By making the opening move and controlling the action, NetApp (NASDAQ:NTAP) won Round 1 of the battle to acquire Data Domain (NASDAQ:DDUP), even before the fight with EMC (NYSE:EMC) broke out!
With EMC finally surfacing from the shadows, Round 2 was all about Culture Wars, which is a slam dunk for NetApp.
Round 3 just ended, and despite EMC’s stoic posturing against the possibility of U.S. government antitrust review, it seems EMC is wrong again, now losing this latest round to NetApp. Again.
Although the pattern is now clear, if you want to see why this is trending in NetApp’s favor, I recommend some …
Essential Reading & Viewing
The unprecedented levels of interest in NetApp’s proposed acquisition of Data Domain (with EMC playing wedding crasher) is resulting in a lot of questions about who to believe and where this is all going.
Many folks have asked why I titled my first blog on this topic It's always calmest … in the eye of the storm. It’s because I know what coverage to follow.
For example, Jay’s eloquent overview of our position sets the proper landscape for customers, partners and ultimately shareholders. He’s also been interviewed recently on this story.
Kostadis and Alex have chimed in with their observations as well.
Insightful Coverage
Defining the market segments in question is essential to understanding the justification for Anti-Trust concerns. Pay close attention to what Dave Russell (Gartner’s most senior subject matter expert) is saying on this particular topic (relevant comments are in final paragraph).
Following the money is always a good indicator of where things are going. The safe option is now apparent – and the arbs are now inclined to choose it.
What I’m Viewing
One of the best videos for helping define the market based on the top two competitors would be Frank Slootman, CEO of Data Domain, presenting to NetApp at our all-hands:
I strongly recommend watching Dan’s two most recent interviews for a concise executive summary of NetApp’s rationale on pursuing this deal:
(Skip past first minute to bypass Obama’s arrival in Saudi Arabia)
… and the real scoop on comparing an all-cash vs cash + stock deal, as well as the impact of NetApp’s latest offer on our finances:
Nice summary of links Val! Now I know where to look for the best collection of info to follow as this deal unwinds.
Posted by: Edward | June 16, 2009 at 11:56 AM
To quote one of your recent posts "It's not how you start". The winning of "rounds" as you put it is irrelevant to the outcome. Bottom line is that shareholders decide and judging from a recent law suit announced by some DDUP shareholders against the boards of DDUP and NTAP, some shareholders aren't impressed by the way both companies are conducting this deal.
Posted by: steve | June 16, 2009 at 02:37 PM
Ah yes Steve, this situation is offering plenty of fodder to blog about.
No matter how this ends up, I'd rather have won the first few rounds than lost them! :)
Posted by: Val Bercovici | June 16, 2009 at 06:22 PM
Marc Farley has been commenting on this deal from day one. From his latest post
"At this point EMC is screwed if they try to raise their offer as some have suggested if this deal comes down to a ruling about anti-trust. I have to say, the Netapp legal team seems to be doing a very good job of positioning what many observers believe is an inferior offer to EMC's cash-out option."
Posted by: George | June 16, 2009 at 06:55 PM
Looks like Tucci hasn't muzzled Belluzzo with the $100M "loan". The Quantum CEO's latest quote
"I do think that NetApp, which is a growing company, would benefit greatly by adding Data Domain, because it has products that NetApp really needs. I believe that EMC just doesn't want to see that deal happen."
Posted by: George | June 16, 2009 at 08:04 PM
@George:
...except that DDUP has products that EMC ALSO needs. (Because their current product based on Quantum has limitations that neither they nor their customer base are happy with.)
@Val:
While I understand your pro-Netapp position on this deal, I respectfully disagree with it.
First, the whole "market share" thing.
While Jay's take on this was indeed eloquent, the core of his and NetApp's case about EMC comes from those IDC numbers, which IMHO, are completely wrong. Why? They sliced the market incorrectly. The market should not be split into "dedupe VTLs" and "dedupe appliances." (For one thing, a VTL IS an appliance. Hello?) It should be split into target and source dedupe appliances. Slicing it the way that IDC and NetApp do lumps Data Domain and Avamar in the same segment, which is ridiculous.
So...
If you split the market the way that I'm describing, EMC ends up with the lion's share of the SOURCE dedupe market, but that's because the Avamar product is the Data Domain of that space. (They started first and get the "time in service" award, which goes a long with some people -- and the product actually works for what it's designed to do.) However, they end up with a PUNY market share of the target dedupe market, as they have sold very few of the Quantum-based VTLs.
In addition to all that, there is the primary dedupe market. I believe you've got about 99% there. Ocarina and Storwize are nipping at your heals, and EMC now has kinda-dedupe in Celerra, but it's file-level only and older data only. BUT, all you have to do is convince your tons of filer customers to try out a free product and voila!. You're the market leader. (I'm not sure if all the primary dedupe licenses you count toward that number are actually being used...)
Back to the point. From what I can see, EMC and NetApp are both in similar positions here. You have a dedupe VTL that has challenges (no replication, no RAID6, no market share). They have a dedupe VTL that has challenges (slow restore performance, no market share). Both of you would love to replace your current product with one that has none of these challenges (DDUP's boxes work, have decent restore speed, and they definitely have market share).
Therefore I don't see any difference in the positions of both companies. You both want the leader in the space to be part of your portfolio.
As to the whole "investigation" thing...
Of course the guvm't is going to look into the deal. It's a two billion dollar acquisition. IMHO, the fact that they're investigating means nothing other than that they're doing their job. It doesn't make EMC wrong unless the results of the investigation say they are.
And speaking of people doing their job, I am also curious about the merits of the lawsuit filed against the DDUP board. Did they neglect their fiduciary responsibilities by doing a deal so quickly and quietly when they KNEW that EMC was interested? (The story is that Frank & Joe had a meeting scheduled and Frank cancelled. This is referred to in Joe's open letter to Frank.) Do they like the deal with NetApp simply because they believe with NetApp they get to keep the money AND their jobs vs. the EMC deal where they take and the money and run? (EMC has offered no job guarantees to senior DDUP folks.) That side of the story ALSO will be looked into.
And all this hubbub over a product that will help neither of you address the enterprise space. Amazing.
Posted by: W. Curtis Preston | June 17, 2009 at 08:26 AM
@Curtis
Thanks for responding to my comment!
Your dedupe industry positioning to @Val is neatly categorized from a technology perspective, but doesn't represent the competiitve dynamics I routinely see.
EMC is almost always short-listed for every VTL opportunity I see, with Avamar gaining ground steadily as well. Data Domain is moving up from their departmental deployments into the data center.
NetApp's NearStore VTL has great compressed performance, but not a lot of dedupe field deployments and as a result is losing momentum.
From my perspective, EMC is already the recognized market leader (according to IDC) for SAN, NAS, CAS & VTL. Does the "guvm't" really want to let them control the dedupe backup appliance market as well?
Posted by: George | June 17, 2009 at 10:18 PM
NetApp may have also won Round 4
http://www.reuters.com/article/marketsNews/idINN1830700820090618
How many more rounds will there be?
Posted by: Edwin | June 19, 2009 at 04:04 AM
What round just completed this week?
Let me guess, whatever round it is, you'll declare that Netapp won by not winning, the battle for Data Domain.
And declare that EMC lost, by winning the battle for acquisition of Data Domain because it paid more for Data Domain than Netapp had the the means or financial wherewithal to bid.
One thing I always expect from Netapp is that no matter the outcome of any engagement, Netapp will declare victory and declare that the result is proof that the evil (or foolish, or avaricious, or unfair, greedy, pick your own negative adjective and insert here) competitor has been vanquished.
Posted by: Gotta Work | July 12, 2009 at 10:28 PM
Hiya GW,
Apart from VC's and 11th-hour investors - Can you tell me who actually won Round 4?
It wasn't customers - they now have less choice in the market.
It wasn't DDUP employees. They face the prospect of a new draconian overlord so paranoid it actively enforces non-compete clauses.
It wasn't EMC. They will be getting a shell of a company which overlaps two existing product lines - after depleting over a 3rd of their cash reserves.
And yes it wasn't NetApp. But I can assure you this setback is temporary. DDUP was an opportunistic purchase which is now in the past. We prefer to spend our time focusing on the future.
There are many more strategic and opportunistic opportunities ahead for NetApp. Stay tuned to see them unfold!
Posted by: Val Bercovici | July 13, 2009 at 12:13 AM