So far, according to Arun Taneja, founder and analyst with the Taneja Group, while his prediction of 20 mergers over the next 12 months, made in a column last year Merger Mania, Oct. 12, remains on target -- the market is still fairly competitive. But "the bad news is that big companies have all just become basically channels to the market."
While one throat to choke, whether by design or acquisition, is usually viewed by users as a good thing -- cutting down on vendor relationships for customers was given as a major reason for the Quantum/ADIC merger. In the long run, consolidation and a lack of competition in the market could lead to pricing stabilization, or even price gouging if too few vendors control things.
Already, the merger between rival disk manufacturers Seagate Technology and Maxtor Corp. was projected to stabilize disk pricing.
"We're definitely going to see the dollar-per-gigabyte in the storage market continue to moderate," said Dave Reinsel, research manager for hard disk drives and components with IDC. "Disk prices have been dropping more than 30% year on year, and that may slow down a bit."
With this merger, Reinsel pointed out, Seagate acquired "an inordinate amount of share -- more than two thirds of the revenue and some 65% of the units on the market," he estimated.
Not every analyst sees dramatic pricing stabilization happening. "The not so good news is that acquisitions eliminate competitors and that can mean that customers may not have as large an edge as they have in the past to negotiate pricing," said Dianne McAdam, analyst with the Clipper Group. "But let's face it -- pricing can still get very aggressive among the big storage vendors."
"You have to take the long view on this," said John Webster, founder and analyst with the Data Mobility Group. "Thirty years ago, IBM was the dominant player along with a handful of companies known as 'the bunch.' Today most of 'the bunch' is gone, but the landscape is littered with big companies specializing in very different areas -- the marketplace has actually become increasingly diverse."
"The good news with all these acquisitions is that startups are still innovating," Taneja said, and venture capital companies show no signs of withdrawing investments from startups."There are still some key areas where startups and independent companies are doing extremely well," said Brad O'Neill, senior analyst with the Taneja Group. O'Neill cited three product areas -- remote office storage and file services; clustering or grid computing, and cross-domain application and data management, such as that done by Onaro Inc. and Illuminator Software, among others.
Still, Webster said, "In the storage industry the only real exit strategy for most startups is to be acquired. Customers buying from a startup, Webster said, should be prepared for a bigger company to acquire it, or for the startup to disappear.
"Excessive consolidation could become a big problem if IBM acquires NetApp [Network Appliance Inc.] or something like that." Taneja said. "Look at the oil companies right now, for example. They have the country by the throat when it comes to gas prices. Generally, capitalism works when there's open competition and fails miserably when there's concentration."