IBM to Acquire Netezza in Analytic Database Coup

IBM’s $1.7 billion acquisition of Netezza is the second major DW-related acquisition this year, following EMC’s purchase of analytic database specialist Greenplum this summer.

When Microsoft Corp. purchased analytic data database specialist DATAllegro Corp. just over two years ago, many in the industry fastened their seatbelts: consolidation in the teeming data warehouse (DW) appliance space had begun. Only it didn’t. As it turns out, Microsoft’s move was mere prelude.

IBM Corp.’s $1.7 billion acquisition this week of Netezza Inc. is something different. It’s the second major DW-related acquisition this year, following EMC Corp.’s purchase of analytic database specialist Greenplum Software Inc. this summer.

It’s a watershed event. Netezza effectively inaugurated the DW appliance segment: forming in 2000, launching in 2003, and going public in 2007; it didn’t actually start turning a profit until 2008.

Other players came first: the Teradata of the 1980s was arguably the first purpose-built, (mostly) commodity-based DW system; in the 1990s, both Whitecross and Redbrick achieved recognition (even if they didn’t necessarily generate profits) by touting specialty DW bundles of their own.

It took Netezza to establish the category, however. “With the lights going out on the Netezza brand, data warehouse appliances are now officially declared mainstream, even commonplace, as they take their place in the IBM sales book,” notes Philip Russom, senior manager with TDWI Research. “Let’s recall that the concept of the ‘data warehouse appliance’ was the brainchild of Foster Hinshaw, one of the founders of Netezza, more recently the founder of Dataupia.

“Netezza was unique [at launch] ... but has been mimicked by products from a dozen or so vendors since then,” Russom continues, adding that “Netezza definitely proved the concept of appliances purpose-built for data warehousing, although appliances for search, storage, and general data management [had] existed before it, and Teradata has always been rather appliance-like.”

Coup for Big Blue?

IBM officials had a characteristically self-serving take on the acquisition, emphasizing the attractiveness of a Netezza-based database appliance that’s developed and marketed as part of IBM’s overall information management stack. Big Blue likewise offers a conventional DBMS in its DB2 Universal Database; data integration (DI) middleware in its InfoSphere-branded offerings; Web application middleware via its WebSphere-branded portfolio; best-of-breed business intelligence via its Cognos-based assets; and best-in-class analytics via its SPSS-based assets. IBM last summer also launched a portfolio of analytic database appliance offerings, via its “Smart Analytics” push.

“IBM is bringing analytics to the masses. We continue to evolve our capabilities for systems integration, bringing together optimized hardware and software, in response to increasing demand for technology that delivers true business value. Netezza is a perfect example of this approach,” said Steve Mills, senior vice president and group executive of IBM’s Software and Systems group, in a prepared release. “Netezza strongly complements our business analytics capabilities and client base. Together, we have the opportunity to quickly leverage the technology and accelerate the offering.”

Most industry watchers think both the deal and the price ($1.7 billion) a slam dunk for IBM. Netezza has enormous brand cachet -- most competitors (be they traditional hardware-centric appliance vendors or second-wave software-first players) typically invoke the Netezza brand (either positively or negatively) in their marketing efforts. Netezza also has a comparatively large customer base relative to other upstart analytic database entrants.

One aspect of the acquisition worries some industry watchers, however.

“How are you going to position this against Smart Analytics?” asks Wayne Eckerson, director of research with TDWI. In the Q&A that followed the announcement, IBM “gave some vague generalization that Smart Analytics is flexible computing and [that] Netezza will be focused computing,” Eckerson explains, stressing that “there’s a lot of overlap between the two. They did position Netezza as a data mart for analytics and for [small- and medium-sized businesses]. So there are some things they have to work out.”

Eckerson, however, seems excited about the deal.

“I do think IBM will be able to sell it -- I think they’re going to sell a lot of [Netezza] boxes,” he comments. “Given the way IBM goes to market ... they give [acquisition targets] a pretty long leash, they keep their teams pretty much intact, but they convert them over to their own culture. They have a lot of experience with these kinds of things [i.e., large acquisitions].”

Netezza fills a glaring gap in Big Blue’s information management portfolio.

“I was talking the other week [to IBM] at [a TDWI] event ... and I said, ‘You guys don’t have a real appliance -- [something] that just helps customers quickly solve problems. Something that’s quick to deploy and offers super-fast performance,’” he explained, adding that IBM was “moving in this direction” with Smart Analytics. “So Netezza was a great acquisition. It was the trend-setter. It started the whole thing. Its success ... in delivering a low-cost analytics machine really put the incumbents on their heels and spawned a huge number of start ups.

“I think [IBM will] be able to grow it really big,” Eckerson continues. “Again, they’re going to really need to clarify the positioning via their Smart Analytics system, which was trying to be more purpose-built.”

With Smart Analytics, Eckerson notes, IBM’s pitch is that “you get everything including Cognos software for one SKU and have it shipped to you in two weeks, but it was still DB2 and it still required [some] configuration. As much as they would pre-configure it, it still took some time to get that up and running.”

Although no appliance is truly plug-and-play, Netezza comes pretty close, Eckerson concedes. “These Netezza boxes are true appliances: it’s an oversimplification, but you almost ship, load, and go. I think it’s a great, great move [by IBM].”

Relational Uncertainty

Netezza has always had ties to IBM. Its first-generation Netezza Performance Systems (NPS), for example, used RISC-based PowerPC chips from IBM in its massively-parallel tier. Netezza likewise used commodity x86 and x64 chips from Intel Corp. in its NPS hosts.

With last year’s “Twin Fin” announcement, Netezza tapped IBM’s BladeCenter platform to power its parallel tier.

“No doubt, IBM will continue the Twin Fin architecture, and especially continue the use of IBM hardware,” Russom suggests.

The long-term viability of Netezza’s relationships with other players -- SAS Institute Inc. and Composite Software Inc. foremost among them -- are less certain. “SAS has been making the rounds, building relationships with various database vendors in the BI and DW space. Along with Sybase and Teradata, SAS has a relationship with Netezza, to enable SAS’ analytic models to run and score natively inside of Netezza’s database management system, as opposed to dumping data out of the database for analyzing,” Russom points out. “Given IBM’s recent acquisition of SPSS -- SAS’ direct competitor -- the partnership between Netezza and SAS probably won’t last long.”

IBM also competes with data federation specialist Composite in the data integration market, where Big Blue was actually early to market with a federation product. Netezza and Composite, for the record, unveiled a strategic partnership back in June.

Russom likewise raises the issue of overlap between IBM’s Smart Analytics portfolio and Netezza’s analytic appliances.

“Almost every IBM acquisition brings in products and services that overlap with pre-existing IBM products and services. We should just get used to it, because this works for IBM. You see, IBM has a highly diverse customer base -- due to being very large and very global -- so they need a highly diverse portfolio to satisfy their customers’ requirements,” he explains.

“With this acquisition, Netezza overlaps with IBM’s Smart Analytics Systems and numerous other hardware/software bundles. Compared to pre-existing products, Netezza is more for really big data analytics, as opposed to IBM’s general-purpose analytic products. Compared to SPSS -- another recent IBM acquisition, focused on statistical analysis -- Netezza is solidly for analytics based on what I call ‘extreme SQL’ -- [this] involves full-blown SQL applications, with thousands of lines of code and very, very complex queries against gigantic labyrinths of data.”

The acquisition is "subject to Netezza shareholder approval, applicable regulatory clearances, and other customary closing conditions," IBM said in a release. The deal is expected to close before year end. IBM said it intends to absorb Netezza's employees (numbering about 500) within its Information Management software portfolio.

Big Blue pointed to a recent study that found that 83 percent of CIOs said analytics was a top priority in their enterprise. IBM said Netezza has over 350 clients "across a variety of industries," including eHarmony, Neiman Marcus, Time Warner, and Estee Lauder.

In the release, IBM noted it has over 6,000 consultants dedicated to analytics. "In the last four years, IBM has invested more than $12 billion in 23 analytics-related acquisitions. In IBM's second-quarter of 2010, IBM's analytics business grew 14%."

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