Bravo to NetApp for acquiring Data Domain. For too long, NetApp has been downright timid in the M&A department, all the while being run around in circles by rival EMC. But with this deal, the battle for storage leadership is heating up once again. Not only does it give NetApp access to a winning product line in a growth area of the storage market, but it signals the company might be taking a new approach to its acquisition strategy, one that could make them more competitive with EMC.
Data Domain helped launch the de-duplication industry, a critical segment of the storage market for retaining long-term data. By “de-duplicating” corporate data, particularly those terabytes destined for backup, Data Domain provided compression ratios that made its disk-based product a compelling choice over tape. It also made the integration model simple: Connect to your backup server where you used to have your tape library. Boom. Value delivered.
By helping to launch the de-duplication industry, Data Domain sparked an industry-wide effort to deliver efficiency, prompting every major vendor, including NetApp, to embark on a build, buy or partner strategy. NetApp chose to launch their own de-duplication product a couple of years ago which, as evidenced by this acquisition, was not as successful as the company had hoped. And as the decline in its fiscal fourth-quarter earnings made clear, it wasn’t the only area of the company that’s been struggling. But NetApp’s bold acquisition in the midst of a general business slowdown could finally turn things around.
For context, we need a quick historical detour. Back in November of 2003, NetApp announced the acquisition of Spinnaker Networks for $300 million, a move aimed at getting a jumpstart in the clustered storage market. Five weeks later, EMC announced the acquisition of VMware.
Fast-forward to today. NetApp is planning to unveil the merged NetApp and Spinnaker operating system this year. Meanwhile, EMC has made more than 30 acquisitions, indicating a no-holds barred expansion into software, little hesitation about product overlap, and a desire to move up the infrastructure and application stacks.
From an acquisition perspective, NetApp has largely stood still, until his week making just four buys, none anywhere near the cost or potential of Data Domain. In general, NetApp pursued a strategy of ONTAP (their storage operating system) across all of its product lines, leaving little room to acquire alternate storage systems. Merging the Spinnaker functionality into ONTAP, instead of keeping it as a standalone product, is the best evidence of that. There is a lot of will behind a 6-year integration effort.
EMC, on the other hand, maintains multiple products and operating systems across the board, seemingly content to bolster the portfolio and let the sales teams determine market traction.
But Data Domain is not based on ONTAP. It is a new, different, and innovative approach to de-duplication that has led the company to a category-dominating position. NetApp “plans to continue to execute on the Data Domain product development direction to address the scope and scale requirements of large data centers and enterprises.” It will reveal further details after the acquisition closes.
With an eye to having a strong No. 2 in the storage market, I hope that NetApp refrains from putting the Data Domain product through a lengthy integration effort. Their combined forced signal a tangible challenge to EMC, validation that both NetApp and EMC will have to look beyond existing products to succeed in new markets, and that NetApp is getting its game back.