Will EMC Treat Legato Customers Right?

Following the announcement of EMC's purchase of Legato, the storage industry wonders if a very big hardware company can understand its software side. Or will it remake its new acquisitions in its own image?

What may be the storage deal of the year—EMC Corp.s purchase of Legato Systems Inc.—raised questions about the fate of Legatos backup products this week, as analysts, partners and competitors pondered EMCs choices and opportunities.

Partners and industry analysts offered the Storage Supersite differing perspectives on the new arrangement. However, all of them had questions about the future of Legatos technology and its new position under the EMC umbrella.

"I was impressed that EMC was willing to put $1.3 billion on the line for data-lifecycle management," said Lisa Cash, president and CEO of database archiving software vendor Princeton Softech Inc. of Princeton, N.J., which is a software partner of EMC. She pointed to statements to investors by EMC President and CEO Joe Tucci that the deal had been driven by expected future demand for information lifecycle management solutions.

"Storage will be a bigger line item in [corporate budgets] than production and EMC understands that customers need a full data lifecycle management solution," Cash said. With a nod to the irony of the statement, she added that "EMC looks like it wants to the IBM of storage."

According to Steve Kenniston, technology analyst at Milford, Mass.-based Enterprise Storage Group, the acquisition was a "good deal for EMC, which has been looking to crawl up into the software stack with limited success. Legato rounds out the bill."

EMC executives said that the company will run Legato as a separate software division, captained by David Wright, its current chairman and CEO. The two companies will integrate engineering development teams and focus on new market hot-spots, such as the management of e-mail storage and data archive.

With Legatos assets, "EMC now has a real choice to make: Will it strengthen its proprietary position or really operate a true, heterogeneous software company?" Kenniston said. In the past, the more homogeneous approach taken by hardware vendors such as EMC and Network Appliance Inc. was a key advantage, permitting a "synergy between software and hardware" that lead to improved service. "EMCs success is based on taking away storage management headaches."

However, that strategy could now be "a double-edged sword," Kenniston suggested. Legato has built its business on support for a wide variety of storage architectures and hardware platforms. It sells OEM backup products into a number of markets.

Recent pronouncements by EMC executives have sounded the more open message. In an interview with eWEEK in May, Tucci said: "Virtualization is a buzzword, but what were working on has to do with multiple applications, multiple servers and multiple platforms from different vendors. We hinted it would be out this year. It was on our road map. I think the industry expects that product this year, and we have a history of not disappointing the industry." (For more information, see "Tucci Talking Tough.")

Meanwhile, in an open letter to EMC investors following the announcement, EMC boss Joe Tucci wrote, "People ask me if this means EMC is becoming a software company. The correct answer is to describe EMC as a technology-led, information storage solutions company, where software plays an ever-growing role.

"Software represented approximately 23 percent of EMC revenues in 2002. We expect that percentage to grow," Tucci wrote. "Today, more than half of our employees are dedicated to software, services, and building integrated solutions that leverage our full automated networked storage portfolio."

The possibilities for that level of integration was also a topic of discussion in the halls of Santa Clara, Calif.-based Sun Microsystems Inc. Director of Network Storage Solutions Marketing James Staten saw little change in the near term. Sun sells an OEM version of Legato NetWorker with its StorEdge branding, as well as Veritas Software Corp.s NetBackup software. It also offers its own lines of storage area networking products that compete with EMC.

However, customers could "grow confused" if down the road EMC decides to favor its own hardware with optimizations in Legato, Staten said. Support for heterogeneous environments was critical to Suns customers and its own storage and server strategies. Legato has paced that effort with its products. Staten observed that any change in the current direction "would certainly give us pause."

EMC of Hopkinton, Mass., on Tuesday announced it will acquire Mountain View, Calif.,-based Legato for about $1.3 billion. EMC executives said the deal will let the storage company more quickly deliver "complete information lifecycle management solutions" as well as gaining an experienced sales team with success pitching software. (For more on the enterprise storage market, including profiles of EMC and Legato, see Baselines special report.)

Over the past few years EMC has been on a shopping spree mostly in the software department, making deals for 9 other companies; last week it acquired technology from systems management vendor BMC Software Inc. (For more information, see "BMC, EMC Team on Storage Management.") In addition, the two companies embody complementary resale strategies. According to a recent Gartner Inc. report on the enterprise backup market, EMC sells 90 percent of its backup and recovery solutions directly. On the other hand, Legato has a well-established channel business.

David Morgenstern is a longtime reporter of the storage industry as well as a veteran of the dotcom boom in the storage-rich fields of professional content creation and digital video.