IBM to Buy Other Israeli Company Diligent?

On March 16, Israeli business daily paper Globes published the following information:" Sources inform Globes that IBM Corp. is in advanced negotiations to buy Israeli storage start-up Diligent Technologies Corp. for $200 million."

Is this information reliable?
Yes. Globes was also the first to reveal this year that other Israeli start-up XIV Ltd was going to be acquired for $300 million by Big Blue that later confirmed the deal.

Is it a good price for IBM?
Yes, it’s a bargain. Diligent has one of the best, if not the best technology for de-duplication, named ProtecTIER, released in January 2006. And the start-up has already numerous customers and three prestigious OEM: HDS, Overland and Sun. $200 million is nothing compared to $300 million paid for XIV with about no revenues and having received only $3 million in funding, compared to $46.5 million for Diligent since its inception in 2002. And look at Dell putting $1.4 billion on the table for EqualLogic. Moreover, de-dup is currently THE storage killer application that all the enterprise customers wish to get to lower their hard disk or tape drive’s acquisitions as well as the volume of the data transmitted for replication. IBM doesn’t have its own de-dup offer and works with FalconStor as many other companies.

What’s the Diligent technology?
The company has proprietary algorithms, called HyperFactor, to execute de-dup on an appliance full of RAM, in a better way that most of its competitors that are using standard hashing methods. Diligent claims a 25:1 reduction in average and a speed as high as 450MB/s per node.

Why this acquisition is crucial for IBM?
Diligent is also a specialist of open and mainframe VTLs and you can be sure that ProtectTIER will be available in the future for the backup of mainframes as tape is now generally much more considered as an archiving rather than a backup media. There are only four storage actors in mainframes, a really small number even if the margins are enormous. They are EMC, HDS, IBM and Sun/StorageTek. HDS and Sun are already Diligent’s OEMs. But, if the acquisition is confirmed, how long will they continue to get ProtecTIER? They will be obliged to find another source as, up to now, they have not their own technology in this field. And the other sources are rare. Most of the de-dup start-ups have been acquired (Avamar by EMC, Rocksoft by ADIC/Quantum, Tavata Software by Overland).
Remaining are FalconStor and Quantum, some start-ups including Asigra, Data Storage Group, Exagrid, Lortu Software, Pocket Soft, ROBObak and Sepaton, as well as WAFS specialists like Data Domain, Expand Networks or Riverbed.
If the acquisition is confirmed, Overland will probably continue to work with Diligent for its mid-range products as this firm is not a direct competitor of IBM, until its own Tavata’s technology will be ready.

Why EMC didn’t get Diligent?
According to an internal source of EMC, there was some discussions between the two companies few years ago. But there is a deep and historical enmity between them, even if Diligent Technologies was spun off in 2002 from the Israeli development center of EMC, an early investor into the start-up.
Diligent’s co-founder Moshe Yanai, ‘Mr. Symmetrix,’ was responsible for the design and development of the mainframe disk array behind one of the first successes of today’s leading storage firm, but he was forced out of the company by EMC’s CEO Joe Tucci.
Another major figure in Diligent, Doron Kempel, is its current chairman and CEO. The former officer in the elite Israeli intelligence unit also left EMC under difficult circumstances, with the firm ultimately suing him for breach of his non-compete clause when he left the company, in which he had served as VP and GM for the media solutions group from 1998 to 2001, before joining the start-up SANgate Systems. EMC would win the trial, and Kempel was obliged to leave SANgate, which went on to become Sepaton.
EMC enters into de-dup with the acquisition of Avamar but its software cannot really be used for VTLs and mainframes. There are rumors of EMC partnering with Quantum.

Conclusion: Did Yanai want to kill EMC after being its savior?
Both XIV Ltd. and Diligent Technologies were co-founded by Moshe Yanai. The first one has already been acquired by IBM at the beginning of the year and the second one could follow. Consequently, to compete with EMC, Big Blue will or could get two main technologies that will change the data storage industry: grid virtualization and de-dup.

THE STORAGE ACQUISITIONS OF IBM

1996    Tivoli (Software)

1999    Mylex (RAID specialist)

2000    Mercury storage business (File sharing software)

2002    Trellisoft (SRM software)
2002    Green Pasture Software (Document management software)
2004    Schlumberger businessss continuity service (Recovery sites)
2006    COMS Lab (Software to monitor data on servers, storage and network applications)
2006    FileNet (Content management software)
2007    Softek (Data migration software)
2007    Princeton Softech (Archiving, discovery and classification software)
2007    NovusCG (Storage consulting and integrator)
2007    Arsenal Digital Solutions (Managed storage service provider)
2008    XIV (Grid-based storage)