May 26, 2009 – Even after a long holiday weekend, the industry continues to debate the wisdom and ramifications of NetApp’s proposed acquisition of Data Domain. For our news coverage, see “NetApp shells out $1.5 billion for Data Domain.” And for reaction from analysts and competitors, see Kevin Komiega’s blog post, “NetApp’s competitors take aim at Data Domain deal.”
I agree with the general consensus that, in today’s economy, NetApp may have overpaid. (The buyout price was $25 per share, about a 40% premium over Data Domain’s closing price prior to the announcement.) But I disagree with some of the other commentary.
For example, some analysts, such as Wikibon.org’s David Vellante, predict that the “vision will take forever to execute.” If this was the same technological hurdle that NetApp faced with its acquisition of, say, Spinnaker, I’d agree. But it isn’t. In fact, they don’t even have to integrate the NetApp and Data Domain deduplication technologies.
Which brings me to another commentary on the deal; namely, that there’s overlap between the two vendors’ data-reduction product lines. Yes, there’s overlap, but that doesn’t mean that NetApp will have to jettison any products.
In the classic situation of product overlap after an acquisition, the conventional wisdom is to eliminate the overlap. But in this case it’s just another option for customers. In the case of data reduction for secondary or nearline storage, customers can opt for NetApp’s free dedeuplication technology, or, if they want higher performance or reduction ratios they can pay for the Data Domain technology. NetApp wins either way.
I don’t see any reason to kill product lines, so the product overlap objection seems to be a moot point. In fact, customers won’t even have to choose between the two product lines because they can be used in conjunction with each other.
Obviously, NetApp has to continue to branch out if it wants to be competitive with EMC, IBM, etc. What’s debatable is whether data deduplication (or data reduction in general) is a significant technology in the larger IT battle. I don’t think it is (because, as many have observed, it’s a feature and not a market), but to the degree that NetApp is right – that data deduplication is a linchpin technology -- the Data Domain deal is a good strategic move.