Confronting Consolidation

Unless you've had your head in the sand, you can't have missed the news about the acquisitions occurring in the storage industry over the past year or so.

Big-name acquisitions like Symantec/Veritas, Sun Microsystems/STK, and Quantum/ADIC have generated a lot of ink in the industry rags. But smaller firms too are being plucked off the vine by larger industry players, in many cases, before they are fully ripe.

In the latter case, early adopters of the technologies are finding themselves left in the proverbial lurch, and many are mightily disheartened.

Case in point: At a conference in Washington, D.C., hosted by CA a couple of weeks back, the Q&A period was dominated by a fellow from Verizon. Seems he was deeply troubled by the fact that several vendors, whose products his company had recently chosen for strategic storage solutions, had been snatched up by brand-name firms, ones that whose products had been nixed from the short lists. The fellows complaint distilled down to three things:

The Verizon man was perturbed in part by the acquisition of Kashya by EMC, opining that other products had been “destroyed” by that company after they were acquired. He wondered aloud why EMC would buy a company that offered a product for which they already had at least two competitive wares on their play card.Hardware companies were not the sole targets of his rant. The guy also took on the storage software market, decrying what he perceived as “a steady reduction in product value” when companies like Symantec – or even Computer Associates (“not to criticize the host of this event”) – purchased the products of other software vendors that he preferred.

In this view, he was joined by other attendees, one of whom noted that his company was eliminating Veritas products from their storage infrastructure because they lacked faith in the new management. This new speaker noted that president (and former Veritas CEO) Gary Bloom’s departure, together with the exodus of several highly respected technical bosses in the months following the acquisition, squelched all of the “feel-good” messaging coming out of Symantec HQ.

Next Page: Multiple Scenarios

We could just write off these attitudes as the fear, uncertainty, and doubt that always accompanies market consolidation trends. Disenfranchised customers of smaller companies might be regarded as just so much collateral damage wrought by inevitable, Darwinian economic forces of free-trade capitalism. Certainly, that is the response one usually hears from acquiring vendors.

Truth be told, there are a lot of reasons for one company to buy another. Sometimes it is to grow market share by acquiring a large installed base of customers, regardless of whether the products of the acquired company will be actively developed or not.This is the analysis in much of the trade press following the announcement of the Veritas acquisition by Symantec, and later by the acquisition of AppIQ by Hewlett Packard (which seemed to give the latter substantial leverage over HDS, a key user of AppIQ management software).

In some cases, an acquisition is intended to take a potential competitor out of the acquiring vendor’s sky. One might argue that the acquisition a couple of years ago of Spinnaker Networks by Network Appliance was so motivated. Spinnaker’s new approach to clustering NAS heads and creating a horizontally and vertically scalable storage infrastructure with its own Andrews File System-based file system was new at the time, and it was garnering the attention of quite a few big NetApp customers.

When NetApp announced that it was spending roughly $300 million to buy the company and that it would integrate Spinnaker technology into new NetApp wares “within two years,” the B.S. indicator went off the charts. Technical incompatibilities between the Andrews File System and NetApp’s preferred Berkeley Fast File System represented an insurmountable barrier to integration. Today, nearly three years after the acquisition, there is no Spinnaker-derived product from NetApp and nearly everyone seems to have forgotten about Spinnaker.

But are all acquisitions so doomed? The answer is clearly no. A few weeks ago, Crossroads announced that it was acquiring Tape Laboratories. TapeLabs was once the darling of the Tandem world, its unique virtual tape system (VTS) distinguishing itself from the plethora of virtual tape library (VTL) software products by virtue of its ability to emulate any number of any type of drive. CTO Alan Ignatin is one of the uncelebrated-but-certifiable geniuses of storage who traces his career back to the original disk drive.

For its part, Crossroads was best known as a bridge-maker that enjoyed a moment of fame when FC fabrics were first introduced to the market and companies went scrambling for ways to attach legacy SCSI gear to their oxymoronic SANs.The union of the two companies makes a lot of sense and, from the feedback that I’ve received from customers, portends to create a highly available VTS appliance solution that will be hard for anyone to beat. That’s the kind of acquisition that makes sense from the consumer’s point of view.

Perhaps acquisitions by non-competitors are more user friendly. Bolting two good things together to make a new good thing is how geneticists see organisms constantly improving and keeping their place in the chain of life. This may well be the case with TapeLabs and Crossroads. It also appears to be the case with CA's acquisition of iLumin, the email archiving company. Everyone I have talked to seems to believe that CA is moving up the ladder from storage resource management and security to data management via archive: It’s a natural evolution and an example of the kinder side of Darwin.

Not so with Kashya’s $180 Million buyout by Hopkinton. Even some of the Kashya folks with whom I have spoken of late are having difficulty with their new email address: [email protected].

Said a former Kashya-ite in a recent conversation: “These guys (EMC) were our most bitter competitors in the market. They dissed us in every customer engagement where we were up against their products, referring to our solution in very unflattering and often untrue ways. I guess when we still won accounts against them, it made them decide to purchase us. It is really hard to now find yourself part of an organization that you got used to viewing not just as a competitor, but as your enemy in a very real sense of the word.”

Asked for his view of the future of the product under EMC management, the speaker shrugged, “What do they need Kashya for? They already have at least two other replication products.”Next Page: Calculating Risk

Any storage consumer today confronts a decision: Buy from an established player with three letters for a name, or buy from the little guys who, arguably, are behind the most innovative and creative ideas we are seeing in the industry. The “IT doesn’t matter” crowd clearly prefers the former.

According to one IT director for a major bank in Minnesota, “I don’t want to manage technology anymore. I just want to manage a couple of well established vendors.” He went on to articulate a word-for-word thesis we've read in a lot of places recently: Technology is all the same and thus delivers no competitive value to consumers. So, just buy name brand and let them run your shop.

Of course, there is a sense of security in going with established players. Nobody gets fired for buying a three-letter acronym today. But will that always be the case? Always remember that nobody used to get fired for buying IBM until people started to find pink slips stapled to their purchase requests.

How long will it be before management realizes that you're buying products with three-year support agreements that are discontinued and removed by the manufacturer from support within 18 months? This phenomenon occurs much more frequently in storage today – a function of the unstated requirement by Wall Street that vendors demonstrate their health by introducing new products much more frequently than ever before.Choosing the alternative path of selecting innovative products from lesser-known vendors entails risk. But the potential payout can be huge. If Kashya, or Revivio, or XOsoft, or Neverfail has developed a smarter way to replicate data continuously for disaster prevention that does not entail the lock-ins or inefficiencies of TimeFinder or SRDF or XRF, then why not go the smarter, cheaper and more strategic route?

In some cases, consumers say that it's because you don’t know whether the company will exist in a year or two. It’s a hassle to go to the trouble of deploying novel wares only to have to rip and replace if the vendor who sold it to you goes under or sells out to another (usually incumbent) vendor who buys the smaller fry in order to put their wares to sleep.

I have a closet full of golf shirts from Silicon Valley companies whose venture capital backers had just such an exit strategy in mind. I call it the classic three-part business plan: create company, attract the interest of the league, and sell company to derive 10x multiples on the initial investment. How do you pick the ones that are in it for the long haul?

Don’t ask the vendor. Any start-up will tell you that they are in the game to stay. It is politically incorrect for them to say otherwise. Common sense says that you create a better product if you intend to sell it rather than to sell out.

Smart friends tell me that you should look at the investments that are backing the company. If it is subsidized mostly by the company's management, like Tek-Tools or DataCore Software are today, they are probably doing business because they enjoy doing business. Chances are better (but by no means certain) that they will be reluctant to sell out.The exception to the rule might be so-called serial entrepreneurs like Rahul Mehta. Several months ago, he sold the fourth iteration of NuView, Inc. – purveyor of a global namespace product in this iteration – to Brocade, having sold previous versions of the company to other vendors.

Bottom line: The anti-innovation forces in the storage industry are many. It is easy to see why the big companies get bigger and the smaller firms disappear from the map, and why this would have a chilling effect on the willingness of storage administrators to try things another way. On the other hand, the question that needs to be asked over and over again is not whether IT matters, but how we can make IT matter.

That, my friends, always comes down to the same career calculus. How much risk we are willing to take?

— Jon William Toigo, Contributing Editor, Byte and Switch

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