The growth of the storage market has been seemingly unstoppable over the past few years. The only exception was during the first six months after Sun acquired StorageTek and seemed at a loss of how to handle it although it did present a lot of competitors with business.

As we work through the current difficult time for IT vendors, the larger players in the storage market are beginning to look for growth through acquisition rather than rely on customers simply piling on the disks. The first of a wave of consolidation that is expected over the next year has just seen NetApp acquire Data Domain.

The deal, which values Data Domain at US $1.5bn will be part cash and part stock with each Data Domain share priced at $25.50. At the time of announcement, the Data Domain shares were trading at just under $18 but are now $24 suggesting that the market likes this bid. By contrast the shares of NetApp dropped 75 cents but have today recovered almost all of that.

The deal also looks good from a marketing and technology perspective. Data Domain has been extremely aggressive in positioning its products in the deduplication space and has just announced secure, file-level data shredding in its Retention Lock software. This is a feature that is likely to be in serious demand over the next year as companies are forced to pay increased attention to data protection, archiving and compliance legislation.

Data Domain is also a key player in the replacement of tape systems with disk based storage which is where its archiving and backup solutions combine with deduplication to massively reduce the amount of data space under management. NetApp also has solutions in the deduplication, backup and archiving space, much of it built on top of NetApp's Platform OS, Data ONTAP.

Despite the overlap of functionality, both companies operate in different market segments and this is one of the key drivers, according to NetApp, behind the acquisition. Of course, the fact that Data Domain grew at 122% last year may also have something to do with it and NetApp could be seen to not only be after market share but also taking out a competitor before there is a problem.

Another benefit to NetApp is that it can now go after customers who would have previously seen themselves as being too small or not interested in acquiring such an expensive storage solution. This is very reminiscent of the Cisco/Netgear deal a few years ago which has had significant benefits for Cisco in being able to access customers early and with lower priced product. Only time will tell if this is also going to work for NetApp.

A real benefit for NetApp is that while it is seen as a competitor to people like EMC, HP and IBM in the storage market, Data Domain is seen by many as being complimentary. This is because it doesn't openly compete on storage, instead the focus is on tape replacement. By acquiring Data Domain, NetApp gains a foothold in other storage vendors customer environments.

This deal also projects NetApp into the same bracket at IBM and Sun who between them control over 90% of the tape archiving market. With Sun going through restructuring as part of the Oracle takeover, this is not a bad time for NetApp to exploit any customer uncertainty, something that IBM may well be precluded from as part of its failed bid for Sun as it was given access to all of the Sun contract books.