Stick a fork in Data Domain

June 5, 2009 – Ah, the perils of blogging about an unfolding story. In case you missed it, data duplication darling Data Domain appears to have accepted NetApp’s revised acquisition offer, following EMC’s hostile bid, which followed NetApp’s original bid. See Kevin Komiega’s blog, “Data Domain sides with NetApp,” for the latest news on this intriguing saga.

For reasons that aren’t entirely clear to me, both suitors are offering $30 per share yet NetApp’s deal has been valued at $1.9 billion and EMC’s was valued at $1.8 billion. I guess that has to do with the fact that NetApp’s is a cash-and-stock deal and EMC’s is a pure-cash deal. Which also explains why EMC honcho Joe Tucci considers his company’s bid to be “superior” to NetApp’s.

I think the saga is over, with Data Domain going to NetApp, but some financial gurus think EMC will up the bid even higher or, less likely, that a third suitor (Hitachi?) will appear.

The continuing surge in Data Domain’s stock price – to $32.51 today – suggests that investors expect an even higher bid, presumably from EMC.

Some bloggers have speculated that EMC never really wanted Data Domain, and that EMC made its offer just to drive the acquisition price up and stick it to NetApp. Does anybody really think that EMC is that frivolous? On the other hand, does EMC really need yet another deduplication option?

One problem with scenarios like this is that they set the blogging world on fire, with rampant guessing on what EMC (or NetApp) will do if it loses, or drops out of, the bidding war. Acquire another deduplication vendor? (FalconStor? Ocarina? Storwize?). I doubt it.

What has me scratching my head is the size of this deal: almost $2 billion (or more if the bidding war continues) for a technology that is a feature, not a market. Not to mention a feature that some vendors (NetApp and EMC) give away for free. How much margin will there be in this space once users expect the technology for free, or at least very inexpensively?

And just how popular is data deduplication? Sure, I’ve read all the (vendor commissioned) surveys that suggest that deduplication is the hottest technology in the storage market.

However, consider this: Apptio, which provides IT cost-optimization services among other things, is about to release the results of an end-user survey that says that storage is the next place IT organizations will analyze for cost savings. About 38% of Apptio’s customers are looking to reduce storage-related costs (which seems to me like an awfully low percentage). Of those companies:

--Almost 80% are analyzing tiered storage
--43% are analyzing low-cost archiving and backup options, including cloud storage
--And only 15% are considering data deduplication

According to Apptio’s PR agency, the company will be posting the full results of the survey on its Lean IT blog in the next week or so.