Storage Industry Consolidation

Unlike other enterprise IT markets, storage still has hundreds of vendors competing for sales and market share. And many of them are doing pretty well despite the recession. The question raised by the latest big deal -- NetApp buying Data Domain for $1.5 billion -- is how long that will last.

If you look at the server and PC markets or the networking market or the enterprise application market, they all are dominated by a few major vendors. You know their names -- IBM, Hewlett Packard, Dell, Cisco, Microsoft, Oracle. While there are other competitors, these companies have a huge lead in their markets and most of the competition is between the giants. Startups and other competitors battle for the crumbs that fall off the table, but there are few that pose a serious challenge to the big boys in the enterprise data center market.

Big tech vendors also dominate the storage markets, but they have lots of competitors. The rivals are small compared to the big five of storage: HP, IBM, EMC, Dell, Hitachi and Sun. A few competitors -- like NetApp -- are doing their best to move up into the big leagues, and the fastest way to make that leap is to grow through acquisition. That helps to explain the deal to buy Data Domain. The smaller storage vendors also are more likely to introduce or emphasize new technologies and architectures that can have a big influence on future storage trends -- like Data Domain and data deduplication.

The game being played now by analysts, reporters and vendor executives is what will happen next. Will smaller storage companies merge or buy each other in order to bulk up to better compete? Will one or more of the major vendors make an acquisition to plug a hole in their product line? Will a new tech vendor jump into storage so it can offer a more complete data center portfolio?

Much of the speculation focuses on networking giant Cisco, which has recently entered the market for servers and is touting a "unified" approach to data center computing, networking and storage. It partners with EMC and NetApp for storage systems and some think that eventually it will need to buy a storage company so it can offer an integrated data center package to large customers seeking a single vendor solution.

Other commentary focuses on EMC and HP and their supposed need to fill out their own storage product lines. The most common predictions: EMC will buy partner Quantum to gain its data deduplication technology and that HP will buy partner Sepaton for its deduplication and virtual tape libraries.

One more theme that has surfaced in many stories and blog posts is that NetApp really bought Data Domain to make itself a more attractive acquisition candidate. Executive deny that, and went to great lengths this past week to throw cold water on the idea. In a briefing at the company's headquarters, NetApp CEO Dan Warmenhoven and Vice Chairman Tom Mendoza said the company isn't for sale and that they intended to grow and compete against all comers.

They did acknowledge the speculation and discussed five companies -- Cisco, HP, IBM, EMC and Dell (sound familiar?) -- that might have an interest in NetApp -- and then explained why such a deal wouldn't happen. Warmenhoven said Cisco would be more likely to buy EMC to get VMware and its virtualization technology. HP has its own storage product line and doesn't need to make a big acquisition. IBM is a NetApp partner and can benefit from selling its products without buying the company. Dell may not have the money available to buy a company the size of NetApp. And EMC would face antitrust challenges if it tried to buy NetApp.

Those arguments make sense. But even if you take NetApp off the trading table, there are a lot of other potential deals that could happen in the next 12 months. Wall Street will be making bets and you will probably be able to track the latest and hottest rumor by following stock prices and short sales. For storage administrators, such deals have more to do with features and capabilities and systems availability and integration than the value of a company or the price of a share of stock. They face the prospect that products they rely on to storage and manage crucial data could disappear.

As we enter the summer season, it is a good time to think about the changes rolling over the storage industry and place some (small) bets on who will buy who -- and who should buy who. Let us know where you are placing your bets.

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