Merger mania: How you can help the small storage companies

After a lull of almost four years, merger mania is returning to the storage industry and the valuations are getting heady. As a user you have two choices: Have faith and buy from the startup. Or tell your favorite large company why you think they need to carry the product in question.

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Unless you were hiding under a rock, you remember the Internet Bubble of the 90's. During those five to six years, companies were being created at a rate generally kept aside for rabbits, and they were being acquired at rates reserved only for drunken sailors. It seemed like there was an IPO every day, each bigger than the last. I still remember the time when three VCs were fighting over who wanted to invest more in this company whose...

founder had just presented them with a one page (yes, a one page) business plan. I thought the market had gone insane. I thought I was the one out of sync with the New world.

Baloney.

We all saw what happened. Good business rules always apply. And they always will. That is why there is a P in P&L. That is why real paying customers will always matter. Eyeballs are for those VCs that had lost their minds. (During the insane days, VCs were more interested in how many eyeballs saw a Web page than anything else.)

You think that era is gone forever. I don't know. I am seeing signs of it re-emerging. Maybe not with the same intensity. Maybe not with the same level of stupidity. But I see the signs, nevertheless. Merger mania has begun in the storage market. We are in the very early stages of it. I think we will see it pick up to a pace over the next year that will make all our heads spin.

Is it necessarily bad? No, not in my view. In the storage industry, a majority of the real innovation happens at startups and not at big companies. The big companies have increasingly become suppliers of integrated solutions… a channel to you, so to speak. Let me give you a few examples.

EMC bought FilePool, a small Belgian company, to create Centera, a highly successful product. Sun bought Pirus Networks in late 2002 to create their 6920 model, the most innovative product in their line. HP acquired Persist, a company that gave them their Exchange archiver, RISS. I can go on and on.

And recently, HP acquired AppIQ for an undisclosed amount, estimated to be between $300M to $500M. Imagine investing $20M -30M and receiving $300M+ in three years. Wow!

Yes, the heady times are returning. I expect at least 20 mergers and acquisitions in the next 12 months. There are plenty of small companies that have been waiting for this chance. There is Kashya and Topio in the replication space. We have Mimosa and Storactive in the Exchange space. StoredIQ, Kazeon, Scentric and Njini are players in the information classification and management (ICM) market. Similarly, we see Bocada, Illuminator and WysDM driving the data protection management (DPM) market. And, of course, Tacit Networks and Riverbed are already primed in the red hot wide area file services (WAFS) market. I could go on and on. Yes, sir, the storage market is ready for the taking.

So what do you, the end user, have to do with this? Isn't this a vendor issue? Not really. Think of it this way: If you like a small company's product but want to purchase it from your favorite large company, tell them the product you like. That is the No. 1 method big companies use to determine which company to buy. It is always the small company that is giving them maximum grief in the market… the one whose product you like. If you think you are powerless in this transaction, you are not giving yourself enough credit. I see this everyday. You matter. You determine if the small company makes it… or not.

The innovation engine in storage is running incredibly well, as long as you give it a chance. Buy the products you like. Even if they come from the small company. Especially if they come from the small company. And tell your big supplier to supply that product. Or else.

It is the American way. And in storage it is certainly working. Thanks to you.


About the author: Arun Taneja is the founder and consulting analyst for the Taneja Group. Taneja writes columns and answers questions about data management and related topics.

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