NetApp and Engenio – A curious acquisition
09. Mar, 2011 
9 Comments
It was with some surprise that I saw the announcement that NetApp was acquiring Engenio this afternoon. There was a long ensuing discussion on Twitter on this topic and I have serious doubts about the added value of the combined entity. Here is why.
LSI’s primary go-to-market model has always been through OEMs and so they needed to have solutions that were feature rich enough to create a compelling value. Obviously, their disk arrays have the basic table stakes such as replication and snapshots, but Engenio was trying to do more. They wanted to create a modular array that could be extended with advanced software functionality to provide a unified storage platform. They acquired StoreAge with a goal of bringing storage virtualization into their controller and later OnStor to embed NAS functionality. Thus the end goal was clear – create an advanced RAID controller that could compete with the industry leaders and leverage their OEMs to go to market. Interestingly, this model is more similar to NetApp’s strategy then you might think.
NetApp’s core strength is their ONTap OS which powers their storage devices and incorporates the ability to provide simultaneous block and file access and a variety of other advanced software features. ONTap has been the key enabler of NetApp’s success and it is a technology that other storage vendors try to emulate. The same core ONTap technology is used throughout NetApp’s product line which allows them to better leverage their development efforts. From an architectural perspective, ONTap and its related applications (snapshot, replication, WORM, etc…) reside inside the NetApp head along with RAID functionality and the disk shelves in the system are simply JBODs. NetApp also sells a gateway product called the V-Series which is a head running ONTap which sits in front of third party RAID storage.
Looking at Engenio and NetApp’s product lines, it is clear that there is quite a bit of overlap. NetApp’s business is enabled by ONTap and the ability to provide efficient and powerful software features in their controllers. Engenio was trying to do the same thing. Why would
you want two different controller architectures to solve the same problem?
If NetApp does keep the Engenio controller architecture they risk diluting engineering efforts. Prior to Engenio, all engineering could be focused on ONTap and related software applications. Post Engenio, (assuming they keep Engenio’s controller technology) they will have to maintain two entirely separate controller architectures and code-bases which creates management complexities and dramatically weakens the ONTap everywhere story.
One Twitter user suggested that they could use NetApp V-Series heads with Engenio storage. That is absolutely true, but why would you? A V-Series head brings all ONTap functionality (snapshots, replication, WORM, etc…) to any supported storage and by doing so you no longer need those features in the disk array. Thus back-end storage for V-Series becomes a basic RAID-only solution. In the case of Engenio, the V-Series would turn an Engenio system into a commodity RAID device with none of the advanced features that Engenio has acquired or developed.
One industry analyst suggests that the acquisition is good because of the profitability of Engenio’s OEM model. Perhaps, but you have to wonder how the OEMs will react to this. If I am an actual or potential competitor to NetApp will I still want to OEM Engenio? It makes you question the longevity (and profitability) of the OEM business.
All of the issues above makes you wonder why NetApp bought Engenio. Why do you think they did it? Stay tuned for my hypothesis in part 2 of this post.
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I’ve been predicting an Engenio sale for about a year now. The decline in IBM revenue has been dramatic. So I’m not surprised that LSI sold Engenio. I ams surprised that NetApp bought them and I’m surprised at the low price. I really don’t see how they fit into NetApp’s product line. Sure, NetApp can drop their Xyratex deal and use Engenio trays but does the controller technology live on in a NetApp product? Engenio has, traditionally, been VERY slow to add new features. Their snap technology is very outdated. Their replication is basic at best. They don’t have any of the fancy bells and whistles that have made NetApp so successful. Maybe they’ll just kill the controller technology over time. They will almost certainly drop all the overlap (HR, marketing, training, some/all sales)…
Jim, thank you for your comment. You and I are largely in agreement on this topic.
The latest argument suggests that Engenio is ideal for those apps or environments that just want basic RAID with pure performance and none of the NetApp bells and whistles. However, those tend to be more commodity-oriented businesses which results in reduced margins, and I am not sure if Engenio has the raw performance to effectively address these markets. What do you think?
Yes, Engenio produces a bare-bones storage system with just the basics. A decent GUI, workable CLI, crude 1990′s technology-based snapshot, stable sync and async replication and limited volume copy (limited in that you can’t re-silver a copy of a volume with the source. At least not when I was there). Engenio relied on high volume sales to offset low margins. But there is no doubt that OEM sales are low margin. IBM has driven their cost way down.
I don’t know what NTAP really bought. When I started working at LSI (before they created Engenio), the external storage products were their own division. After the failure to IPO Engenio and the subsequent departure of Tom G, LSI combined Engenio with the other division(s) that made storage components (RAID cards, etc.). Did NTAP buy that or did LSI split the RAID cards, etc. from the external storage before the sale? Also, I see a “$800,000,000″ revenue number floating around. Is that only for the external storage or is it for the whole storage business at LSI.
Jim,
Thank you for the follow-up. I believe that NetApp only purchased the external storage assets and thus the acquisition excluded things like MegaRAID. I believe that it also excluded ONStor for obvious reasons.
The cynical view would be that NetApp think they won’t hit their growth targets for next year through purely organic sales growth – this obviously gives them a nice volume bump for next year.
There’s also the fringe benefits of things like buying more disks from the manufacturers should help them compete with EMC’s bulk discounts (who claim they buy more disks than anyone else), and the alternative product to sell when people say they’re not willing to pay for the standard NetApp filer functionality.
What I don’t see is a long-term plan for the 2 different halves, unless NetApp think they can get their own filer software to run directly on the Engenio controllers in a VM (or on the bare hardware), letting them cut the cost of the NetApp controllers.
While that’s a possible route, would switching to Engenio’s embedded hardware running a pair of clustered VMs really make much of a difference to cost?
I think IBM already has changed focus from LSI gear to their own midrange product. Oracle will probably do the same (DISCLAIMER: I work for Oracle and have NO IDEA what the plans are. This is MY OPINION and is pretty much made up). Those are the two major OEMs they have so I don’t expect much help there. Also, I don’t think the IBM agreement includes drives so that increase to netapp will be small as well.
Ewan,
Thank you for your comment. I think that we are in agreement on is the challenge. It is curious to see what NetApp does with Engenio’s controller technology.
Curious?
How about “personal”?
Georgens headed Engenio when they were part of Symbios Logic. When LSI bought Symbios they canned him.
Revenge is sweet, even though he is a moron.