This morning’s news that NetApp has over-called EMC in what has become a bidding war for Data Domain is not a surprise: if you believe the projections cited by Joe Tucci yesterday, Data Domain’s expected 2010 revenue of $480M means that both NetApp and EMC could justify a higher acquisition price – and we’re likely to see a few more bidding rounds. However, the real question of interest in this war isn’t the eventual winning bid, but rather which will be the winning bidder. In short, which of the two is the more desirable for the storage industry, its reseller channels, and its customers?
As described by Jerome in his analysis yesterday, NetApp does not have a track record of success when it comes to acquisitions. Indeed, I agree with many of Jerome’s insights and I wonder if NetApp’s underlying motivation in acquiring Data Domain was more to take out an interesting competitor before they grow too big. I also have high respect for EMC and their track record of success with acquisitions, which they usually turn positive even if it takes them a while – as with Legato.
However, in one critical dimension I think that the NetApp acquisition of Data Domain would be better for everyone – except EMC – and that is in the channel. The big losers if EMC acquires Data Domain will be the channel resellers – and recall that Data Domain today sells 100% through the channel.
Despite whatever good intention EMC may have to try to hold onto the Data Domain channel as part of an acquisition, EMC has a history of alienating and killing channel relationships that come with their acquisitions – also like Legato. Rather than being a complementary addition to EMC’s business as suggested by Jerome, I fear that EMC would instead siphon off the real money, remove the effective sales support offered by Data Domain to their partners, and replace it with EMC style enterprise selling.
Dell is a potential winner in this, as they sell a huge amount of EMC storage into the mid-tier market. Dell’s relationship with resellers has also warmed perceptively over the last 18 months or so as Dell’s channel-focused efforts have started to pay off – at least for Dell.
But the reseller community currently doing business with Data Domain won’t thank EMC for the pleasure of having to work through Dell to get access to Data Domain (potentially), nor to get it from Arrow nor Avnet which are EMC’s big distributors to the channel in North America.
In contrast, NetApp is better suited to continuing the relationships with the Data Domain channel. As Warmenhoven is quoted as saying this morning, the company cultures of NetApp and Data Domain are also more closely aligned – I’ve often heard Data Domain employees describe themselves as building the “next NetApp” – not to mention the propinquity offered by being co-located in Silicon Valley.
However, I think that EMC will win this contest: EMC’s bid was not hastily considered, but something likely cooking in the background and brought out sooner than expected when NetApp beat them to the initial punch. When EMC wants something, they tend to get it.
What’s more, despite the likely negative impact to the channel, I also think that EMC would be the better acquisition for Data Domain’s technology and customers. EMC has a better track record of keeping acquired technology healthy and well-managed; just look at the series of acquisitions that include Legato, Documentum, RSA, VMware, and too many more to mention. EMC has demonstrated the capability to continue investments in individual product lines that they consider strategic, and to make sure that their customers are successful in using those technologies in the long-term. With EMC as the acquiring party, Data Domain is less likely to simply disappear from the industry.
So, I’m rooting for EMC to win in this battle. Data Domain deduplication solves backup problems for its customers, quickly and easily. This technology is too important for customers and for the industry as a whole, to risk losing it to poor management and execution inside NetApp. And, if NetApp does win, then at least the stakes are higher for them to perform well in terms of delivering accelerated revenue from the Data Domain product line after the acquisition – which is more likely to help keep Data Domain technology alive and well for the rest of us.