HP Versus Dell: The Loser Will Be Left on the Outside of the Cloud Storage Story Looking In

The bidding war for 3PAR between Dell and HP continued yesterday with 3PAR first announcing that it had reached an agreement to be purchased by Dell for $24.30 a share and then, before the end of the day, HP countered with a $27 per share price offering. This back and forth has captured the attention of many of those who follow storage and even those who do not. But what is puzzling to many is, “What is so interesting about 3PAR that it is prompting Dell and HP to fight over it?”

Being an analyst that has provided extensive coverage of 3PAR and knows its storage systems inside and out as well as the storage systems of many of its nearest competitors – I am uniquely positioned to answer that question.The answer to it is two-fold.

First, much like EMC and NetApp got into a bidding war over Data Domain a little over a year ago, Dell and HP find themselves in a predicament similar to what EMC and NetApp found themselves in at that time.

In 2009 deduplication in the backup process was the HOT technology. NetApp offered deduplication as a feature on its FAS line of storage but it was not necessarily tuned for deduplicating backup data. EMC was even in worse shape because while it resold some deduplication technology, it had no native offering.
So with Data Domain the largest player in this rapidly growing market, neither NetApp nor EMC wanted to be on the outside looking in which resulted in the ensuing bidding war between these two companies for Data Domain with EMC eventually emerging the victor. Since then sales of Data Domain products and its deduplication technology have exploded within EMC making its acquisition of Data Domain seem like a steal.

The same situation is largely playing out here. Both Dell and HP know enterprise companies are going to adopt cloud storage models but both are stuck in situations where they resell enterprise storage products from EMC and HDS respectively. So with this market poised to explode (and it is going to explode!), they are also left on the outside looking in and, worse yet, only being in a position to resell their competitors products – not an enviable situation.

So when they look for a large independent provider of enterprise cloud storage, there are really only two companies out there: 3PAR and NetApp. Of the two, 3PAR is much more affordable and even while HP’s current bid for 3PAR is now approaching $2 billion, it gets them into the enterprise cloud storage market at a fraction of the price that they would have to pay to obtain NetApp which would probably be well in excess of $15 billion.

Second, every enterprise organization is looking to run their data centers more economically and efficiently which means heavy doses of virtualization. While all storage systems by their very nature virtualize storage, 3PAR currently does it better than anyone else with its thin provisioning and distributed RAID technologies.

Further, 3PAR can almost be said to own those who are at the leading edge of the enterprise cloud storage market – Managed Service Providers (MSPs). Every MSP that I have even spoken to is either using 3PAR or is looking to migrate to it. Such a high level of adoption of 3PAR’s enterprise cloud storage solution by this group of players foreshadows what is bound to occur in enterprise organizations in the very near future.

So are Dell and HP paying a premium to get 3PAR? The answer is clearly yes. But when one looks at where the enterprise cloud storage market is going and considers that 3PAR is already an established player in a market where every storage provider is going to want to be, the loser is going to be on the outside looking in and needing to make a deal very quickly to compete.

Unfortunately for the loser, there are not a great deal of storage companies left for them from which to choose that can provide the cloud storage story that it will so desperately need to remain competitive. But there are three other storage providers aside from NetApp that I see quickly moving into the loser’s cross hairs:

The answer as to which one of these three that may ultimately get acquired is PIllar which may come as surprise to some people. As to the reasons why, that I will get into in a week or two once this bidding war for 3PAR subsides.

Note: Since this blog entry posted, Dell has since upped its offer to match HP’s offer of $27 per share for the takeover of 3PAR. Updated 8/27/2010 – 8:10 am CST.

Note: HP has now upped its bid for 3PAR to $30 per share. It appears 3PAR is a company that neither Dell nor HP can afford to NOT to own. Updated 8/27/2010 – 10:50 am CST.

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