First, within minutes of finding out NetApp bailed on the deal and EMC won, the sky's in Hopkinton turned pitch black, started pelting down hail, and we had violent tornado warnings.
I'm not saying anything - but the last tornado in Massachusetts was, um, never I think. It was fire and brimstone, end of the world kind of stuff - and oddly, centered literally in Hopkinton. I'm not making it up - google it. It was all over the news. Just seems weird, is all. Hopkinton was the only town on all three major news channels. The only thing relevant about Hopkinton is that is where the Boston Marathon begins, and EMC.
Anyhow, I've taken a couple million calls in the last 14 hours all with a common theme/question: "What will NetApp do?" The meaning: "who will they buy?"
The answer, is no one. While this drama has been awesome (awesome being a relative term, it's storage stuff after all), I think this is the true skinny;
1. NetApp originated this deal for one simple reason (no, not because there is a secret Dutch society of zillionaires) - opportunity. If you forget the cost/value argument, the fact is that NetApp has a proven ability to sell a ton of "appliances" to a ton of customers around the globe. Data Domain is the prom queen du jour - who just so happens to also sell "appliances". Both sell largely to the same class of account, though clearly NetApp sells to a lot more of them. NetApp saw a totally synergistic and accretive market potential that clearly would be easy for them to apply their 15 years of excellence to - and decided it was worth the big price tag and risk because they saw quick integration and the ability to add an entirely new revenue line without needing to re-invent themselves - because they already play this game every day.
2. Data Domain knew that their problem was the exact same problem faced by NetApp years ago - once you get public you have a very short window in which you need to become relevant and defensible - which requires you to grow very fast for a very long time (effectively doubling sales year over year - for many years). They (DDUP) were already slowing down from a new customer acquisition perspective if you look at their last 4 quarters as a ratio of new customers to sales head count. They were averaging UNDER 1 new customer per sales person per quarter. That growth is too slow - it left too much room for a giant to be able to kill them. Dan Warmenhoven knew that. Frank Slootman did also. Smart guys, those Dutch.
3. 1+2, at what both felt was a fair valuation, inked the deal.
4. EMC decided that there was risk in giving NTAP the opportunity to succeed in their strategy. NTAP is already number 2 depending on who's idiotic market share numbers you believe. EMC clearly felt that they were better off gambling on perhaps paying more than they might be able to reasonably justify at face value than to run the risk of NTAP becoming a $7B player potentially in a few years. EMC played defense - because they could.
You can't rationalize the price in a vacuum - and neither of these companies is dumb. Therefore, I'm right.
Thus, NTAP doesn't need to do anything really - at least not in the backup de-dupe target space (blah blah blah). This began opportunistically, not because they really wanted to get into that business (or more into that business). This began because if they got away with it, while extremely risky, there was a reasonable assumption that based upon historical success and the obvious synergies, that this deal could have added some hot growth opportunities for them. There wasn't a ton of execution risk if you consider that they really don't have to "integrate" much - they just need to add the product line and merge the sales org's. (Not to diminish this task - but compared to rationalizing existing product lines, channels, development efforts, etc. these tasks are no where near as complex).
EMC will face these challenges in spades, but they aren't dummies either. They haven't done a deal of this size that has been right smack in the heart of their core business since Clariion (which was only $1B) - and that took years to get off the ground (let alone the removal of cultural icons). They have a lot more to contend with than NetApp would have - and I don't think they would argue with that. They also have a lot more leeway to make mistakes than NetApp would have had. EMC could screw it up entirely and while embarrassing, it wouldn't be fatal.
Thus, while NetApp might make another play into the space, it would simply be because the space itself is NOW interesting to them - but not because they felt they had to be there or they would somehow disappear. I bet they are looking for the next synergistic opportunity to come along - and I bet it will be outside of this space.
Comments