Deduping: Killer app behind battle for Data Domain

Process known as data deduplication is white-hot. So hot that Data Domain, virtually unknown outside the storage world, is now deemed worth at least $1.9 billion.

John Webster
John Webster Special to CNET News
John, a senior partner at Evaluator Group, has 30 years of experience in enterprise IT storage, spanning mainframe and open systems environments. He has served as principal IT adviser at Illuminata and has held analyst positions at IDC and Yankee Group Research. He also co-authored the book "Inescapable Data Harnessing the Power of Convergence."
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Much drama has ensued since NetApp announced the intended acquisition of Data Domain on May 20 for the whopping sum of $1.5 billion.

EMC countered with a $30-per-share offer valued at $1.8 billion. NetApp then raised its offer to $30 a share, valued at $1.9 billion. Data Domain essentially said, "Thank you, EMC, but we like the new NetApp offer more than yours." EMC then claimed that it had been unfairly shut out of the bidding process and appealed directly to Data Domain employees.

NetApp countered with a claim that EMC's potential acquisition of Data Domain would fail a federal regulatory review, a claim that EMC has rebutted as it considers shoveling more cash into the fire to make its proposal more attractive.

To its suitors, Data Domain is now reportedly worth $1.9 billion. To give you some perspective on that figure, Oracle recently agreed to acquire Sun Microsystems for $7.4 billion. A $1.9 billion acquisition would mean that Data Domain is now worth about 24 percent of that number, yet its 2008 revenues of $274 million are a tiny fraction of the $13 billion Sun took in sales revenue during 2008. Here's another relevant data point: EMC acquired VMware for a mere $635 million.

Deduplication is the storage world's new killer app. It's the great shrinking machine. Think of the old Steve Martin "let's get small" routine. It shrinks big data down to a small fraction of its original size--way more than is possible with the more common data compression routines. Why is that process now worth billions of dollars?

Most IT shops are moving away from using tape as their primary backup media in favor of disks. Deduping makes this migration economically viable by greatly reducing the backup data footprint on disk arrays by factor of 20 to 1, on average. You can't do that with tape. Nor can you get the input/output performance of disks from tape.

But that's not all that deduping does. It can be run against primary data storage streams to reduce the data footprint within expensive primary storage arrays. NetApp, among other vendors, supports this. Running it here may amount to the functional equivalent of buying another array, given the capacity that's saved as a result. When IT budgets are constrained, and storage is one of your top budget priorities, that's a big deal.

One can also dedupe archival storage, making the disk a repository for archival data that may need fast accessibility on a periodic basis--like when your corporate attorney needs to find exculpatory e-mails from three years ago and needs them yesterday.

So now everyone has to dedupe. Every major storage vendor, from EMC to Hewlett-Packard to IBM, now offers at least one dedupe option of the many that are now available, including the in-line and post-process variants. IBM, for example, offers four options.

In spite all its high-profile competition, Data Domain has been the acknowledged leader in integrating deduplication into the backup process. It offers disk-based deduplicated storage arrays for heterogeneous backup environments, and it leads all contenders in this space, in terms of market share, by a wide margin.

Does a leading position in a killer app justify a $1.9 billion valuation for a relatively unknown company mining a niche storage opportunity? Stay tuned. The executives at EMC and NetApp hate to lose, and EMC may yet win the heart of the fair maid named Data Domain.