It has been a long time coming, but virtualized storage is now a "must have" technology.
Dell has announced its intent to acquire next-gen storage vendor 3Par for $1.15 billion, excluding 3Par's cash and other considerations. With this acquisition, Dell continues to morph its business model to be more inclusive of computing systems and services aimed at the enterprise data center customer. With the addition of 3Par's InServ "utility" storage line, Dell ads a midrange to high-end array to its own and growing storage portfolio. 3Par's InServ FC SAN storage, popular lately with public cloud services providers, complements Dell's EqualLogic iSCSI storage platform that has flourished in server virtualization settings.
I usually forgo history lessons in situations like this, but here I can't resist. I first met 3Par CEO David Scott years ago when he was running the storage program at Hewlett-Packard. He'd just forged an agreement with Hitachi Data Systems to rebrand Hitachi's high-end array, and was about to call the new product the E-MC 256. EMC was not happy, not only with the array's name, but also with that fact that HP had also turned its back on an original equipment manufacturer's agreement with EMC. The name was changed, but Scott has never backed down in the face of formidable competition--with EMC or anyone else. And back then, to hear him talk about the renamed XP 256, you'd think that HP had told Hitachi how to build it.
I happened to meet Scott on his way out the door at HP--literally. He was packing up a few last office items and walking out as I was walking in for a meeting. He was all out of breath but raving about his new opportunity, 3Par. We arranged to meet that afternoon at a Silicon Valley Starbucks. His CEO's office was nothing more than his BMW and a cell phone.
3Par was launched amid the hype of Internet 1.0 and joined a group of four "carrier-class" storage array start-ups that also included Cereva, Yotta-Yotta, and Zambeel. Carrier class meant high-end, scalable, resilient, and a bunch of other desirable storage attributes for big communications carriers that were wiring the Internet world. Zambeel has since vanished. Cereva and Yotta-Yotta were bought by EMC for parts. Of this group, Scott's 3Par is the last man standing. He's to be congratulated and respected for his leadership and dedication to vision despite major challenges.
Dell has confirmed that Scott and his executive team will become Dell employees when the deal closes. That brings me to my first question: How will he and his team fit in with Dell's? The 3Par culture is unique. It rewards astuteness, dedication, and high customer touch. The Dell culture has historically rewarded speed to market, efficiency, and nimbleness. 3Par is a storage innovation powerhouse, having invented thin provisioning for example. Many, including myself, wonder if Dell will fund 3Par's R&D at a level that keeps 3Par in the forefront of storage technology. In a call recently with analysts and reporters, Dell's Brad Anderson assured us that Dell would keep the R&D money flowing.
My second question regards the Dell/EMC relationship. How does it move forward post 3Par? In the beginning it was simple. Dell resold EMC Clariion, and manufactured the low-end of the Clariion array line. Then Dell bought EqualLogic for $1.4 billion, sending the first unmistakable signal that it wanted its own storage line. Now comes 3Par for $1.15 billion. Ironically, HP's deal with HDS, guided by David Scott, was the first unmistakable signal that HP was severing its long-standing reseller agreement with EMC.
Dell/EMC is now even more complicated. Dell says the relationship moves forward and that Dell/EMC customers will see no difference in support. EMC's blogger extraordinaire Chuck Hollis says "We're fine, thanks..." Yet I have no doubt that 3Par's direct sales force, that Dell intends to expand, won't now shrink in the face of EMC competition, nor will Dell hesitate to integrate 3Par with its integrated computing stack that competes with that of the Virtual Computing Environment coalition.
Let's for the moment put those questions aside and look at recent history. Dell has been surprisingly successful with its EqualLogic acquisition. Revenues for the Dell EqualLogic product line have grown from $100 million annually, to nearly $800 million annually in the two and a half years since the acquisition. Dell has shown the resolve and focus needed to make that acquisition successful, despite the same concerns voiced when the EqualLogic buy was announced.
Update, Monday, August 30 at 7 a.m. PDT: After announcing the acceptance of Dell's acquisition offer, HP kicked off a bidding war that has culminated in 3Par's statement of preference for HP's $30 billion offer. Dell now has until Wednesday to respond with a higher bid than HP's; otherwise, HP wins. David Scott would presumably return to HP.
HP has concluded that 3Par's storage virtualization technology is a "must have." Speculation now turns to Compellent (CML) and Isilon (ISLN) as the next acquisition candidates. The value of both publicly held companies is on a major upswing. My sense is that HP is now all in and will do whatever it takes to add 3par InServ to its enterprise storage portfolio. That could leave Dell still in the hunt for CML or ISLN.