The players are lining up for the biggest acquisition game enterprise IT has witnessed in a while

Today is the (a?) day of reckoning in the 3Par saga, with Dell widely expected to make a counter-offer higher than HP’s bid. But this mega deal, like the Data Domain war before it, sends a strong signal to the enterprise IT world: It’s open season on data storage companies! But the rising superpowers are also likely looking at networking as an area of expansion. The game is afoot!

The Competitors

The simple fact is, enterprise IT prefers to buy from large, established names like HP and IBM rather than smaller and less-familiar companies with names like Ocarina, EqualLogic, or even 3Par. The acceleration of sales by enterprise providers is what makes these big acquisitions so successful and why others involving less-powerful players often fail to deliver the same results.

Full-line “superpowers” like IBM, HP and now Dell and the new Oracle can influence purchasing decisions across a broad spectrum of hardware and software. Many large organizations are tightly coupled to one of these vendors, and will give their products stronger consideration even when they are new or unfamiliar. HP is already flexing their muscle selling their broadened network lineup, and Dell found that it could do this in data storage.

Software vendors like Microsoft, Citrix, and Oracle adamantly maintained a neutral stance toward hardware, but Ellison and company seem serious about changing this. Oracle’s success in selling Sun hardware will likely dictate further software acquisitions for Dell and HP, though IBM already has strength there. Then there is Intel, the wild card who just got wilder with their acquisition of McAfee.

Companies with narrower focus like Cisco, EMC, NetApp, Juniper, and Brocade have the same power within their sphere of influence but cannot pull in wholly-distinct products. Cisco is in the midst of this fight with their technically-excellent UCS blade servers: Although they were certainly a strategic CIO-level vendor in the largest organizations, “blades from a networking company” isn’t the as easy a decision as “networking gear from a full-line company.”

The Game

Then one must consider the market in contention. The enterprise IT space is not expanding, especially in the United States. This is very close to a zero-sum game, with Oracle’s or Dell’s wins being HP’s or IBM’s losses and vice-versa. There is massive money in play, and flexibility enough for it to swing between the competitors, but growth is not unlimited.

Enterprise storage and data center and campus networking are two areas where smaller companies retain enviably-large slices of the pie, explaining the interest in these spaces among the superpowers. These verticals still have room for sales to grow without displacing a fierce full-line foe, and the superpowers have lately been weak here. Storage and networking are enticing opportunities, but each slice is similarly dominated by “vertical superpowers” and partners EMC and Cisco.

So this is the game: Four full-line enterprise superpowers battling each other for datacenter dominance and coveting the extra profits of a few verticals. HP clearly believes they can chip away at EMC and Cisco in storage and networking; Dell and IBM have so far focused mainly on storage; and Oracle hasn’t made a move in either direction, instead challenging the other three in the core server and software space.

Pawns or Knights?

So where does this leave the smaller players? Are they merely pawns in the game, waiting to be sacrificed, or are they knights who can wield power across the field? The largest (Cisco and EMC especially) appear to have ambitions of their own as well as the financial and technical strength to shake up the game. They are unlikely to be acquired by the superpowers. Brocade, too, has broad strength in storage and networking but maintains relationships across the board that make an acquisition difficult.

Strong vertical players like Juniper, NetApp, Riverbed, and Compellent are ripe for acquisition, as were Foundry, 3Com, Data Domain, and 3Par. IBM, Dell, and Oracle are all likely buyers of the networking players, though HP may consider filling in where 3Com was found lacking. All four will likely take a strong look at the remaining storage players as well, with the loser in the battle for 3Par likely to be hungry indeed.

One should also consider the potential impact of smaller acquisitions. Although they would not immediately “move the needle” for a massive superpower, there are many excellent technology companies that could be bought low and pushed strongly. The enterprise-class technology at Sepaton, Pillar Data, Xiotech, BlueArc, Extreme Networks, Force10, Blue Coat, Isilon, CommVault, FalconStor, and many others should not be overlooked. If a superpower can drive a larger acquisition to succeed, imagine what they can do with strong but inexpensive technology from one of these!

Stephen’s Stance

This game is nowhere near finished. The 3Par acquisition will not only generate revenue, it will shake up the ranking of data storage array dominance. This is very likely to kick off additional acquisition in the data storage space, spurring either Dell or HP to pick up additional technology and perhaps causing IBM or Oracle to engage as well. With no easy alternatives to 3Par, I expect Compellent, Xiotech, and Pillar to get closer looks, but Sepaton and BlueArc are just as ripe. NetApp may be too expensive at this point, but would be a nice match for Oracle’s strategy.

HP’s acquisition of 3Com could also signal a race to integrate datacenter and campus networking technology into the stack. Many are suggesting a Brocade acquisition, and it would be much cheaper than Juniper, but OEM ties make it a difficult purchase for any of the superpowers. Extreme and Force10 would be excellent and less-expensive alternatives.

We should also keep our eyes outside the superpower space. Intel showed that they can make big moves, and Microsoft might consider a diversification into hardware as well. One should also look to the East, where Huawei could try to enter the Western market with a merger or joint-venture to cast off the China stigma. Although I would love to see a rebel alliance rise (imagine Juniper, NetApp, and Symantec joining forces!) this is not a likely scenario.

Image credit: Chess Board by mosdave

© sfoskett for Stephen Foskett, Pack Rat, 2010. | The Enterprise IT Acquisition Game
This post was categorized as Computer History, Enterprise storage, Everything, Gestalt IT, Virtual Storage. Each of my categories has its own feed if you'd like to filter out or focus on posts like this.

Who will power the enterprise? The smart money is betting on a few superpowers taking over.

After years spent focusing on personal technology, businesses are increasingly turning back to the enterprise. There are many reasons for this, but the biggest one is the poor economy. Individuals simply have less free cash to spend on gadgets and software, and the meagre profits are increasingly going into the pockets of a single company: Apple.

The corporate IT market is much more dynamic and competitive, with a few very large “superpower” companies discovering their power to drive purchasing decisions. If a supplier can create an integrated “stack” of hardware and software, they can push product purchases that might otherwise be overlooked or postponed. This is the main reason that enterprise IT acquisitions work so well: Where a small company must fight to sell their product, a large one can hitch it to a much more strategic sale and have it pulled along.

The old IBM model is the prototype, with that company once selling everything from office equipment to datacenter gear as well as the consulting and integration services to make it all work.

HP has spent almost two decades bulking up to become the new IBM, buying their way into open systems laptops, desktops, and servers (Compaq), networking (3Com), services (EDS), and storage (Compaq, LeftHand, Ibrix, and perhaps 3Par). HP has been remarkably proficient at executing on this enterprise plan: In talking to enterprise IT folks, I often hear IBM-esque sentiments regarding the new HP. They tell me they’re willing to give HP the benefit of the doubt when it comes to new technologies and products, buying on basis of the company’s reputation and ability to make everything work. This bodes well for the company’s post-Hurd future, and HP has the most-complete “enterprise stack” in the business.

But HP has a target on its back, pinned there by Dell. The folks from Round Rock believe they can be more efficient (and thus profitable) than HP in the same markets, and have been making moves to fortify their enterprise offerings. Dell was always more of a manufacturing than R&D business, but they have shown a desire to broaden their focus. Intrigued by the high-margin mid-enterprise storage business built from their EqualLogic acquisition and their success selling EMC storage, Dell is moving into the enterprise. They matched HP/EDS by purchasing Perot and have made smaller buys in storage (Ocarina, Exanet) as well as the big move for 3Par.

The next big emerging stack player is Oracle. The acquisition of Sun gave Oracle a strong hardware base to complement their command of enterprise software, and many expect further acquisitions. But Oracle is playing a different game than HP and Dell, focusing on the high-margin enterprise space and ignoring more competitive outlying areas. Many suspect the company might make a play in the network space (Brocade, Juniper, and F5 have been mentioned) but storage is possible as well. CEO Larry Ellison is a major investor in Pillar Data Systems, so many expect a spin-in here. But Oracle has the appetite for something much bigger, even EMC or NetApp.

Then there is Cisco, who have attempted to parlay their data center networking strength into a broader position. But Cisco’s halting moves into storage (Fibre Channel switching and SAN extension) did not displace the market leaders, and their server products (UCS) have not made much of a dent on HP, IBM, and Dell either. A solid partnership with EMC has delayed further forays into the enterprise storage market, and Cisco seems puzzlingly interested in low-margin access businesses (Linksys, Flip) and their Cius tablet.

There are other players in the enterprise space as well. EMC has diversified under CEO Joe Tucci, taking a dominant position in server virtualization (VMware) and making a strong enterprise security acquisition (RSA). But the many faces of enterprise storage remains EMC’s strength, and they seem content to partner with Cisco for a stack sale. Hitachi, NEC, and Fujitsu also offer varying enterprise hardware and software stacks, but their comparatively small sales presence in the US market limits their ability to execute. In the final analysis, only IBM, HP, Dell, and perhaps Oracle can claim to be enterprise IT superpowers at this point.

Image credit: Steam Engine by Stuck in Customs

© sfoskett for Stephen Foskett, Pack Rat, 2010. | Meet the Enterprise IT Superpowers
This post was categorized as Computer History, Enterprise storage, Gestalt IT, Virtual Storage. Each of my categories has its own feed if you'd like to filter out or focus on posts like this.

But there’s an amazing short-term win to be had for whoever acquires 3Par. According to IDC, the race for number two in external disk storage system sales is a bitter fight. IBM, NetApp, HP, and Dell are all within striking distance of each other, pulling in between $500 and $579 million dollars while big daddy EMC makes more than any two of them. The battle between HP and Dell in storage arrays is a dead heat, with just $6 million separating the two.

The 3Par acquisition creates a massive market-share shift!

It’s no wonder HP and Dell are fighting over 3Par! That acquisition is good for an easy $50 million in quarterly revenue, and a strong sales push could make this $60 million. This extra revenue cements the buyer ahead of his rival and makes him a challenger to IBM and NetApp. It wouldn’t be all that surprising to see the winner vault into the number 2 spot within a year.

This is a huge win for HP or Dell and a serious egg-on-the-face moment for NetApp, IBM and the loser. Sure, $1.7 billion is a lot to pay for $250 million in revenue, but the winner gets immediate bragging rights and a serious prospect of breaking free of the second-place pack. 3Par’s technology is unique in being a real tier-1 threat. This was an issue for the company as a startup, but becomes a serious asset in the hands of HP or Dell (or, dare I suggest, Oracle or NetApp). A well-executed transition and sales execution will cement HP or Dell as the most-credible competitor to EMC within a few years.

Stephen’s Stance

The 3Par acquisition makes so much sense, one wonders why it didn’t happen sooner. Dell clearly sees this as a higher-end repeat of their success with EqualLogic and gives them a chance to earn some additional enterprise credibility. An HP acquisition makes just as much sense, giving them fresh SAN technology and letting them pull ahead of Dell once again. A big deal like this also gives HP’s Dave Donatelli some internal clout in the aftermath of the Hurd fiasco. I expect a counter-offer or two before this is done, but 3Par remains attractive at even a billion more.

Will anyone else join the fray? IBM seems happy with XIV, though the market doesn’t see that product as tier-1. I expect them to stand pat. Oracle should jump in, given the souring of their Sun-era Hitachi OEM deal. Passing on 3Par leaves them with no enterprise SAN chair when the music stops, but they might not feel that they need this kind of hardware. Cisco could use the 3Par technology to reject EMC, but they might not be ready for that move. Another idea is perennial second-place storage company NetApp, who might be able to afford to play this game and could really use a new product line.

What’s left for the loser? Not much. There isn’t another startup with credible tier-1 SAN intentions. Compellent is a great alternative in the midrange SAN market, and Xiotech has great SAN technology here, too. Everyone assumes Oracle will pick up Pillar, and then there’s BlueArc and Isilon waiting in the NAS space. But none of these are a slam-dunk in terms of market share, and the value question looms large when it comes to any high-P/E acquisition. Expect more acquisitions in the coming quarters, but the 3Par game looks like a highlight.

© sfoskett for Stephen Foskett, Pack Rat, 2010. | Everyone Loves 3Par – Here’s Why!
This post was categorized as Enterprise storage, Gestalt IT. Each of my categories has its own feed if you'd like to filter out or focus on posts like this.

I’m pleased to be heading back to Interop this spring with two sessions on enterprise storage. Although significantly changed from the old “Networld + Interop” days, the event is enjoyable and technical, with many interesting sessions and speakers. And the New York show at least had plenty of end user attendees!

Interop Las Vegas is April 25-29, 2010, and registration appears to still be open. Let me know if you’ll be there!

My two sessions:

State of the Art Thin Provisioning

Wednesday, April 28 10:15 AM–11:15 AM

The concept of thin provisioning is not new, but the state of the art has advanced, adding awareness between the operating system and storage device for enhanced efficiency. This session introduces the value proposition and concept of thin provisioning, covers the technology of the major thin storage vendors (3PAR, BlueArc, Compellent, Dell, EMC, HDS, HP, IBM, NetApp, Pillar) and operating system integration layers (Symantec, VMware, and T10), and presents novel approaches from Data Robotics, Apple, and cloud storage systems. We will present the pros and cons of these various approaches in the context of enterprise storage management.

The Right Approach to Cloud Storage

Wednesday, April 28 11:30 AM–12:30 PM

Enterprises are now leveraging cloud storage services at a rapid pace and are looking for qualified answers on how using a cloud platform can increase efficiency and ROI simultaneously. The old model of purchasing expensive storage systems or using large amounts of tape are prehistoric, adapting a new approach to storage is necessary in today’s tough economic climate as budgets continue to be slashed and performance upkeep is critical. This session will enable users to learn about the benefits and economies of scale as it relates to developing/implementing a cloud storage solution, a focus will be placed on performance, cost-effectiveness, user experience, and customer service/satisfaction.

© sfoskett for Stephen Foskett, Pack Rat, 2010. | Thin Provisioning and Cloud Storage: My Interop 2010 Topics
This post was categorized as Enterprise storage, Personal, Virtual Storage. Each of my categories has its own feed if you'd like to filter out or focus on posts like this.

It would have made more sense if a vendor of fully-automated integrated tiered storage arrays was the first: Although Western Digital impressed me and others with these big drives, they aren’t going to be speed demons. Pillar suggests that they can make effective use of this capacity without killing overall performance thanks to their QoS technology and the ability to mix drive types in the same frame, but this isn’t the same as the granular, dynamic tiering some vendors offer.

Who will be next? And when will it be Hitachi GST’s turn in the sun?

© sfoskett for Stephen Foskett, Pack Rat, 2009. | Pillar First To Put Faith In 2 TB Enterprise Drives
This post was categorized as Enterprise storage. Each of my categories has its own feed if you'd like to filter out or focus on posts like this.

EMC is Mercedes-Benz

It’s big. It’s expensive. It’s powerful. Lots of folks say it’s the best, but some think the emperor isn’t wearing a stitch of clothing. Either way, you know you want one. But what’s up with all the weird models and brands? Even the low-end models cost twice as much as their competitors, and it’s awfully hard to justify the price when there are so many competitors running around… Some thought the purchase of a low-end, mass-market company** would drag the brand down, but it led to weird synergies that we’re just starting to see, let alone figure out.

HDS is Toyota/Lexus

The top models are pricy, but not as bad as the big guy. The low-end ones are killer, but not the super value they once were. They’re efficient, powerful, and luxurious, offering everything you might want and lots that no one else has. But they just don’t have the same cachet. No matter how great it is or how much it cost, everyone has a sneaking suspicion that you cheaped-out or just picked up the first thing you took for a test drive.

IBM is General Motors

They once ruled the whole market and were the standard of the world. They invented or popularized pretty much everything in the industry, had massive market share, and commanded huge margins. After some stumbles, they’re back with solid offerings and a touch of real innovation. But folks just don’t seem to give them any credit anymore. Even though they still sell like crazy, the glamour is gone. Now it’s time for rebuilding, and no one can tell what will happen: Will they rule again or fail completely?

HP is Ford

That other company thinks they invented everything, but insiders know that this one actually did. Sure they don’t rule the market right now, but they’ve been there a few times before. Some of their best technology is borrowed from acquisitions, but who’s to say that’s bad? Put it all together and you have a real force in the market, one that’s rapidly gaining while everyone else isn’t looking.

Sun is Chrysler

No one has fanboys like these guys. Sure they never really ruled the world, but they brought out wave after wave of killer products for decades. Everyone counted them out, but they always came back with something interesting. Then the realities of the business world hit. Will they have yet another act or is this really the end?**

Dell is Hyundai

They have a wide range of offerings, ranging from good economical models to near luxury, but people often overlook or ignore them. Maybe that’s because so much of their business is done with the kind of folks who just aren’t fanatical about this stuff, or maybe it’s because they weren’t even in this market until (relatively) recently. But watch out: Their new stuff is on the rise, and they might put forth a real challenge to the market leaders soon!

NetApp is Honda

They’re not as cheap as they used to be, but they’ve shown that you can do a lot without over-extending yourself. They steadfastly refuse to match what everyone else is doing, sticking to what they know best and adding enhancements until it becomes real competition, even for the biggest guys. In fact, if you asked them privately, everyone else would point to this little company as their biggest threat!

3PAR is BMW

Ask anyone who owns one and they’ll wax poetic about how great it is. Sure it’s expensive, but it’s just as good as the market leaders, if not better! But they’re still a little company trying to make the most of just a few core components. Everyone is amazed they’ve remained independent this long, and analysts keep predicting they’ll sell out very soon!

BlueArc is Jaguar

They’ve only got a few models and they offer killer performance at a premium price. A certain kind of customer would never buy anything else, but the rest of the world just scratches their heads and wonders who’s going to buy them and when.

Compellent is Mazda

They did some strange things way back when but the model has proved itself. They may not be right for everyone, but they’re perfect for a certain price point. Even though their market share is small, they continue to get an inordinate amount of press due to innovative features and high performance. But can this little player survive alone?

Pillar is Tesla

Awesome! That’s all anyone seems to say, since they’re doing crazy innovative things. But it’s awfully hard to find anyone who owns one, and folks seem to pay more attention to the investors than the product.

Xiotech is Nissan

Even folks who own them aren’t generally all that excited, but everyone tells you they’re solid and affordable. But they’re working on some things that are totally off the wall and might have a second wind yet!

Nexsan is Kia

They’re cheap and solid and just keep raking in the dough. But the press and analysts always ignore them…

NEC is Mitsubishi

Did you forget they made this stuff? Seriously, they’re selling well and some folks just love them. Really! You should take a look! Hey, wait, where are you going?

Texas Memory Systems is Lotus

You’re more likely to encounter them working with another vendor, but they offer totally killer performance if you’ve got the money. But how long can a tiny niche vendor like this last?

Violin is Spyker

Who? Ask the man who owns one…

* This is all in fun – let’s not get our panties in a bunch!

**Yes, we’re ignoring obvious mismatches in ownership

© sfoskett for Stephen Foskett, Pack Rat, 2009. | If Storage Vendors Were Automakers…
This post was categorized as Computer History, Enterprise storage, Personal. Each of my categories has its own feed if you'd like to filter out or focus on posts like this.

Apparently, some were annoyed, offended, or hurt by this post. For that, I sincerely apologize. My intent was to reach out to my friends at the company in this difficult time, but what I meant doesn’t help those who are directly affected.

I have only one question: What is the right thing to do when bad things happen? Should one offer help or remain silent? This is not a rhetorical question – I’d like some advice.

Although nothing official has yet been announced, enterprise storage giant EMC is apparently conducting a massive workforce reduction today. Update: EMC reported in January that they would take a restructuring charge in Q4 2008 and would reduce overall headcount by 2400. The job losses reported here were part of this restructuring. I hear that there is a voluntary early retirement program, too.  Multiple sources have confirmed to me that perhaps as much at 10% of the folks from Hopkinton will be let go. Update 2: The Boston Globe reports EMC’s claims that only “a small number of workers” has been let go. The Register reports that the numbers are “small and modest.” I personally know of a handful who were affected, and they claimed widely divergent losses in their departments, so I have no idea what the number was.

Update: I’m hearing conflicting reports from inside the company, with some absolutely confirming the RIF and others scratching their heads. Might be divisional rather than company-wide, but a good number of people both in Hopkinton and elsewhere are apparently losing their jobs. A number of others are confirmed to have been let go over the past three weeks.

This follows last week’s news that Quantum would also let 180 employees go, and Pillar and Overland also reduced their respective workforces this quarter.

There are also rumors that one of my favorite storage resources (which will remain nameless for now) will not last into 2009.

I’m really speechless about all of this. There are many, many fine people involved at these companies, and I wish all of them the best.

If you are affected, please drop me a line. I can’t offer you a job, but I promise to do everything I can to help you land on your feet.

© sfoskett for Stephen Foskett, Pack Rat, 2008. | EMC Cuts Staff as Recession Continues
This post was categorized as Enterprise storage, Personal. Each of my categories has its own feed if you'd like to filter out or focus on posts like this.

The Register did a nice job of summing up the (late 2008) flash positioning of the various storage companies, and I recently posted a strategic look at this core issue. Note that some, like HP and Sun (and probably IBM), seem to have an end-to-end strategy, while others are firmly in one camp or the other. In the “not yet” column, apparently, are 3PAR, BlueArc (though they offer TMS RAM), Dell/EqualLogic, HP/LeftHand.

Update: 3PAR has joined the “disk” camp.

It’s a Cache

Fusion-IO has rocketed to the forefront of the cache side with their PCI Express flash boards for servers. Joining them in this position are the following companies:

• HP (blades and servers)
• NetApp (PAM read cache card)
• Pillar (Slammer cache)
• Sun (read and write cache)

It’s a Disk

STEC is the darling of the flash-as-a-disk world, though Intel, Marvell, and Samsung are also playing here. Joining them in the corner are the following:

• EMC (STEC flash drives shipping the DMX now and CLARiiON in the future)
• Compellent (flash drives)
• HDS (flash drives in the USP-V)
• HP (flash drives in the MSA, perhaps, and maybe that Oracle thing)
• IBM (Fusion-IO storage behind SVC and standard flash drives in the DS5000)
• LSI (flash drives in the 7900)
• NetApp (ssd drives)
• Pillar (flash drives)
• Sun (flash drives in Thumper and JBOD)
• Xiotech (flash drives in the next Emprise canisters)
• 3PAR (flash drives in InServe)

So there you have it. It’s both a disk and a cache, depending on whether you sell servers or arrays apparently. If you sell both, it’s both. Simple!

If anyone wants to correct any of this, drop me a line or comment below!

See my posts on Gestalt IT for similar enterprise IT infrastructure commentary

© sfoskett for Stephen Foskett, Pack Rat, 2008. | Is Flash A Disk Or A Cache?
This post was categorized as Enterprise storage, Virtual Storage. Each of my categories has its own feed if you'd like to filter out or focus on posts like this.