FalconStor – The Other De-Dup Option

On Monday, June 1st, 2009, FalconStor Software announced some pretty compelling data reduction numbers. Depending on whose numbers you believe FalconStor’s single-node performance is 20-30% faster than Data Domain’s single node performance. What’s more, in its reference environment discussed here on Wikibon and in a press release here FalconStor’s Single Instance Repository (SIR) was able to achieve a 40:1 data reduction ratio – 20:1 using SHA-1 deduplication at a block level and then 2:1 using hardware compression cards from HiFN. FalconStor also has file level data reduction using pretty much the same code.

So, it is not obvious why EMC and NetApp should be in a bidding war for Data Domain. Indeed, since SUN, EMC, IBM and Spectra Logic to name just a few all OEM FalconStor technology, EMC could deliver another hay-maker punch to its competitors just by buying FalconStor. FalconStor is smaller than Data Domain with $80M in revenues for 2008 versus $274M for DDUP, but FalconStor has many more products, technologies and a much longer track record.

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  • http://www.facebook.com/people/David-Vellante/725454387 David Vellante

    I agree Nick. Why spend $2B for DDUP when you can get perfectly fine technology for an order of magnitude less. It's not as though EMC and NTAP don't have the distribution muscle. Seems like an investment in Falconstor or even Commvault or Sepaton which give a much better ROI to shareholders.

  • Michael Zaleski

    In looking at your posting your conclusions follow logically from your assumption that that the acquisition and/or the EMC counter offer are solely about acquiring technology. From the perspective of the small market that I am involved in Data Domain has done a great job in penetrating both EMC and NetApp customers with their technology. Neither organization was able to counter and, in EMC's case, Data Domain was undermining sales on their fairly successful VTL offering. Data Domain created a tremendous amount of buzz and outsold both NetApp and DataDomain at the enduser and partner levels. The disruption created by DataDomain was a complete distraction to both NetApp and EMC.

    FalconStor has none of the momentum, none of the sales or corporate exectution that Data Domain has demonstrated in the field. Product features and reduction ratios are not necessarily sustainable elements differentiation. The value in the acquisition comes from installed base, access to accounts, brand awareness and a sales, marketing and product teams that have demsonstrated an ability to execute.

    That's my 2 cents!

  • MLF

    One alternative between DDUP and FALC would be QTM…They have bulk, the key dedupe patents, a large royalty stream from LTO tape, a “hidden asset” in their Stornext software and generated over $100 mill of ebitda in 2008. EMC already is their biggest tape customer and OEMs their dedupe technology. NTAP, is likely to lose to an all cash deal so they could also view QTM as attractive.
    I am curious what others think

  • Michael Zaleski

    I don't think that Quantum is of interest to EMC at least. Obviously I am not aware of all the details of the EMC/Quantum OEM deal but my guess is that there is an escrow agreement whereby if Quantum goes under or is not able to maintain the code then it would default to EMC. I doubt that EMC would want the bagage of the tape business (EMC has talked about going tapeless for years and actually backed off of this messaging a few years ago) and all the debt.

    I agree that Stornext is an interesting asset but Quantum does not seem to want to sell it focusing instead on de-dupe appliances and tape.

    Quantum as a company has shown an inability to execute in the marketplace. Their tape business was losing to ADIC (note that the surviving tape products are predominantly ADIC heritage). The initial release of their de-dupe appliances was no where compared to Data Domain. I think Quantum is a company that has no ability to execute.

    Why would buy Quantum when when you can pickup the assests you want for pennies on the dollar after bankruptcy?

  • Matt

    Michael,
    While I agree that on the surface QTM's execution and balance sheet don't look that great but they guided to $105 mill in EBITDA for 2008 and despite the worst economic crisis since the Great D they made their number. They only have about $300 mill of net debt…BK is no where near a reality. They did have a sloppy dedupe product launch and that gave DDUP the lead but they do have a huge customer base and thier tape business is very healthy. Just from LTO alone they get $60 mill in royalties and EMC is their biggest tape customer. EMC will dis-enfranchise DDUP's channel base if they succeed…perhaps that will turn into a win for QTM. QTM has a lot of value and their are several key players that could find them interesting: NTAP (if or I should say when they lose) HP (they are partners in LTO and manufacture the QTM tape drives) Oracle (while Sun licensed FALC dedupe tech they are no where plus they could get synergies with StorageTek) Symantec or Dell. (Dell's head of storage Darren Thomas was quoted as saying they are looking for an acquisition and they are Quantum's second biggest tape customer and are launching a QTM based product this week.)
    More thoughts?

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  • Michael

    Thanks Matt – it is all about perspectives and mine comes from the marketplace that I live and work in and may not be reflective of the general marketplace (I provide EMC, NetApp and QTM solutions and am friends with the DDUP team). That said I do not understand the basis for your statement “EMC will dis-enfranchise DDUP's channel base if they succeed” as many of EMC's channel partners are also selling DDUP (which EMC finds very bothersome).

    On the other hand many in the channel are very leary of selling the QTM solutions because they view the solution as failure prone. The other bit of evidence is the QTM share price which is still below a dollar (0.89 down from a trailing year high of 1.95).

    The EMC QTM relationship, I believe, has fallen on some more diffucult times of late. Earlier this year we had QTM field managers claiming that they were going to try to compete with EMC! We also so field sales reps trying to end run reseller and manufacturer partners. Many resellers are in an anything except Quantum mode. In my little part of the world the tape business has fallen off of a cliff in favour of tapeless architectures and they are not going with Quantum for the most part.

    EMC ignored Data Domain a few years ago and did so at their own peril. EMC also ignored NetApp when they could have had a run at them many years ago. I think that they may not want to make the same mistake again and so they have increased their offer again this week.

  • jeffmcnichols

    We have been selling DDUP, QTM, and FALC for some time now and I will strongly agree with above posts that at first glance FALC seemed to be a better deal. FALC has superior dedupe technology and much more solutions than DDUP but after thinking about it for a bit you realize that DDUP has a very large marketing presence and whether or not customers are happy they have a lot of them and EMC is going to take advantage of wiping out a competitor and planting their storage hardware into existing customers. It will be interesting to see how FALC responds to this in building up their own sales force or keeping with their heavy OEM strategy or if they get netted by a company with large scale in need of excellent technology.

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