NetApp's competitors take aim at Data Domain deal

May 21, 2009 -- It didn't take long for NetApp's competition and industry experts to begin poking holes in NetApp's acquisition of Data Domain as questions abound less than 24 hours since the deal was announced.

There is no question the $1.5 billion deal to buy disk-based backup vendor and deduplication specialist Data Domain will immediately expand NetApp's market share and reach into the backup market. However, as the experts and competitors are quick to point out, NetApp's path is strewn with obstacles.

Wikibon president and co-founder Dave Vellante's blog on the topic raises some interesting questions. If NetApp can successfully integrate Data Domain's products and technologies (specifically deduplication), they will be poised to make serious inroads with customers seeking data reduction/Storage Capacity Optimization (SCO) technologies. However, he writes:

"This vision will take forever to execute. Meanwhile, IBM with Diligent and TSM; and EMC with Avamar and Quantum are further down the path. This will lower the time to value for NetApp, which I'm defining as the valuation being incremental."

Enterprise Strategy Group analyst Lauren Whitehouse says deduplication – one of Data Domain's strengths – is a feature, not a market.

"Having the feature on storage systems may help NetApp win business in segments of the secondary and archive storage markets where it wasn't as strong before," she says.

Her biggest issue with the acquisition is overlap between VTL-interface products, NetApp NearStore and the Data Domain DD series.

"The answers NetApp provided regarding technology integration and conflict were tentative. They deferred to the soon-to-be-formed integration team to address those issues at a later time. The focus was squarely on positioning the acquisition as increasing the business opportunity rather than a technology leverage move." She continues, "NetApp spent $11 million on the VTL acquisition (Alacritus) several years ago and has made investments in NearStore over the years; however, the product is lacking some features that make it competitive with others in its class."

She cites VTL-to-VTL replication as an example. "It's going to be hard to justify incremental investment in NearStore when they've just spent $1.5 billion on a similar solution with a few more advanced features," she says.

NetApp's positioning the acquisition as a business play, rather than a move to gobble up valuable intellectual property. As reported in our story about the deal, NetApp's chief marketing officer, Jay Kidd, said NetApp's rationale was based on an incremental growth opportunity for both companies.

"The overlap between NetApp's customers and Data Domain's customers was fairly small. The addition of Data Domain's products to our portfolio was a clear market expansion opportunity," said Kidd. "We are doing this for the expansion of the business opportunity and not to acquire technologies that would allow us to consolidate product lines."

Roughly 77% of Data Domain's business comes from North America. NetApp, however, has a global reach. Kidd said NetApp's global reach makes the acquisition a perfect match. "We have access to enterprise accounts that they are not in yet. Our [global presence] will accelerate the business that Data Domain already has," he says.

Competing vendors, of which there are many, began offering their two cents on the acquisition minutes after the news broke. Here is a sampling of the vendor reaction in their own words…

David West, vice president of marketing and business development at CommVault:

"We believe that deduplication is a feature and not a company. We also believe that to gain operational efficiencies and dramatically reduce data management and related storage expenses, a global embedded software-based approach to deduplication is the best option for customers.

Yesterday's announcement did little to address these fundamental customer needs. While we applaud NetApp's effort to capture more market share through deduplication, ultimately a feature-based approach, tightly integrated within an overall backup/archive strategy is the optimal way to reduce redundant data in your environment. Like minded companies will continue to pursue an embedded approach to dedupe and we anticipate additional adoption with key strategic partners as we continue to address customer needs."

Permabit's CEO, Tom Cook:

"This is one more outstanding execution move by the management of [Data Domain]. They needed to make a move and did.

This is a ‘worst fear' scenario for the likes of Dell, EMC, IBM and HP. The last thing in the world they wanted in the market was another NTAP. They all had [Data Domain] in their sights to acquire or beat in the marketplace. They will all spring to aggressive action.

This will disrupt the partner ecosystem. F5's (who partners effectively with [Data Domain]) play is to consolidate NAS – not exactly a NTAP objective and this places the combined organization in direct competition with the likes of CommVault and Symantec.

Finally – this is a huge positive for Permabit. In the market it enables us to contrast our offering more directly with NearStore rather than [Data Domain] near line FUD. Of course, Dell, EMC, IBM and HP will help us with this. And it puts a huge focus and premium on technologies and products that can compete on merit with the combined [NetApp/Data Domain] offerings."

Bill Andrews, president and CEO of ExaGrid:

"This is an interesting move for Data Domain as it started out targeting mid market and small enterprise customers with 1TB to 60TB of primary data to be backed up. Since then Data Domain has altered its course by targeting the large enterprise and was moving the company in that direction. NetApp is an enterprise play and therefore completes this large enterprise transition for Data Domain.

Today, ExaGrid competes with Data Domain in the mid market to small enterprise and was pleased to see Data Domain moving up market. This latest development is exciting for ExaGrid as it accelerates Data Domain's move to the enterprise and leaves a hole in the mid market to small enterprise. When competing, ExaGrid has won against Data Domain the majority of the time thanks to a faster and more scalable product at a better price and this latest development will only make the mid market to small enterprise segment a more significant opportunity for ExaGrid.