Why EMC bought Legato

* Analysis of EMC acquisition of Legato Systems

Last week, EMC announced its acquisition of Legato Systems. Following only a few days after acquiring BMC’s storage assets, the announcement shows clearly that EMC is making a statement, and that we had all better pay attention. And even though Legato’s revenue is only about 5% of EMC’s, Enterprise Management Associates expects this deal will be more strategically important than any other EMC has done in recent memory.

Why buy Legato? Three reasons.

The product-related reason is that Legato’s known strength (its Networker back-up and recovery software) and its hidden strength (its AAM automated resource management software) fill gaps in the EMC product line. The market-related reason is that Legato’s strength from inception has been in the mid-tier market, where it has been a respected provider of back-up and recovery services to Unix shops and has maintained an effective direct sales force. The channel-related reason is that while EMC’s concerted effort to enter the midrange IT market has been greatly facilitated by its use of Dell as a reseller, that relationship has largely been an enabler of hardware sales (EMC’s Clariion) without much impact on software revenue.

By acquiring a major player in the midrange back-up and recovery segment - and moreover, a player that comes with its own proven sales channel - all three issues are addressed at once.

Legato likes the buyout because it will remove a major concern among IT buyers: the worry that competitive pressures were driving Legato towards the economic brink. A buyout by one of the largest firms in the business effectively takes that concern off the table.

EMC will roll the best features of its existing EMC Data Manager (EDM) back-up and recovery product into Legato’s Networker. EDM, worthy in its own right, never achieved much traction outside the native EMC environment. Networker thrives amid heterogeneity, however, and EMC is promising a no-charge conversion to the Networker platform for current customers.

The acquisition makes a strong statement about EMC’s intentions regarding the mid-tier market. EMC now has a tool set that is well regarded for utility and heterogeneity. This last point will go a long way towards legitimating EMC’s claim that it has become a provider of truly open systems, once the software is fully integrated within the EMC software line. Competitors often use EMC’s “EMC-first” approach in competitive situations to downplay that company’s commitment to heterogeneity. Now they will almost certainly have to come up with another tactic.


Copyright © 2003 IDG Communications, Inc.

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