In a surprise move, NetApp announced today that it has inked a deal to buy disk-based backup and data deduplication vendor Data Domain for approximately $1.5 billion.

Under the terms of the agreement, NetApp will acquire all of the outstanding shares of Data Domain common stock for $25 per share in cash and stock. Data Domain’s Board of Directors has unanimously approved the acquisition and NetApp expects to finalize the deal within the next 120 days subject to customary closing conditions, including regulatory approval.

NetApp plans to operate Data Domain as a product line within the NetApp product operations organization. The companies’ respective sales teams will be merged to “maximize momentum and access new accounts,” according to a statement from NetApp.

The addition of Data Domain’s products and software – not to mention its list of more than 3,100 customers – will beef up NetApp’s product line and extend its reach into the market for heterogeneous disk-based backup.

“The driver for this acquisition is an incremental growth opportunity for both companies. The overlap between NetApp’s customers and Data Domain’s customers was fairly small. The addition of Data Domain’s products to our portfolio was a clear market expansion opportunity,” says NetApp’s chief marketing officer, Jay Kidd.

Kidd emphasizes that this acquisition was not technology-driven. “We are doing this for the expansion of the business opportunity and not to acquire technologies that would allow us to consolidate product lines,” he says.

Roughly 77% of Data Domain’s business comes from North America. NetApp, however, has a global reach. Kidd says NetApp’s global reach makes the acquisition a perfect match. “We have access to enterprise accounts that they are not in yet. Our [global presence] will accelerate the business that Data Domain already has,” he says.

As for data deduplication, the two companies take different tacks toward the elimination of redundant data.

“The technical approaches are slightly different, but their solution deduplicates backup data extremely well. NetApp dedupes primary data extremely well. The two workloads are quite different,” Kidd says. “There is no rule that says a company can only have one solution for deduplication.”

While the product overlap between NetApp and Data Domain may be miniscule, it does exist, according to Lauren Whitehouse, an analyst with the Enterprise Strategy Group.

“The biggest issue in my opinion is the overlap between VTL-interface products, NetApp NearStore and the Data Domain DD series,” says Whitehouse. “NetApp spent $11 million on the [acquisition of VTL vendor Alacritus] several years ago and has made investments in NearStore over the years; however, the product is lacking some features that make it competitive with others in its class.”

She points to shortcomings in the area of VTL-to-VTL replication. “It’s going to be hard to justify incremental investment in NearStore when they’ve just spent $1.5 billion on a similar solution with a few more advanced features,” says Whitehouse.

In related news, Data Domain added replication to its systems earlier this month as part of its plan to move further up-market into larger enterprise accounts. The new Data Domain Replicator software deduplicates backup, archive and nearline data across multiple sites prior to sending data over the network to a hub location for a global dedupe, a process that saves bandwidth for distributed enterprises.

With the software updates, Replicator now supports up to 90:1 remote site fan-ins to a single controller for automated global de-duplication. As a result, a single DD690 enterprise system can now support replication fan-in from up to 90 remote sites using smaller Data Domain systems. This means a fully configured DDX array now supports up to 1440:1 fan-in.

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