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

© Stephen Foskett for Gestalt IT, 2010. | The Enterprise IT Acquisition Game
Read more posts categorized as Featured, Networking, Storage

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

© Stephen Foskett for Gestalt IT, 2010. | Meet the Enterprise IT Superpowers
Read more posts categorized as Featured, Networking, Server Virtualization, Storage

The storage industry got a lot more competitive this morning, as Dell announced plans to buy 3Par. This is the latest round in a well-established race for the enterprise storage dollar, challenging superpower (and Dell partner) EMC in the high-end SAN space. What does this acquisition say about the industry as a whole? Where are we headed?

I’ve long wished for a new enterprise storage superpower. Competition is good for everyone, and the enterprise storage space has always been highly competitive. Traditional SAN storage powers (EMC, HDS, HP, and IBM) have been under continual attack from tech-heavy upstarts like EqualLogic, LeftHand, Compellent, Xiotech, and 3Par. The smaller (revenue-wise) NAS market has been more serial, with NetApp knocking off Auspex, then challenged by EMC. Yet innovators have been thick there as well, from Exanet to Ibrix, Isilon to Onstor.

Through it all, one thing has been clear: The major companies, though perhaps lagging in technology, were usually able to withstand the attack of the upstarts through sheer strength of salesforce. Storage is a strategic investment, and selection of a storage platform is much more far-reaching than many IT product decisions. The inertia of an installed storage environment makes it a real challenge to switch vendors, giving the established players massive leverage.

It became clear to me and many others that the best way for upstart companies (and, by extension, technologies) was to be part of an established vendor’s sales process. OEM relationships were a big part of this (witness the success of BlueArc and even NetApp and HDS) but acquisition was a much stronger proposition. If customers were warmer to OEM products than independent sales, they are much hotter when it comes to acquired technology. HP, Dell, IBM, and EMC have all demonstrated the power that comes when an established company buys a startup and puts the power of their sales force behind these new products.

This explains Dell’s fantastic success with EqualLogic. They took a product that was emerging as dominant in its niche (midrange iSCSI SAN) and blasted it into the market, while at the same time optimizing manufacturing and deployment. EMC did the same with Clariion and DataDomain, and HP is showing strong signs of health with LeftHand and Ibrix. Then there is IBM, who took XIV out of Israel and made it a source of irritation to the rest of the industry.

Many industry watchers have long wondered what would happen if the smaller guys got together, forming a new superpower of their own. Would 3Par, BlueArc, and Sepaton be a real challenger? What about Xiotech or Compellent and Isilon or FalconStor? Is mixing and matching some smaller companies a recipe for success? The answer was often a counter-question: What if someone like Dell, who knows how to manufacture and sell, picked them up instead? This seemed much more like a sure-thing, since the established management and financials stave off potential integration issues.

It appears that this is the future. Established players will pick up smaller companies, fortifying their offerings and accelerating sales in a way the little guys weren’t capable of. Dell’s billion-dollar acquisition of 3Par reportedly headed off a similar offer from HP, and will likely spark another acquisition. I imagine the management teams at Compellent and Xiotech just got a lot busier…

Clearly, Dell and HP are playing this game. IBM and EMC are in it, too. But what about Cisco and Oracle? Could they be planning storage acquisitions of their own, to the detriment of partners like EMC and Hitachi? What about the strong contingent from Japan, NEC and Hitachi? And who gets picked up next? We shall see!

© Stephen Foskett for Gestalt IT, 2010. | Dell + EqualLogic, Exanet, Ocarina, 3Par = What?
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So like I said last week, we got this problem looking for growth, and Cisco, HP and everything is keeping me up at night. So what have we got? I tell you what we got, we got an opportunity, and that opportunity is in Round Rock. Yeah, I know, sounds wacky, but think about it. Michael’s already retired once and had to come back because the yo-yo he left behind didn’t measure up. His heart’s not in it. The guy wants to let go, really, trust me.

And we can handle this. Dell is a $28.2 billion company now, market cap again, so we’re bigger. We run our storage racket, much, much better than Dell runs its system and server stuff, at least compared to HP and IBM. Think about it for a second: How much bigger could Dell be if we ran it and gave it the EMC smarts?

Look, the company is fading. Whatever Michael does, it’s fading. And it’s an EMC reseller, it fits. Think about it, it resells CLARiiON and Celerra. I know, the EqualLogic stuff is squeezing CLARiiON out but we can fix that problem quick. EqualLogic can become our iSCSI SAN brand or something, I mean its small potatoes.

Okay, my guys will be asking two things right? Where do we get the cash for the buy and won’t it piss off VMware’s server partners if we start selling our own servers. These guys are always seeing problems. It’s another opportunity, spelled out as in S – E – L – L – V – M – W – A – R – E.

Think about it. We sell VMware off for about $15 billion, keeping 10% and board representation so we don’t get screwed down the pike. Now we have $15 billion green ones cash plus our own shares to buy Dell. This gives us a $65 billion chunk of the pie and we’re up to half the size, sort of, against IBM ($173 billion), HP ($124 billion) and Cisco ($140 billion). We get our own integrated stack, D-Blocks, whatever, we don’t piss off VMware’s partners, and we get a chance to screw around with Microsoft and Intel by owning Dell servers and PCs. Look guys, we gotta grow, we gotta grow big and this is a plan to die for. I know, I’m the only one that can see this and that’s why I’m top dog around Hopkinton.

So we buy Dell in 2010/2011, integrate all that, and then it’s time for the big takedown. This will be a $50 billion buy that take us up into Cisco, HP and IBM territory. Then I can retire. I got an idea about that, about how we can do it, but let’s not get ahead of ourselves. I’m telling my guys to have a look at Dell.

Trust me, Michael’s tired and he knows he can’t hack it. We could give it to Gelsinger as his proving ground. Something tells me he’s maybe good enough to run the whole show. It’s between him and Maritz but there’s plenty of time for that. I’m going to have me a little sit-down with Michael.

© Don Joey for Gestalt IT, 2010. | The Dell Opportunity
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Yesterday, EMC announced Fully Automated Storage Tiering (FAST), their much hyped and much anticipated storage feature enabling the automated moving of data between tiers of storage on a policy basis.  However the most notable missing feature in the EMC announcement was the lack of support for legacy DMX-3 and DMX-4 platforms.  This to me sends a message loud and clear that despite continuing to sell it, the DMX3/4 legacy monolithic hardware is dead.  If that’s the case, why bother buying from EMC any more?

Discounting EMC in the storage array market may seem like a naive and perhaps foolish comment to make.  After all, recent IDC numbers show EMC top of the pile at nearly a quarter of all external storage arrays sold, depending on which figure you choose to use.  However, take a moment to look at the EMC briefing pages on FAST (you can find them here).  There you will see Intel co-branded with EMC, highlighting many previous messages that monolithic architectures are dead and commodity modular boxes are the way of the future.  We’ve seen that this year already with the release of Atmos.

To my knowledge, FAST is the first “innovation” of the new V-Max product line, but it isn’t unique.  In fact, I don’t think any features of V-Max are unique; the architecture is found in many other products.  There’s a whole raft of mid-range storage arrays from IBM (XIV), 3Par, Compellent, Pillar, Dell/Equallogic and HP (Lefthand) with the last two being acquisitions of successful companies.  I expect in the next 12 months we’ll see enterprise modular releases from Hitachi/HP and a revamped EVA.  Most of the products mentioned here have been designed from scratch to remove the legacy encumberances of the past that products such as V-Max still retain.

So what’s my point?  Well, simply this; EMC have legitimised the enterprise modular architecture characterised by V-Max.  This accepts that the future is commodity-based hardware with differentiation in software.  However, EMC are no longer the leaders in this field and are having to play catch up.

 There’s never been a better time to look wider than the Big 4 (EMC/Hitachi/HP/IBM) and see if the features you need can be found elsewhere.

© Chris for Gestalt IT, 2009. | Enterprise Computing: Is There Any Point Buying From EMC?
Read more posts categorized as Server Virtualization, Storage

The first storage performance horseman is spindles: If you don’t have enough disk units, performance will suffer. I have been laying out storage on enterprise arrays since the dark ages, and one of the first lessons I learned was allocating data to avoid hotspots. I remember spending hours back in the 1990’s hunched over custom Excel spreadsheets trying to get my storage layout just right, balancing the workload across every available disk.

 

This is how we used to avoid hotspots in 1998: Carefully planning every detail of the storage layout.

Each disk drive consists of a spindle of spinning platters with read/write heads move back and forth. Each time you access a piece of data that’s not in cache, the drive moves its arm over the platter to access the correct piece of data. Since each drive can only access one piece of data at once, and since caches can only hold so much data, tuning a system to minimize the number of requests per drive is essential.

Manual storage array layout was an art, but we never fooled ourselves into thinking our designs were optimal. There were just too many intractable problems, so we had to compromise at every turn:

• We usually had no performance data to base our layout decisions on, so we had to rely on guesses and rules of thumb
• Workloads tend to change over time and manual layouts are painful to modify
• The smallest unit of allocation was an entire LUN or drive, so even the best disk layout mixed hot and rarely-accessed data everywhere
• Much of the allocated space was unused, so we used expensive disks to store nothing

One might think that, 10 years later, advances in technology would have solved these basic issues. But for many people using many of the so-called modern mainstream enterprise storage systems, these problems remain.

Like all good systems administrators, I’m a natural control freak. I am uncomfortable letting the system manage itself, having been burned too many times by computers (well, software really) making stupid decisions. It’s analogous to the backlash against anti-lock brakes, traction control, and automated transmissions among racing enthusiasts.

 

Do we allow technology to help us get better performance, or do we try to micro-manage everything? Photo by ClearInnerVision

But the time has come to let go. We don’t have to micro-manage storage anymore, and we have much to gain by letting the array do the work:

• Just as traction control can manage each wheel independently, something a driver could never do, modern virtualized storage systems can allocate small “chunks” to the optimal drive type, creating a better layout than anyone could manage with LUNs
• Dynamic optimization technology can move these chunks around, adapting as loads change
• Thin provisioning can go a step further, not wasting drive capacity for unused space
• Wide striping and post-RAID storage systems have a higher threshold before performance suffers due to spindle hotspots
• Widespread availability of tiered storage, including advanced caches, solid state drives, high-performance SAS and FC, and cheap bulk disks, gives us many more options

As I mentioned, not all systems have these capabilities, and not all implementations are created equal. I’m concerned about misuse of thin provisioning, for example, but it’s hard to argue with its effectiveness in many circumstances. Find out how granular your system’s allocation is – some remain LUN-only, while others are much more effective, using tiny chunks.

These new storage automation technologies really become essential once high-dollar flash storage is added to the mix. If you’re paying 30 times more for a flash drive, you want to make sure you’re making the best use of it that you can! Look at IBM’s recently-announced SAN Volume Controller (SVC) and solid state drive (SSD) combination, for example: It will almost certainly have fine-grained thin provisioning of SSDs, and should be able to dynamically move data between flash and disk storage and even between different storage arrays, but I still have questions on how granular this capability will be. HDS can do similar things with their USP-V. NetApp’s V-Series NAS systems will do dynamic allocation, thin provisioning, and data deduplication to enable a better return on the flash drive investment. I’d love to see 3PAR, Compellent, Dell/EqualLogic, and HP/LeftHand apply their solid dynamic allocation tech to solid state storage as well!

Then there’s the 800 lb gorilla: EMC. More enterprise SSD has probably been shipped out of Hopkinton than every other vendor combined, and both the CX and DMX support (optional/expensive) “virtual provisioning” (aka, thin provisioning) of flash storage. But EMC’s Optimizer is not widely used, and only migrates entire LUNs based on user input – hardly the kind of dynamic and granular technology needed to optimally use all of that flash storage. I’m sure the company is working on addressing this issue, though. Perhaps it will appear in the DMX-5 announcement we are all expecting this year?

© Stephen Foskett for Gestalt IT, 2009. | How I Learned to Stop Worrying and Love Storage Automation
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