By ALAN KRANS, special to LTW

Editor’s note: Allan Krans is senior analyst at

HAMPTON, N.H. – The strategic fit for data warehousing appliances draws another big bet with IBM’s announced its for $1.7 billion.

Appliances combining hardware and software may never overtake general-purpose computing, but in some instances they just make sense, and data warehousing is one of those markets. Managing, analyzing, and making decisions based on massive amounts of data is a process that is extremely well-suited for using pre-packaged and optimized appliances versus a pick and play combination of off the shelf IT products.

While Oracle was working with HP to co-develop their Exadata data warehousing appliance, Microsoft and EMC went shopping, respectively purchasing DatAllegro and Greenplum.

Both purchases (DatAllegro and Greenplum) were considerably smaller than IBM’s Netezza acquisition, which is a significantly more mature business in the data warehousing appliance marketplace.

IBM and Netezza will quickly be open for business

In a market increasingly dominated by large, diverse IT vendors, the purchase of Netezza by IBM makes competitive sense for both companies. Netezza now has the development and distribution resources it needs to remain on par with Oracle, Microsoft, and EMC.

With a focused product and strong reliance on the U.S. geography for more than 80 percent of total revenue, joining IBM will enable Netezza to dramatically expand its addressable market and establish revenue streams outside its core product and geographic markets. The acquisition builds on an existing alliance between the two companies, as Netezza is standardized on IBM hardware for its data warehousing appliances, replacing formerly proprietary hardware platforms.

With much of the technology integration already accomplished through their alliance, IBM and Netezza can hit the ground running following the acquisition by focusing on the go-to-market and strategic aspects of the acquisition. Netezza was already profitably growing revenue at double-digit rates during 2010 and its acquisition by IBM will accelerate both the revenue generation and profit once the purchase is closed.

External embodiment of IBM’s combined hardware and software vision

The rigid lines between hardware, software, and services are increasingly blurring, with customers focusing more on solving their business problems than the details of that solution’s delivery. IBM made internal adjustments to recognize this shift, bring its software and hardware businesses together under Steve Mills to centralize development and delivery activities.

TBR believes the acquisition of Netezza is an externally-focused reflection of this strategy, illustrating IBM’s appetite to establish a leadership position in one of the most mature appliance product categories in the marketplace today. In TBR’s Appliance Customer Adoption Study, more than 50 percent of business customers had purchased an integrated IT appliance in the last 12 months, with data warehousing appliances one of the most highly adopted offering categories.

Netezza was an early pioneer in the data ware housing appliance space, and is on track to generate more than $200 million in annual revenue in the space. Beyond the revenue generation, the addition of Netezza provides another tool for IBM to deliver on its Smarter Planet and Information On Demand customer initiatives.

Delivery, not just software functionality creates value

One of the critical components for IBM to continue driving organic software revenue growth is an increased focus on the delivery mechanisms for its software, not just the actual product functionality. In the current market environment, customers are less interested in hardware, software or services than they are in delivering value.

Budget constraints have forced customers to care much less about how value is delivered, as long as it is delivered. While the trend toward cloud computing and mobility has existed for years, the economic downturn provided the added incentive many customers needed to evaluate new forms of IT delivery. In the post-recession era, solutions are being judged not only on their functionality, but also on the flexibility of how they are delivered and consumed.

IBM’s renewed focus on software delivery is manifesting through investments both in how software functionality is delivered (cloud and appliances) and in who is delivering the software offerings (channel partners).

IBM can meet any flavor of delivery option

With a broad portfolio of offerings spanning professional services, hardware and software, IBM is well-positioned to deliver software functionality any way its customers so choose, and the company is aligning its portfolio to do just that.

IBM’s breadth is a strong competitive advantage in this respect, and the company is grouping its software offerings into four delivery categories – public cloud, private cloud, purpose-built device delivered and traditional on-site software delivery.

As opposed to pure-play cloud vendors such as Google or Salesforce.com, TBR believes IBM’s multifaceted delivery approach will most closely match actual customer adoption patterns.

Few customers will fall cleanly into a single delivery method, and the vast majority will employ multiple software delivery methods depending on their specific requirements and existing IT assets.

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