UPDATED 10:09 EDT / AUGUST 23 2010

Big Data and the Cloud: Why HP and Dell are Fighting Over 3PAR

image HP today submitted a proposal to 3PAR to acquire the company for $24 a share, a 33% premium over the offer Dell made last week. This puts the value of 3PAR at nearly $1.6B today — whereas the company’s valuation had never come anywhere close to approaching $1B prior to Dell’s offer.

Interestingly, in June, 3PAR’s CEO Dave Scott in a Q&A session with analysts that I attended specifically stated that one of the reasons in his opinion that 3PAR had not been pursued by potential acquirers at this point in time was that companies were afraid to start a bidding war and lose. While self-serving, I thought this perspective was interesting and it seems to be playing out on the main business stage this week. In a conference call today, HP admitted that it had previously made a bid for 3PAR. We can only assume that it was rejected by 3PAR because the company felt it could do better than whatever HP’s original mystery offer was. Once Dell offered 3PAR an 80%+ premium, HP saw that there was other interest in 3PAR and David Scott’s bidding war scenario started to play itself out.

This is an amazing story. Here’s a company, 3PAR cruising along – growing at a 2-year clip of around 25%. It’s a public company so potential acquirers have plenty of information about the firm and while it’s doing okay, the stock really hasn’t done much since its IPO in 2007. Then, in the span of a week, the market increases the value of the company from $630M to $1.6B – go figure.

It’s all About the Cloud

3PAR is a technology company that, while it has some F1000 companies on its customer list, it serves a lot of small and mid-sized firms, including cloud service providers. Its main emphasis since day one has been on simplifying IT and from its inception it has focused on what it calls “utility computing.” The company first started using this term in 1999 and the market has come around to its way of thinking with the now famous cloud computing moniker.

According to 3PAR’s Dave Scott, there are two tectonic shifts occurring within the IT industry:

The move from distributed to utility-based computing (i.e. physically dedicated to secure multi-tenant sites).

The transition from internal data center to externally hosted cloud infrastructure services.

His premise has been that these shifts are fundamentally changing storage requirements by emphasizing two key attributes, agility – the ability to rapidly provision capacity and handle a diverse set of applications/workloads — and efficiency – the ability to utilize assets more effectively to deliver lower operational costs. Simplification is a pre-requisite to these attributes as complexity slows people down and increases expenses.

The angle on these developments for small and mid-sized firms is that they are at the heart of the industry’s shifts. They don’t have the sunk costs and resources of large firms and as such they gravitate sooner to technologies produced by companies like 3PAR because they solve a real problem. 3PAR has caught lightning in a bottle and has gone from a small innovator to an asset that larger more established companies covet.

The reason is 3PAR and companies like it are perfectly positioned to deliver technology to cloud service providers and the companies they serve which include many smaller and mid-sized firms. The writing is on the wall. A critical element of cloud computing, whether internal (private) or external (public) is data; ‘little data’ coming from an Internet of connected devices that feeds ‘big data’ from data warehouses, business intelligence systems, customer data and truckloads of content driving business activities. The infrastructure supporting the capture and processing of this data has to be capable of existing in a cloud scenario. What does that mean? It means the infrastructure has to be simple to manage, autonomic, secure (especially in a multi-tenant context) and rock solid. This is the type of storage that 3PAR makes and why companies like Dell and HP are fighting over the company.

Check out this chart that 3PAR shared with us that shows its penetration into leading cloud service providers. While I know that cloud guys buy a little bit of everything it’s not a bad list at all. And if you look around, there aren’t a lot of assets like 3PAR left, which is why its stock price has more than doubled in a week. HP picked up Lefthand, Dell buys EqualLogic, IBM buys XIV – it’s really 3PAR and Compellent left – gee any guesses on what’s been happening to Compellent’s stock lately?

It used to be the case that small and mid-sized customers would watch larger companies set technology trends. The consumerization of IT has flipped this trend and the little guys and the companies that serve them – namely cloud service providers – are the ones to watch.

[Editor’s Note: Image credits to networkcultures. –mrh]


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