NetApp Buys Onaro

When I wrote my bit around "Desperate Times In Storage Land?" I had no idea we'd see so many strategic transactions from storage vendors.

First Dell, then IBM ... and now this!

So, what's up?

What I Said At The Time

I basically had two theses about the storage market back in early Sept 2007.

First, the server vendors weren't taking storage seriously, and that was hurting them.  I guess Dell and IBM agreed with my sentiments, HP is mum so far, and Sun ... well, Sun ... never mind.

Second, our favorite "pure play" vendor (other than EMC!) NetApp was stuck in a squeeze play with folks like EMC coming down from above, and smaller, more nimble vendors from below.

And today, NetApp acquires Onaro

To Be Honest, I"m Conflicted

Taking off my EMC fanboy hat for just a moment, I have to say I'm conflicted.

Despite my past NetApp bashing over certain marketing practices I find abhorent, I respect them as a company and as a competitor.  They deliver decent products, have loyal customers, etc.  They're a legit player in the Storage League, and good competition is good for customers and good for the marketplace.

Onaro carved out a nice niche around SAN configuration management.  A few EMC customers with high-end SANs really liked what they did, and how they did it.  They'd use Onaro for what it did well, and things like EMC's ControlCenter for what it did well.  Again, a company to respect for what they did.

[not that EMC is entirely asleep at the wheel, our ControlCenter group saw what Onaro had done, and added many of the same features to ControlCenter, so I'd offer that the gap is less than it's been in the past]

So, part of me likes it when two good companies connect. 

But is it a good fit? 

I don't think so, and here's why.

Big SAN, Meet Little SAN

Onaro's strengths are in large, mission-critical FC SANs.  The bigger and the more important your SAN, the more you're likely to consider something like Onaro to handle config management and related tasks.

Now, I don't know about you, but the phrase "large, mission-critical FC SAN using NetApp" is a bit of an oxymoron for me.  Sure, they sell a decent amount of FC protocol to their customers, but they tend to be smaller, and certainly not mission critical. 

And, to the best of my knowledge, Onaro has little to offer in iSCSI management.  If you look at the broader category of SRM (storage resource management), it's pretty obvious that Onaro (now NetApp) has a long ways to go before they could be considered seriously as a top-tier SRM player.

Simply put: Onaro's products aren't targeted at NetApp's classic customers, and NetApp's products aren't targeted at Onaro's classic customers.  I'd rate the strategic alignment part of this as "poor".

One aspect might have made this more appealing to NetApp: Onaro has figured out how to support VMware well with their SAN config management tools, no easy trick.  And, of course, anything with any sort of VMware affinity these days is incredibly appealing.

And The Track Record Is Not Pretty

Spinnaker.  Topio.  Decru.  Maybe a few more NetApp acquisitions I forgot about.  None of them really worked out as anyone thought.  I won't go into the gory details, but I don't see NetApp as successful as they'd like to be with their past acquisitions.

Buying great companies is only half the battle.  Finding strategic alignment, well, that's the really fun part of the M+A game.

Back To The Thesis

OK, I admit it, I feel a bit vindicated about the original post.  Some of the commentary at the time was, well, a bit negative.  Not that it bothers me, I'm not trying to win a popularity contest here ... ;-)

So, given what we've seen so far, what else might we see in the near future?

HP has to say or do something to remain relevant.  I'm sure they're saying a lot to their loyal base of customers and resellers, but very little to the marketplace and the world at large.  And, yes, they've got some serious gaps in their portfolio that will hurt them in the near future.

Sun, well, I guess Sun could make some sort of move or another.  There's lots of small storage-related companies left to be snapped up, some of them pretty good.  The real problem, though, is Sun, not the availability of interesting companies to buy.

The wild card for me is the "other" pure storage player out there, namely HDS.  They've done OK with the USP (aka Tagma) at the high end, but that's just one category of many, many segment they need to play in.  I'd expect some sort of move from them in the near future.

Storage Is Becoming A "Must Win" Game In The Industry

Guess what?  IT is becoming more about information, less about technology.  If a customer trusts you to store their information, they'll probably trust you for other things as well.

If you're a server vendor, you've been commoditized in spades.  VMware is hyper-accelerating the process of server commoditization, as are trends like cloud computing.  If you make your living selling x64 chips in nice racks, you've got to do something different in the near future, don't you?

And if you're a "pure play" storage vendor, not only do you have to cover a wide range of storage segments and niches horizontally, you've got to start adding value above the stack with management, ILM, archiving, backup, etc.  Not easy to do.

So, yes, it's still desperate times in storage land.  And the gap between the winners and losers is causing all sorts of M+A activity.

Who said this was a boring industry?

Comments

[Chuck Hollis]

A brief update:

First, this seems to be a VERY popular story today. Most of my web hits are coming from inside NetApp, though!

More to the point, commentary has been offered that this will somehow help NetApp penetrate large enterprise accounts.

Wishful thinking, I believe. It's going to take more than a nifty enterprise SAN tool to solve that problem in any meaningful way.

Finally, some have speculated that my negative tone might signify concern and/or fear. Other than a healthy respect for NetApp and Onaro, there's nothing really out of the ordinary.

If I were to be cynical, I could call this a small "win" for EMC as follows; Onaro is out-of-the-game for a while, and NetApp is distracted with a new acquisition and a bunch of interesting integration problems.

But I'm not that cynical.

[mgbrit]

Chuck, I agree with you that this is a short-term win for EMC - the distraction is always good for those not involved in a merger.

However, I do think you missed the point - I think that NetApp is looking to grow into the top enterprise space, an area where until now they have been challenged. That Onaro is installed in a third of the Fortune 50 goes part of the way to this. That Onaro has a solid application interface will aid NetApp to gain traction here, if they go about setting the marketing strategy (and compensation/quotas!) with the two sales forces.

So it may add some pressure to EMC at the high end, but it may also remove some pressure from HDS - after all, I understand that HDS has partnered in the past with Onaro to compliment their portfolio on sales campaigns.

Good point about NetApp struggling with their prior acquisitions - I wouldn't be surprised if they mess this one up too.

[Chuck Hollis]

Hi mgbrit ...

No, I didn't miss the spin around Onaro "helping NetApp penetrate enterprise accounts". I just don't believe it, and here's why:

By all standards, Onaro is a small company with a small footprint in a relatively small market by industry standards. I too know how to play the "our product is being used by ..." game as well, so don't be overly swayed by this one.

I may go dig up some comparative numbers to prove my point, but Onaro's current revenues in this market segment are probably something like 1/100th those of the established players, like EMC.

Going further, having an enterprise product to sell (through acquisition) does not make a vendor an enterprise vendor.

Should NetApp seriously desire growth in the large enterprise segment, they'll have more to do than acquire a 50-ish person company, I'd offer.

Thanks for writing!

[Vijay]

Hi Chuck & mgbrit,

The points are captured well and brings up a good third eye.

I would disagree with the following point.
>>Simply put: Onaro's products aren't targeted at >>NetApp's classic customers, and NetApp's products >>aren't targeted at Onaro's classic customers. >>I'd rate the strategic alignment part of this as >>"poor".

I wonder why there is a need for a synergy when these two companies had different eyes earlier. The point is how the merger goes. If the merger really works out well, then all my following points will be very true.

I hope that Netapp needs a strong contender when they scale up in Enterprise segment which may be assured by Onaro. But this is creating lot of interest. Also Onaru will get good opportunity to meet the customers of medium business segments.

If this merger works out well, then Netapp will ring alarms.

-- V

[Chuck Hollis]

Hi Vijay -- your view is shared by many, but -- I have to say -- I just don't see it.

Maybe I'm just too close to the situation.

Up to now, I've noticed that storage management tools are mostly sold at the same time, and to the same people, as storage arrays, Onaro's modest success notwithstanding.

If I'm selling a bunch of filers, people want filer-oriented management tools at the same time. If I'm selling a bet-your-business SAN, they want the appropriate management tools at the same time.

Market posturing aside, NetApp ain't targeting mission-critical SANs. Check out their own statements, you'll hear things like "tier 2" and whatnot. And any decent market analysis will show you the same thing.

The only way they'll be able to synergize this investment is (a) re-direct Onaro's R+D and product focal points to where NetApp is selling now, or (b) come up with a huge investment to develop and market a mission-critical SAN product suite.

Both are possible; neither are easy.

Thanks for writing!

[John McArthur]

Chuck,
For me the bigger question is whether NetApp can grow an independent software business, as EMC has done with the Documentum, Legato, and so many more acquisitions, not to mention VMware, which is REALLY indepedent. Onaro is in some very big accounts, and, as one extremely happy Onaro customer said to me, "If it's only about NetApp software on NetApp storage, it's not worth it." He needs it to manage his EMC environment, too.
John

[Chuck Hollis]

Excellent points, John, as usual.

Today NetApp's software business is actually a function (and largely captive to) their hardware business.

And, you're right, for long term success, they'll need a relatively independent software business, and Onaro might be a start.

We'll see how it plays out in the next 12 months or so, will it be captive, or independent? Right now, it looks like to rolls to the main product group, so it doesn't look promising.

Thanks for commenting!

[software testing services]

Hey Chuck ! I am also with you. It is a short-term win for EMC - the distraction is always good for those not involved in a merger.