IBM’s acquisition of Netezza was a must for both vendors if they wish to grow their shares of the data warehousing (DW) market. They have a common archrival, Oracle, that is fielding an increasingly formidable appliance-based product portfolio, threatening both vendors’ long-term positions in this dynamic market. This announcement comes the same week as the annual Oracle OpenWorld conference, and we await word this week from Larry Ellison, Mark Hurd, and company on how they intend to respond (and you better believe they will).
First, here are the facts we have so far on IBM’s acquisition of Netezza. Big Blue is buying the publicly traded Marlborough, Massachusetts-based pure play for $1.7 billion. The deal, which represents $27 a share, 9.8% over Friday’s closing price and a near 85% premium over its 3-month trading average—is set to close in the fourth quarter. Netezza was founded 10 years ago, has around 350 customers in all major vertical industries, and employs around 500 personnel. Netezza has extensive partnerships with complementary technology providers, including, most notably, with IBM, which provides the hardware underlying its TwinFin DW appliances.
In IBM’s product portfolio, Netezza’s offerings will represent the high-performance, low-cost, scalable, integrated DW solution that Big Blue needs to fend off both Oracle’s resurgent Exadata and strong competition from EMC/Greenplum, SAP/Sybase, Teradata, Microsoft, and several others. From a competitive standpoint, the most noteworthy fact about Netezza’s offerings is that fact that they sell for a starting price of $20,000 per usable terabyte, which is an order-of-magnitude cheaper than integrated DW hardware/software solutions cost just a few years ago. Just as important, $20,000 per terabyte is the same starting price that Oracle asks for Exadata-based solutions, and Larry Ellison and crew have pursued an aggressive price-performance war in which they single out Netezza and IBM as their chief competitors. The DW market is in the middle of an ongoing price war that will only grow fiercer.
Yes, Netezza’s offerings do overlap to some degree with the extensive IBM Smart Analytics System (ISAS) product family, which integrates its widely adopted DB2 relational database and other software solutions with an all-IBM hardware layer. However, IBM has not jumped into the price war heretofore with pricing equivalent to Netezza TwinFin or Oracle Exadata, and it has no commercial ISAS-based offerings anywhere in shouting range of $20,000 per terabyte. Instead, IBM has pursued a solution focus with ISAS, bundling and integrating the various editions of its DW appliance family with its extensive business intelligence (BI), advanced analytics, data integration, master data management (MDM), and other solutions. Just as important, IBM bundles ISAS with various industry data models that enable it to customize the solution for retail, telecommunications, and other vertical markets and thereby fetch a premium price. And IBM packages professional services from its Global Business Services (GBS) group as a key element of its overall ISAS-based data analytics solution portfolio. In all those ways, IBM has avoided the DW price war, playing a different, and equally valid, strategy of delivering complete solution appliances for both its professional services and its partner ecosystem to deliver and customize.
Creeping commoditization in the DW market has made all vendors vulnerable to shrinking prices, margins, and revenues in their core appliance product families. Netezza kick-started that commoditization several years ago when it popularized appliance-based packaging and validated it among enterprise customers by offering fast, robust turnkey solutions that work well out of the box with minimal tuning. Netezza has been selling like gangbusters to enterprise buyers who demand low-cost integrated solutions that they can deploy as query accelerators in front of their existing DW hub — or possibly as a replacement for that hub entirely. That’s the ongoing customer imperative that has enabled Netezza to make steady inroads into the customer bases of IBM, Oracle, Teradata, Microsoft, and other established vendors. Clearly, IBM realized that it would remain competitively vulnerable at the very heart of its ISAS strategy if it didn’t bring a low-cost but high-performance and scalable DW appliance solution into its broad product mix. In acquiring Netezza, it has made the right deal for the right player at the right time.
For Netezza, this is exactly what needed to happen for it to survive long term in the DW market, where creeping commoditization continues to thin out margins and where an increasing all-in-one solution focus has given the advantage right back to diversified vendors such as IBM, Oracle, SAP, and Microsoft. As a DW-appliance pure play, Netezza is essentially a one-trick pony — albeit one that can jump through high hoops — in that it lacks BI, data integration, and other key applications. In addition, Netezza completely lacks any consulting or professional services of its own, relying entirely on system integrators and other partners. Clearly, IBM provides all of these missing pieces to Netezza, and then some.
One of the big losers in this deal is HP, which could have acquired Netezza to jump-start itself back into the enterprise DW appliance arena and thereby make everybody forget the competitive train wreck called Neoview that Mark Hurd leaves in his wake. With this news, and with EMC already having snatched up Greenplum, Forrester expects HP to make a play for one of the remaining well-established DW appliance vendors, with Teradata the most likely and Vertica also a strong contender.
All in all, Forrester has long expected one of the big data management companies to make an offer for Netezza, which has rapidly evolved into one of the major vendors serving enterprise and midmarket DW customers. We expect IBM to rapidly position Netezza's offerings, under its ISAS big top, as its principal data-mart accelerators for both large enterprises and the midmarket. We do not expect IBM to discontinue any of its ISAS offerings or any of the acquired Netezza products. It should be noted that Netezza has strong advanced analytics and in-database statistical analysis capabilities in the TwinFin product platform. We expect IBM to waste no time leveraging and aligning those and other Netezza offerings with its best-of-breed SPSS and Cognos analytics portfolios.