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EMC outbids NetApp for Data Domain

Tim Stammers | June 4, 2009
Data Domain is worth fighting over, but the price is very high

EMC has started a bidding war with its storage rival NetApp for data de-duplication specialist Data Domain. Two weeks ago NetApp announced a definitive agreement to buy Data Domain, but this week EMC made an uninvited US$1.8 billion all-cash counter offer, trumping NetApps already hefty $1.5 billion cash-and-stock bid. We believe that this a defensive move by EMC, which we think is prepared to pay a premium to keep Data Domain out of NetApps hands.

Data Domain is worth fighting over, but the price is very high

De-duplication is already extremely useful when dealing with backups, because it can dramatically shrink what are often huge volumes of backup data. In quite a different implementation, it is also likely to become useful for live data, at least for near-line or archive data where access speeds are not critical.

Data Domain is a very strong player in data-centre backup de-duplication, and by some estimates last year owned two-thirds of that market. The other high-profile company in this sector was Diligent. Last year IBM snapped up Diligent for a reported $200 million, which is now looking like a very good move.

In 2008 Data Domain doubled its revenues to $274 million, and for this year it is forecasting revenue growth of around 36 per cent. That is consistent with the 50% growth it has posted for the first quarter (which is very impressive in the current climate.)

Alongside that growing revenue, whichever storage giant ends up owning Data Domain will also gain a lever to prise open the doors of its rivals customers data centres. A strong de-dupe product is an essential part of a one-stop shop offer or storage stack.

Neither EMC nor NetApp have such a product of their own right now. In 2006, EMC bought de-dupe specialist Avamar for $165 million. But Avamars technology was designed for a different job, to de-duplicate backup data originating at branch offices, and not inside the data centre. For the latter, EMC has had to re-brand products made by Quantum.

NetApp began selling a de-duplicating feature for its disk arrays in 2007, which is very useful for near-line or archive data, but cannot handle huge data-centre backups. Late last year NetApp took its first step towards plugging that gap, when it added de-duplication features to its existing backup storage systems. But NetApp still has plenty of work to do to match the features and performance of Data Domains products. The quicker path is to buy Data Domain.

EMC has been caught on the hop

Although Avamar was a success for EMC, it did not deliver everything that EMC had hoped for. EMC was not able to fully deliver on its promise to convert Avamars technology into a data-centre de-dupe engine (from a source into a target system). That is clear from EMCs decision only two months ago to lend Quantum $100 million to spend on de-duplication development.

 

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