Rumors swirled this week around speculation that IBM is in talks to acquire startup Storwize, which specializes in data compression/reduction for primary storage, for a reported $140 million. I wasn’t able to confirm the rumor, but I have no doubt it’s true (the talking part, although not necessarily the acquisition part).

The potential deal makes sense for a number of reasons:

One: Data reduction for primary storage is going to take off big time this year. Heavyweights EMC and, more so, NetApp have capitalized on this trend with data deduplication techniques for data reduction. IBM has data deduplication for secondary storage via its acquisition of Diligent Technologies, but has been out of the picture when it comes to data reduction for primary storage. And buying Storwize (already an IBM partner) will get Big Blue into the game faster than developing the technology on its own.

Although it’s based on compression, not data deduplication, Storwize’s technology (Random Access Compression Engine, or RACE) can be used in conjunction with data deduplication products such as those from EMC and NetApp.

Two: IBM has plenty of experience acquiring Israeli companies. In addition to Diligent, IBM acquired Israel-based XIV in 2008. (Storwize’s R&D facility is in Israel, although the company now has U.S. headquarters.)

Three: IBM has already been reselling Storwize’s STN appliances, and has jointly presented Webcasts with Storwize and produced white papers legitimizing Storwize’s various claims, including the claim that its compression appliances can reduce capacity by 50% to 90% without negatively affecting performance.

Four: It hasn’t been a secret that Storwize has been shopping itself for some time. Getting acquired makes more sense than trying to go it alone in the primary storage optimization market, which will be ruled by the big boys – not startups (just my opinion, but I’m right.)

This acquisition would be interesting on a number of fronts.

–Would it lead to HP acquiring partner Ocarina Networks, a Storwize competitor?

–And let’s not forget about other players in the primary storage optimization space. Exar (via its acquisition of Hifn) has data reduction technology that combines data deduplication and compression and handles those functions at the ASIC level. And GreenBytes has inline deduplication ttechnology that can be applied to NAS or SAN environments.

–Could IBM’s offer lead to a bidding war? Perhaps between Big Blue, EMC, NetApp and/or HP?

Further fueling the flames in this market was Permabit’s announcement of its Albireo technology last week (see “Permabit deduplicates primary storage”). Albireo is a software-only deduplication technology designed specifically for primary storage, and the company claims to have a number of design wins, with at least one rumored to be with a big vendor. Who could that be?

This could get even more interesting than last year’s NetApp-EMC bidding war for Data Domain.

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