What EMC Really Wants with Data Domain

The news of EMC's announcement of raising the stakes in the bidding war has the Data Domain stock holders smiling. What does EMC really want from Data Domain? It could be exactly what they say it is or it could be they have another motive; the destruction of their biggest competitor, NetApp.

There is a pattern for this type of move. Think back to when IBM invested heavily in Linux, did not make much sense at the time but they did it. Internally the thought was if they could prop up Linux and make it a viable mid-market alternative to UNIX they could drive the other mid-market UNIX company, SUN, crazy. To a large part they did exactly that. Fast forward to today, SUN for the most part zigged when it should have zagged and ends up getting bought by Oracle. IBM has one less systems vendor to deal with.

In the EMC/NetApp/Data Domain saga, you can draw many parallels. EMC doesn't really need Data Domain, they have more than their fair share of deduplication products already. While one strategy could be that EMC just wants all the deduplication products on the market, my opinion is that this is to send NetApp scrambling.

If EMC is successful in this latest move it really puts NetApp behind the eight ball; it does not kill them though. EMC's goal, in my opinion, is to force NetApp into a series of "must win" scenarios. Where each one becomes more critical than the one before and that under this pressure, they like SUN did make a chain of bad purchases, eventually leaving EMC with one less competitor to worry about.

How these companies handle acquisitions becomes critical. You have two companies that have matured to the point where innovation comes harder to them. While they will continue to try to innovate in the future, acquisitions are going to be a key ingredient of growth. How well they integrate these purchases and make them more valuable than what they paid for them is going to be a key measuring stick going forward. Both have a mixed track record of success thus far.Whether EMC has this kind of motive in mind or not will take years to pan out. In the end of course only EMC knows what EMC wants with Data Domain. It could be as simple as wanting to make sure that their largest competitor does not get them, and they will deal with integration issues and the massive product overlap later.

NetApp's chances of not winning this deal are now greater than ever and as I stated earlier their next move is going to be critical. Fortunately for them and you, I will map the way for them in my next entry.