EMC’s Emergence as a PBBA Juggernaut Turns Out to be a Best Case Scenario for ExaGrid

A little over two (2) years ago I did an interview with ExaGrid System’s CEO Bill Andrews about the same time that EMC and NetApp were engaged in a bidding war over Data Domain. In that interview Andrews expressed concern about EMC winning the battle for Data Domain and how that might negatively impact ExaGrid. But as EMC and ExaGrid both respectively announced overwhelmingly positive numbers this week, it turns out that EMC’s acquisition of Data Domain has served both companies well.

It’s funny how quickly we forget but only two and a half years ago the battle between NetApp and EMC raged as they engaged in a bidding war over Data Domain.  At the time it was a good time to be an analyst as commenting on the situation inevitably sparked controversy while the bidding war made for interesting reading as an end-user.

However Data Domain’s competitors were feeling less than festive about Data Domain’s pending acquisition. FalconStor and Quantum were almost completely silent as the bidding war raged for logical reasons. EMC was the primary OEM of their respective products and acquiring Data Domain was bound to (and eventually did) signal the end of the line for their respective products within EMC. Others like ExaGrid Systems were carefully monitoring the situation and weighing the impact that Data Domain’s acquisition by either EMC or NetApp would have on it.

Now nearly two and half years later, it turns out that EMC’s acquisition of Data Domain may have been the best thing to have happened to Data Domain or ExaGrid.  As I covered in my blog entry yesterday, it certainly has helped to catapult EMC to the top of the PBBA heap.

EMC announced yesterday that IDC significantly upped its revenue forecast for purpose built backup appliances (PBBAs) for the period of 2010 – 2015. More notably, EMC now has more than 3x the market share of its nearest competitor, IBM.

It is also DCIG’s opinion that EMC is currently better positioned than any other storage vendor to maintain and even expand its lead in the years to come. Having a duplication offering (Data Domain) and two backup solutions (Avamar and NetWorker) serve to give EMC a compelling story as it goes to explain to enterprises how they can leverage EMC to re-architect their backup infrastructure.

Further, with the continuing integration and testing that EMC is doing between these products coupled with the end-to-end support it can provide, in retrospect it is no surprise that EMC has so quickly emerged as a PBBA juggernaut. No other provider really has the same story as EMC.

Couple that with EMC’s almost fanatical dedication to sales and support (at least in the accounts in which I have been a customer and confirmed by others who I have talked with) and it is easy to understand why EMC is having the success it has in enterprises and why I only see EMC maintaining and even extending its market share in PBBAs going forward.

But EMC’s acquisition of Data Domain and its subsequent focus on the enterprise has not hurt all of its competitors. Earlier this week, ExaGrid announced record Q4 and full year 2011 sales results. In light of the fact that Data Domain and ExaGrid frequently go head-to-head in customer accounts by ExaGrid’s own admission, the question surfaces, “How can both be doing so well and experiencing growing sales when they so frequently compete against one another?

Three reasons exist.

First, backup to disk is still largely a green field opportunity. While many companies have already adopted disk as a backup target and started their backup re-architecture efforts, an equally large number have not. As such, they are adopting it for the first time and, as is the case in green field opportunities, the first one to answer the call gets the sale. Further, as companies adopt disk, they tend to start small and add more capacity as they grow so it is not surprising PBBA sales are growing at the pace they are.

Second, it is a big and growing market.
At the time I interviewed ExaGrid’s Bill Andrews in 2009, he saw deduplication as a $20 billion mid-market opportunity over the next 6 – 7 years. This aligns very closely with the upwardly revised IDC numbers that EMC announced yesterday as IDC forecast total PBBA revenue to be in the $18 billion range from 2010 – 2015.

Further, based upon IDC’s forecast, PBBA revenue is poised to almost double again between now and 2015 from $2.8 billion in 2011 to nearly $5.3 billion in 2015. Even then, I think IDC’s revenue estimate may still be too conservative.

HP, Dell and Symantec are big players in the storage space and are still in the process of ramping up their offering in the PBBA space while other providers like HDS may yet step up to their plate with their own PBBA offering. So it is conceivable and I would argue likely that IDC may have to yet again upwardly revise its PBBA revenue estimates at some point in the future.

Third, EMC and ExaGrid increasingly compete in different segments of the market.
  Yes, Data Domain and ExaGrid offer products that clearly compete head-to-head. But as Andrews said in his interview with me a couple of years ago (and I paraphrase), “ExaGrid remains almost exclusively focused on the mid-market while ExaGrid is detecting that Data Domain is shifting up-market in its sales efforts.”

What has happened in the time since EMC acquired Data Domain bears that out almost exactly. While EMC with its Avamar and Data Domain lines have certainly not abandoned the mid-market, IDC’s numbers seem to bear out that EMC is heavily focusing on the enterprise market and doing very well at it. Conversely, based upon DCIG’s own 2011 Midrange Deduplication Appliance Buyer’s Guide and the high rankings all of ExaGrid’s products had in it, it would support Andrew’s claim that ExaGrid has remained almost exclusively focused on the midmarket.

So with PBBAs being a green field opportunity, this a growing market and the two companies overlapping but having a very different focus in their sales efforts, it should come as no shock that both of these companies are surviving and thriving in the PBBA market.  Further, there is every reason to believe both are positioned to do very well in the years to come.

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