NetApp Should Consider Another Acquisition, Experts Advise

In the wake of what certainly had to be a crushing blow to NetApp's strategic plans—not to mention its corporate ego—when EMC outbid it for Data Domain, the question remaining is this: What happens next for NetApp, the network-attached-storage pioneer that used to be known as simply a "good little file server maker"?

"Regroup, don't rush into [the] next acquisition too quickly so that it looks reactionary, take a bit of time—however, not too long—[then] get back up and try riding (or castrating) that bull again," Greg Schulz, founder and senior analyst at StorageIO, suggested to eWEEK.

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That sentence summed up the perspectives of a number of other storage experts contacted by eWEEK. (By the way, Schulz was referring to NetApp co-founder Dave Hitz' recently published book, "How to Castrate a Bull: Unexpected Lessons on Risk, Growth and Success in Business.")

In this decade, NetApp has become successful in providing storage for large IT-based corporations, such as Oracle and Yahoo, and for a wide range of enterprises of different sizes in a number of vertical markets. It has climbed up to become the world's second-largest independent storage company, at about $3 billion yearly in revenue—second only to EMC itself.

Over time, NetApp has continued to improve its position in the world storage software market to rank behind only EMC, Symantec and IBM. Top external disk storage supplier EMC and fifth-place NetApp have been posting double-digit revenue growth for the last few years, up until 2009 and the world recession. Even with that huge challenge, their single-digit profit numbers still are excellent.

EMC went to extra trouble to establish its own separate subsidiary, Envoy Merger, for the specific purpose of landing the acquisition of relatively small ($300 million yearly sales) Data Domain: It obviously wanted the midmarket sales potential that Data Domain represents—at all costs.

Why? Two key reasons: One, Data Domain has excellent software and loyal clients in the midmarket, which is precisely where EMC wants to keep expanding; and, two, a combined NetApp/Data Domain would have had the potential to dominate the small and midsize business markets in a few years.

Along with consumers, SMBs will be creating the lion's share of the world's data over the next 10 years. Someone's got to store all that content somewhere. EMC, with Data Domain, is now much better prepared to sell into those sectors. The company is expected to maintain Data Domain as an independent, recognizable brand, and to retain as many current field staff people as it can employ.