Will buyers gain or lose from Oracle's acquisition of Pillar?

Oracle's proposed acquisition of Pillar Data Systems is the latest in a long line of  storage technology company buyouts by industry heavyweights – a trend that should cause alarm among corporate buyers.

The likes of EMC, Dell, IBM and HP have shelled out billions on 3Par, Data Domain, ONStor, Netazza, Compellent and Isilon to name but a few in the past couple of years, with some industry insiders speculating that even better established, more profitable suppliers such as Commvault and NetApp will be next.

The deal for Pillar Data Systems looks like small beer in financial terms: Pillar's funding over its 10-year lifetime, reputedly $500m, came primarily from Oracle CEO Larry Ellison's venture capitalist company Tako Ventures, and even then the firm struggled to make a profit. It's likely that it will eventually be acquired with no money changing hands.

As well as giving Ellison the chance to get some return on his investment, the Pillar acquisition will give Oracle a storage area network (SAN) platform to complement its own Exadata database appliances and the networked-attached storage (NAS) and tape storage systems Oracle took on when it purchased Sun Microsystems for $7bn in 2010.

"Oracle really needed this to compete with some of the other behemoths: this buys it a seat at that table," said Donna Taylor, research director for European storage systems and infrastructure solutions at IDC.

What those industry "behemoths" crave is to become one-stop shops for enterprise storage infrastructure. They want to be able to tell prospective customers that they can provide the whole gamut of hardware and software IT departments increasingly need to store, process and manage burgeoning volumes of structured and unstructured data – not just Oracle, SQL or SAP databases, but emails, documents, images, audio and video files.

Research conducted by the McKinsey Global Institute suggests that companies have an average of 200TB of data stored somewhere within their IT infrastructure, and many over 1 petabyte.

Oracle was unavailable for comment when Computing contacted the firm, but IDC's Taylor said that the recent merger and acquisition activity is also a symptom of larger companies suddenly having post-recession money at their disposal and looking for a way to use it positively.

"Some of these companies have been sitting on large piles of cash and have nothing better to invest in, and the smaller companies have been available at bargain rates," she said.

"Some companies fund their own research and development, but others look to buy in [innovative technology] and the smaller companies themselves push to be acquired."

Independent systems integrators and resellers have good reason to be rattled by the shrinkage of choice of storage technology vendors, though some have long established partnerships with big IT companies which often restrict the choice of hardware and software they sell anyway.

"End users will now have even less choice when it comes to upgrading their storage infrastructures, with even more power concentrated in the hands of fewer vendors: rarely a good thing in a properly operating market," Phil Jones, chief technology officer at systems integrator Shoden Data Systems UK, told Computing.

"There is obviously less choice for customers but hopefully that will lead to better quality, so it is not necessarily bad news," countered Taylor.

"There are still lots of smaller companies out there working to make an impact on the storage marketplace, and if this spate of M&A activity has satisfied the appetite of the larger companies, they will have time to build up their own operations in a way that would not have been possible previously."

The big fear for corporate IT departments looking to expand or upgrade existing storage systems is that with so much technology in the hands of so few vendors, options for mixing and matching best-of-breed technologies according to specific workload and application requirements will be diminished as those companies look to hard-sell broader storage systems platforms: in other words, lock-in is more likely to prevail.

"Apart from EMC – who has the Joker in VMware – all the acquisitive storage companies are also serious server manufacturers," pointed out Jones.

"Will customers soon be buying stove-pipe single-vendor solutions rather than individual best-of-breed technologies? Oracle, IBM, EMC and HP are all trying to portray themselves as one-stop shops for storage; for end users will they become key technology partners or jack-of-all-trades?"

IDC's Taylor accepts that the larger IT companies, Oracle included, will all strive to sell customers additional software or hardware using the argument that the different pieces are optimised to perform better when integrated with each other, but added that IT managers who stick to their guns can win.

"Oracle itself says that it wants to be best-of-breed up and down the stack, and at some point the customer will turn around and use that against them in the negotiation."