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Posted by James Kobielus on July 29, 2008
Microsoft's pending acquisition of DATAllegro is a smart move for both vendors. It's also a key triggering event for the data warehousing (DW) industry as a whole.
This deal sets the stage for what will surely be a period of rapid DW vendor consolidation. Over the coming year, Forrester expects incumbent enterprise DW (EDW) vendors--or those who aspire to that status--to acquire any of the growing number of DW appliance pure-plays on the market. We expect many EDW incumbents to acquire DW appliance pure-plays, both to scale and accelerate their existing solution portfolios, and also to address the growing midmarket for cost-effective modular solutions. Given that several DW appliance pure-plays (including DATAllegro, Greenplum, and Dataupia) boast low acquisition cost per usable terabyte, it stands to reason that incumbent EDW vendors acquire these vendors outright rather than attempt to hit those price-points through time- and resource-consuming modifications to their existing solution stacks. Look for Oracle, SAP, and HP, in particular, to make strategic acquisitions of the sort that Microsoft has just announced.
Over the past several years, the DW appliance--a pre-configured, pre-optimized bundle of hardware and software components--has become the predominant go-to-market approach among both established and start-up DW solution providers. However, the established EDW vendors have ramped up the appliance curve at different rates. In this regard, Microsoft has been relative laggard, especially compared with the more aggressive appliance strategies of IBM, Oracle, Teradata, Sybase, and others. Though Microsoft had heretofore made some tentative forays into DW appliances through partnerships with hardware vendors HP and Dell, the Redmond WA-based vendor hasn't yet put together a coherent go-to-market approach that addresses this important new marketplace theme.
The deal to acquire DATAllegro clearly demonstrates that Microsoft is serious about delivering an appliance-based SQL Server solution for DW and business intelligence (BI).
What the DATAllegro acquisition buys Microsoft is new visibility and credibility in the DW market. DATAllegro was one of the first-mover vendors in the DW appliance market, and, though it has largely been out-developed, out-marketed, and out-sold by Netezza in this segment, still has considerable mind share (though not much market share outside some high-end enterprise banner accounts).
Just as important, DATAllegro has a strong product (DATAllegro v3), robust technology (incorporating MPP/grid, query optimization, fast loading, mixed-query workload management tools), skilled engineering team (based in Aliso Viejo CA), and world-class hardware partnerships (including EMC, Dell, Cisco, and Bull).
What DATAllegro has most critically lacked, and Microsoft will provide in spades, is a worldwide sales, marketing, and support organization. As a small company, DATAllegro has relied to a great extent on its hardware, channel, and OEM partners to bring its appliances to market. As a privately held firm with limited resources, DATAllegro has been an engineering-driven vendor in a market segment rapidly evolving toward a solution and services focus. DATAllegro and other DW appliance vendors have been successful is gaining acceptance for this approach among Information and Knowledge Management (I&KM) professionals in large enterprises. Now the DW appliance pure-plays must move to the next maturity level, providing global service and support to the most demanding enterprise customers.
On the DATAllegro side, the Microsoft deal clearly indicates that it has hit its head on the pure-play glass ceiling and that its only chance of succeeding in the DW market is as the product group of an established, well-heeled vendor. Heretofore, DATAllegro has mostly been addressing the traditional high-end EDW market with its products, so absorption into enterprise-focused Microsoft won't radically disrupt that go-to-market strategy. DATAllegro has tried to establish itself by selling its appliances primarily as data-mart accelerators into the established accounts of EDW incumbents (Teradata, Oracle, IBM, etc.). However, it has largely failed at dislodging those incumbents from their core EDW accounts, and has seen all of those incumbents significantly ramp up their respective DW appliance product families, thereby neutralizing any differentiation DATAllegro could previously boast in that regard.
Where the pending Microsoft-DATAllegro combo is concerned, we're still talking futures. It's best that we keep expectations in check till the acquisition is complete and the vendors announce their roadmap in October at Microsoft's BI conference. They certainly have a lot of work ahead of them, and it's not without risk.
For starters, Microsoft will have its hands full re-architecting and re-optimizing DATAllegro's appliance platform to integrate fully with SQL Server 2008, replacing the open-source Ingres database at the heart of the acquired solution. Clearly, that migration to SQL Server may alienate a substantial portion of DATAllegro's existing customer base. It will also likely raise the price of the eventual SQL Server version of the DATAllegro appliance, since, it's safe to assume, customers will need to license Microsoft's DBMS when they purchase the appliance, rather than continue to use a "free" open-source DBMS.
Just as critical a concern, Microsoft will have to bend over backwards to reassure DATAllegro's existing customers that their investments are safe and that they'll continue to receive necessary updates, patches, and bugfixes in a timely fashion even as Microsoft essentially obsoletes the erstwhile Ingres-integrated appliance family.
Moreover, DW rivals will respond to this acquisition with avid FUD-mongering. If last year's Stratature acquisition is precedent, then it's likely that Microsoft will quickly freeze and/or cancel development of enhancements to DATAllegro's current, Ingres-based platform while it develops a Microsoft-centric successor platform for delivery in 2009 or later. Essentially, Microsoft will be rebooting DATAllegro completely on the Microsoft platform, thereby transforming DATAllegro customers' existing deployments into legacy investments.
EDW competitors will also actively point out the gaps in Microsoft's DW appliance portfolio, even after existing DATAllegro technology is fully integrated into SQL Server. What's still missing from Microsoft's high-end EDW product capability is a coherent go-to-market approach for appliance-based offerings. Most important, Microsoft needs to launch a targeted EDW-appliance product branding, packaging, and licensing approach similar to that which IBM rolled out with its InfoSphere Warehouse family. IBM has rolled out InfoSphere hardware classes for various customer sizes (InfoSphere's E, D, and C classes, addressing large-to-midmarket customer requirements) and InfoSphere software editions with different integrated solutions (e.g., some editions allow you to license Cognos BI, other editions include IBM's data quality tools, still other editions include Omnifind text mining). Also, Microsoft needs to integrate all of SQL Server (DBMS, IS, RS, AS) with the DATAllegro appliance, plus the recently acquired Zoomix data quality and Stratature master data management technology, to provide a comprehensive product stack (with functional add-ons) to address a full range of enterprise requirements. We're confident that Microsoft/DATAllegro will provide a more coherent EDW appliance roadmap, by the time of the Microsoft BI conference in beautiful, rain-drenched Seattle this fall.
Forrester expects Microsoft to take a year or so to leveraged the acquired technology into a fully fleshed out new full-function Microsoft-branded solution stack. But even before then, Microsoft should provide clear, convincing reassurances to DATAllegro customers that their investments are safe.
Likewise, Microsoft should reach out both to its own DW appliance-hardware partners (HP and Dell) and to DATAllegro's (Dell plus EMC, Bull, and Cisco) to clarify their ongoing engagement in the vendor's appliance product strategy going forward. In fact, we expect Microsoft/DATAllegro to ramp up their current hardware, channel, and OEM partnerships to deliver DW appliance solutions for a broader range of platforms, verticals, and geographies.
This is the approach that Oracle (not a hardware vendor in its own right) has taken in its Oracle Optimized Warehouse initiative, and it is consistent with both Microsoft's and DATAllegro's go-to-market strategies. A partner-centric approach such as these offers customers a choice of server and storage providers. As such, it distinguishes Oracle and Microsoft/DATAllegro from those vendors--such as Teradata, IBM, and Netezza--who offer only a single hardware platform option underlying their DW appliances.
Also, the ability to change-out the underlying hardware layer helps DW appliance vendors to run their solutions on low-cost, best-of-breed commodity servers and storage components.
And that will be a key differentiator for Microsoft/DATAllegro and other vendors in the rapidly commoditizing DW appliance market.