The last time I blogged on the Data Domain play, the title was:
“NetApp buys Data Domain” (5/20/2009)
So much for that. Here’s the 7/09/2009 update:
Assuming no other suitor shows up at the altar, it looks like EMC has bought the Data Domain bride.
I have to wonder though – what does EMC get? One should be careful what they wish for. As some have said privately or publicly, is Data Domain really worth $33.50 a share?
Let’s step back for a moment.
Data Domain’s beauty comes from deduplication technology and of course, its broad customer set. The hardware that the dedup algorithms run on is not particularly unique, but does offer a means to generate profit margins. And, no doubt the service contracts are lucrative.
A few years ago, the ability to perform dedup duties was important as the technology emerged from obscurity. But now – my gosh – dedup is near commodity status. In fact, vendors are starting to consider pricing dedup as a commodity; look at what Acronis is doing with their dedup pricing. Yes, they are small, but their dedup per unit pricing is a harbinger of the future.
The dedup game has moved past who has the best dedup ratio to who can scale and best fit into large and complex topologies. Topologies encountered in datacenters and across remote offices. My bet is that dedup becomes a feature, expected as part of any storage infrastructure. Look at the message that Symantec is espousing – dedup everywhere. Everywhere means commodity. Dedup becomes a feature not a product. In fact, look around the backup and archive product offerings in the enterprise/SMB market. It’s hard to find a product that does not include dedup.
So I wonder what EMC sees in Data Domain?
No doubt it’s the customer base. That’s no small thing. Getting the proverbial EMC (and their partner DELL) foot in the door for every account is a big positive. For where there is a need for dedup, there is also a bucket full of primary data needing its own equipment with a dependency on dedup for backup space efficiency. In a conspiratorial way, EMC also keeps Data Domain out of NetApp’s hands.
But EMC already has dedup’ing equipment. With the Data Domain acquisition, confusion will reign across the rest of the EMC dedup’ing products. What happens to the EMC/Quantum based dedup products? I guess they get put on an end-of-life cycle. Take note: dedup algorithms are not interoperable. Now EMC has a cacophony of dedup engines (Quantum’s, Avamar’s, and Data Domain) to mash together. Good luck with that.
Challenging hardware implementations, is a growing trend to move dedup capability into the software and thus divorcing it from the hardware. Just listen to Symantec and Commvault. They will be happy to fill you in. To meet this threat, Data Domain must separate the dedup engine from dependence on the hardware, but that kills the hardware revenue stream.
So in the end I’m confused by EMC’s move.
Just what is this new relationship about? Why is it worth so much? Data Domain employees and stock owners get a nice dowry but does EMC gets its money’s worth long term? The long-term prospects for profits from Data Domain dedup technology are, to be polite, murky. Short term, EMC can capture some net market share but marriages should be about the long haul.
Maybe NetApp is the lucky one.
They could conceivable pickup Quantum and its dedup technology for pocket change compared to the Data Domain deal. They won’t get Data Domain’s global customer base but they also don’t need to dilute their company’s value either. In any case, NetApp is certainly free to find a new suitor or suitee; but that’s a different story….
Posted by Gene Ruth