Storage vendors have had a good run over the last few years. Increased compliance, anti-terrorism laws and a renewed interest in mining corporate data have all led to a substantial increase in the amount of raw disk being sold. But in the current climate no-one expects that to continue, especially as IT departments look to make better use of what they have.

So it was came as no real surprise two weeks ago when Net App made an offer for Data Domain. At the time, the deal look good, both companies share prices moved up and the merging of the technologies looked like a real winner for Net App giving them a shot at upsetting the large established storage players.

Today, EMC has decided that it is going to spoil Net App's party by making its own, hostile, bid for Data Domain. To really rub salt into the wounds, it is prepared to offer substantially more than Net App and rather than a mix of cash and shares is making it all cash. The price - $30 per share which values Data Domain at $1.8bn. In a market where corporate values have fallen this deal works out at more than six times Data Domain's turnover last year.

The Net App offer of $25.50 per share with a valuation of $1.5bn looks poor by comparison and that's exactly what the market thinks. Data Domain shares have soared to $31 today while Net App has dropped roughly $1. What is interesting is that the market reaction around EMC shares appears to be completely ambivalent with the shares up just 40 cents.

The problem for EMC, is that the way the Net App and Data Domain boards have structured the current bid, precludes EMC from entering into negotiations with Data Domain. As a result, EMC has taken the unusual step of sending an open letter to Data Domain and spending a lot of time talking up the benefits of the deal to press and analysts.

There is no doubt that EMC needs to strengthen its software portfolio and acquiring Data Domain, the leader in deduplication would be a very good deal. EMC is also being aggressive in positioning its different business units, not least Iomega, as ideal partners for its VMware subsidiary. Adding Data Domain to this mix would allow EMC to really attack the SME virtualisation space with solutions that will stay with them as they grow.

EMC is also banking on Data Domain giving it a majority share of the next generation backup and archive business which is estimated to be worth around $1bn in 2010. Data Domain already accounts for around 20-25% of that market and with EMC's existing Avamar solution, would achieve that goal of dominance in that market. However, the same can be said for Net App and Data Domain as a combined entity so the EMC move can also be seen as a market reaction to prevent the birth of a major competitor.