PAR’s favor, specifically virtualization. When VMware shaped the virtualization landscape, it made a decision to focus on block-based storage attachment. In this configuration, all the file system intelligence remains in the virtual host, hypervisor, and server layer, and not further down within the storage system. It was a match made in heaven for EMC. In many ways, virtualization is the new file system, as system architects decide on their hypervisor strategy first, then go from there.

3PAR has a unique product line that is both block-based and more scalable other available solutions. So even in the midst of an unstructured data explosion, the block-based players are enjoying a resurgence thanks to architectural decisions made by VMware.

Slowly but surely, Dell will wean its way off the EMC storage machine. Not immediately, but eventually. In the meantime, IBM will continue to sell storage solutions to those companies that buy into the 100 percent integrated IBM approach, and will also make use of its recent XIV acquisition. HP is perhaps the most exposed, still relying on Hitachi to provide the hardware and some software for its high end XP arrays. Supposedly HP was in the bidding for 3PAR as well, but likely could not move quickly enough with other short-term priorities on its plate.

With both enterprise and cloud providers moving toward virtualized computing environments in need of scalable block-based storage, stay tuned for the maneuvers of these big four players — EMC, IBM, Hitachi, and Dell– as they capitalize on opportunities to showcase their high end offerings, and for HP to figure out a way to maintain or improve its position.

Gary Orenstein is Host of The Cloud Computing Show

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  1. Wade O’Harrow Monday, August 16, 2010

    Nice post… This is like a stone getting thrown in a pond…. the really curious part is what do the ripples look like? Given that HP is now is a very exposed position, and the only other reasonably sized storage player is NetAp (which marries itself very nicely to a server vendor due to the architecture), does HP go after NetAp to shore up it’s base in the storage market? Or does HP risk getting left without a dance partner??? The next few months should be interesting. Major consolidation in the storage market is long overdue.

    1. Wade, Could be interesting. And they can afford it. But in my opinion, NetApp does not have the same kind of scalable block-based architecture that puts 3Par closest to EMC, IBM, and Hitachi Data Systems. This might be an interesting time to think about the next wave of block-based storage companies.

  2. What about ISLN?

    1. They focus on file systems access to storage, not block based access. They are a solid company and recent performance has been strong. But their product is in a different category from 3Par. 3Par gives Dell the ability to compete head to head with block-based offerings from EMC, Hitachi, and IBM. Isilon would be a good acquisition for someone to compete head to head with NetApp.

  3. A leadership change would be a start. But, what do you think the next technology revolution will be and who will lead the charge? Apple, Dell or Cisco – even all of these strong players need to make a change to survive.
    bit.ly/azFD0j

  4. And Now HP Wants 3PAR, Will Pay $1.6 Billion Monday, August 23, 2010

    [...] know there are many reasons — some outlined by Gary Orenstein in his post, The Simple Reasons Dell Bought 3PAR — to argue for a 3PAR purchase, but I’d like to point out a few things that make this [...]

  5. Why HP’s 3PAR Bid Makes Sense Tuesday, August 24, 2010

    [...] Just one week ago, Dell announced their intent to acquire 3PAR. (See The Simple Reason Dell Bought 3PAR.) Yesterday, HP showed that even elephants can dance and jumped into the fray with a $1.6 billion [...]

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