IBM has announced its intention to acquire Netezza, one of the world’s fastest-growing providers of data appliances, for approximately $1.7 billion. Founded only 10 years ago, Netezza has over 500 employees and 350 clients including brand names Burlington Coat Factory, Con-way Freight, Estee Lauder, Marriott and Nationwide Insurance. IBM has been investing in analytics software for five years and now becomes one of the strategic providers in the market. Many organizations are unwilling to spend the large amount of resources and budget to configure and tune complex databases like Microsoft, Oracle’s and even IBM on a specific brand of hardware and then have to deal with issues in storage, performance and scalability in processing data across their network. Instead they would like to find a technology package that handles data simply for various analytic purposes and is as easy to buy as a dishwasher or a clothes dryer.

IBM already has a variety of database technologies including DB2 and Informix and appliances called smart optimized workload systems, but it acquires some significant supplemental assets from Netezza. They range from technology for data warehouse appliances to an organization that understands how to engage in business opportunities; the latter is important because IBM has not had proactive marketing and sales programs of this sort for its data appliances. Major providers Oracle and Teradata compete here as do smaller appliance providers such as Aster Data and Greenplum, recently acquired by EMC. IBM advanced its market efforts not long ago with its Smart Analytics System, which brings analytics to a data appliance, similar to what Netezza sells to vertical industries, such as retail.

The main challenge for IBM here is to learn from the expertise Netezza has built in software and hardware technology for both large and midsize organizations. This might seem obvious, but integrating that into its own products is no easy task for an organization the size of IBM. Now that Netezza is being acquired, Teradata who has a broad portfolio might be one of the few remaining targets of size and relevance for the moment. Of course, it is significantly larger, has been in the database and specifically data warehouse appliance market for many years and would cost much more to acquire. Many of us wonder whether Hewlett-Packard HP will get serious about this part of the enterprise software business. In any case, I can see that IBM will use Netezza as a strategic move to counter Oracle’s Exadata; this week Oracle announced its second major release of that system, and I will comment on it soon.

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Regards,

Mark Smith – CEO & EVP Research