With EMC Corp’s cash and equivalents as of its latest quarter at $2.8 billion, and a market capitalization just shy of $26 billion, one might justifiably ask why it doesn’t simply buy a tape library or storage connectivity company instead of just reselling their products.
As reported by ComputerWire on Friday, storage giant EMC has announced a partner program it calls EMC Select, that sees it reselling third party tape libraries, host bus adapters (HBAs) and storage connectivity products, despite it having previously claimed to offer a complete information lifecycle management (ILM) portfolio of its own.
But there are a number of reasons that have stopped EMC buying instead of partnering. Buying a library company, for instance, would immediately put the brakes on sales of those libraries to non-EMC customers. Server vendors like IBM, Sun and HP might be happy to involve a library vendor like ADIC or StorageTek in a deal while they are independent, but they would be less willing to include EMC in such a deal because they would worry about competition for the disk array business, in which many of the server vendors have a vested interest (they may sell their own disk, or OEM someone else’s).
There is also the reaction to the news by competing library players, who would be terrified of bringing EMC into their accounts for fear of them competing with their tape products. Likewise, competitive library vendors would be less willing, or even unwilling, to work with EMC on any kind of integration or cross-certification of products, because EMC would be a direct competitor.
What all of this would add up to is a vendor that would be a great choice if you wanted to buy everything from that single source, but which would have limited interoperability and cross-certification with other companies’ products – a serious drawback in an environment that increasingly demands truly open systems. Some of this sentiment is often little more than a customer’s perception, to be fair, but either way EMC doesn’t want that reputation.
These are the same reasons why EMC doesn’t buy a server vendor and sell EMC-branded servers to all of its storage customers. In fact it did find itself with a server business when it acquired Data General back in August 1999 for $1.1bn in stock. But it had bought the company for its midrange Clariion storage arrays: it didn’t want the server business at all.
Data General had refused to sell to EMC in pieces, so EMC bought the lot. EMC couldn’t sell the server business for two years after that, because it had structured the deal as a pooling of interests, which imposes restrictions on the sale of acquired assets. Instead it simply let the business dry up by giving it limited investment, and allowing the division’s best brains to look elsewhere for interesting jobs.
Once the two years was up, EMC quietly announced it had dumped the server business altogether, despite it having developed rather fine non uniform memory architecture (NUMA) machines. Similar NUMA technology was considered so good that IBM spent $800 million Sequent Computer Systems for its NUMA architecture in July 1999, and Big Blue has put elements of that technology into the servers it still sells today.
None of these arguments are purely theoretical. After EMC bought Data General in 1999, it took storage library player StorageTek just two days to announce it was swapping to Sun as its long-term storage partner, having formerly partnered with Data General. Back then EMC also lost its Clariion OEM business with Hewlett-Packard, as well as its OEM deal with Sequent Computer Systems.
Partnering – though one would think it suggests at least the hint of a shared philosophy between two companies – is simply not seen as a competitive threat in the same way that actually buying a company is.
In fact, all sorts of unlikely companies who have been erstwhile sworn enemies partner with each other today, or at least partner with the partners of their sworn enemies. StorageTek now counts EMC among its partners, as well as IBM Global Services. EMC partners with Cisco, which is now big in storage networking, as well as having just announced a partnership with CNT for storage networking. Hitachi Data Systems, one of EMC’s closest competitors, partners – as EMC does – with Cisco, CNT, Emulex and QLogic. This ambivalence towards partnership deals has even been given its own terminology: the horrible new term that is ‘coopetition’.
But the same laissez faire approach has not yet been approved when it comes to actually buying a company. EMC’s best OEM deal today is with Dell, which sells truckloads of EMC’s midrange Clariion boxes and has just started shipping EMC’s lower-end Dell/EMC AX100 arrays. Dell also sells tape and servers – so could EMC buy in these areas instead of continuing its recently-announced reseller strategy? Once bitten, twice shy – but perhaps it will not be all that long before the ‘coopetition’ bug infects the technology M&A market.