Independence Day on July 4th in the United States is only a few days away but as it approaches storage companies are cautiously celebrating their independence. As they do they are either looking to survive or aggressively looking to be acquired to avoid becoming a footnote in the annals of history with Pillar Data Systems becoming the latest storage company to join the ranks of the acquired that now pledges its allegiance to a new master.
One only needs to look over the last few years to get some sense as to how many storage companies have been acquired:
- 3PAR (HP)
- Compellent (Dell)
- Data Domain (EMC)
- Diligent Technologies (IBM)
- EqualLogic (Dell)
- ExaNet Systems (Dell)
- Isilon (EMC)
- LeftHand Networks (HP)
- LSI Engenio (NetApp)
- Pillar (Oracle)
- Ocarina (Dell)
- Sun StorageTek (Oracle)
This is not to say that the storage technologies that these companies developed are gone. If anything, the technologies originally associated with them are doing just fine with the possible exception of Sun StorageTek. Further, there are plenty of independent storage companies still in existence in addition to EMC, HDS and NetApp which include:
- Aberdeen
- Celeros
- IceWEB
- Nexsan
- Nimbus Data Systems
- Nirvanix
- Quantum
- Xiotech
But to say that the majority of these companies are going to become the “Next Big Thing” is probably a stretch. While there may be one or two on that list that may achieve a level of success that parallels EMC, HDS or NetApp, the best the rest of them can hope for is to simply survive.
The outlook for the ones that “survive” is certainly not doom and gloom. There will always be companies out there looking for viable storage companies that offer alternative solutions that are both economical and reliable.
But this is only a formula for staying in business, not one for explosive growth or acquisition. One only has to look at Oracle’s acquisition of Pillar that it made for 100% earn-out with no upfront payment which, at the end of the day, Pillar was probably lucky to get.
The major technology players (Dell, EMC, HDS, HP, IBM, and NetApp) already possess SAN storage solutions that are comparable to Pillar. So while the Pillar Axiom consistently scored very well in DCIG Buyer’s Guides, the absence of available suitors and the low probability of Pillar experiencing explosive growth at this late stage of the storage game for the type of technology that Pillar offered suggested that this was as good an offer as Pillar was going to get.
The upside for Pillar is that if Oracle properly manages the intellectual property that it gets with Pillar, it could be a boon for both Oracle and Pillar. It certainly helped the other companies (3PAR, Compellent, Data Domain, etc) listed above when their technology was acquired and then resold by their new masters..
If it does succeed, it will require a change of heart on Oracle’s part as to date Oracle has had a poor track record of executing on its storage acquisitions. So it remains to be seen if this acquisition of Pillar will turn around Oracle’s storage fortunes or end up being yet another failed venture in storage by Oracle.
The real question is where do all of these storage acquisitions leave the big independent storage providers: EMC, NetApp and maybe HDS? While they are publicly claiming the future looks brighter than ever as all of their competitors have been scooped up (either by themselves or “server companies” like Dell or HP) their confidence may be misguided.
The quality and breadth of their storage offerings are certainly on par and, in a number of cases, arguably above what Dell, HP, IBM and Oracle have to offer. But the gap between these traditional “application” and “server” companies is no longer as great as it once was. While I discussed this in greater detail in a blog entry I wrote a few weeks ago, it may force these companies to abandon their “all storage” philosophy and come to market with a more holistic offering.
Already we are beginning to see this happen at some level with alliances like “VCE” (VMware – Cisco – EMC) and NetApp re-selling its technology through Fujitsu and IBM. But can these alliances stay in place long term or will companies like Cisco finally be forced to pull the trigger and buy EMC or IBM and/or Fujitsu have to buy NetApp not because they want to. Rather they will find themselves in the same positions that Dell and HP found themselves in. They have to acquire them in order to capture all of the margin they are currently giving up to EMC and NetApp respectively because they have to resell their products.
Currently both EMC and NetApp want huge premiums for their respective companies but they may have to back off as the months and years pass. As companies virtualize their environments, the underlying hardware (server, network and storage) may command less of a premium.
Instead companies will place a greater premium on integrated end-to-end virtualized infrastructures that enables them to move their applications wherever they want when they want. As this transition unfolds, this would seem to put companies like Dell, HP and to a lesser degree IBM in the driver’s seat assuming they execute on their storage strategies.
So as July 4th approaches and the United States celebrates its independence, celebrations for independent companies in the storage industry are a bit more subdued. Virtualization is taking over in customer accounts of every size which puts a greater emphasis on the features that enterprise storage systems have to offer than ever before. But with more major vendors providing “end-to-end” solutions optimized for virtualized environments, the argument for selecting an independent storage provider has to be more articulate and justifiable than ever before.