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EMC Wooing Iomega For Hardware? No. Services? Oh Yeah!

While many focused on EMC's potential interest in hardware for the consumer storage market, the real play is for Iomega's managed services potential.


Hint: It ain't about the entry-level removable storage products.

Two weeks ago, Iomega reported in a press release that it was rejecting an offer to be acquired by EMC for about $178 million, but last week the company said it was considering a sweeter offer from EMC of over $205 million.

While nearly all the analysts and pundits have focused on EMC's potential interest in hardware for the consumer storage market, I think the real play is for Iomega's managed services potential.

Here's why.

First, let's look at Iomega. The company is one of the better-known names in the SOHO and small business storage market, with a range of removable storage products including its Rev line of disk drives which can be removed and rotated as if they were tape cartridges.

However, Iomega in mid-2006 acquired CSCI, a managed services provider catering to small and midsize businesses. CSCI's services line includes Google's Postini e-mail archiving and security services.

Iomega, with one of the industry's biggest channels catering to solution providers who target small and midsized businesses, is using that channel to bring managed services to smaller customers who might otherwise not access to them. And since the acquisition of CSCI, it has added new services, including VeriSign SSL services. However, despite talk about adding storage as a service, the storage vendor has yet to do so.

EMC, however, has done so, with its acquisition last October of Berkeley Data Systems, the developer of the technology behind the Mozy online backup business. Mozy was one of many on-line storage providers targeting the consumer market, but EMC recently upped the price of those services significantly. One interpretation of those price increases is to position the service more towards business users.

Since the Mozy acquisition, EMC has used it as a platform on which to launch its new EMC Fortress software as a service platform. It will eventually be used to provide a variety of online services, including data security, IT application, and trusted data services, EMC said.

So what else has EMC acquired recently? Since 2006, some acquisitions include:

* RSA, on of the top developers of security solutions that can also be applied as services.

* Four solution providers in the last few years, the most recent being BusinessEdge Solutions. EMC has said the deals were aimed at increasing its services capabilities, and there have been few if any complaints about EMC using the acquisitions to compete with its channel partners.

* Pi, a privately-held developer of software and provider of services for personal information management.

* Verid, a provider of ID verification technology that can be employed as a service.

* Voyence, whose VoyenceControl network configuration and change management solution can manage tens of thousands of devices across multi-vendor network infrastructures.

* Indigo Stone International, a developer of software for business continuity, server migration and bare metal recovery

Of course, not all recent EMC acquisitions are focused on services, including:

* Valyd Software, which develops encryption and encryption management technologies.

* Tablus, a provider of data loss prevention solutions.

* Avamar, a provider of data de-duplication technology which, according to some recent press reports, may be locked in an internal battle within EMC against technology from FalconStor Software, of Melville, N.Y., and Quantum, of San Jose, Calif. as to which de-dupe technology EMC will use.

There are other acquisitions as well. My point here has been to show that EMC's acquisition history is showing a pattern of focusing less on products and more on services.

So here we have EMC building a platform to offer services to all its customers but with relatively little clout in the small business space, but with storage for small businesses being one of those services. And we have Iomega with a services platform specifically aimed at smaller businesses, but no storage as a service as of yet.

See the tie?

So where would Iomega fit in at EMC? There are a couple ways, each of which is a valid business model.

The obvious one, which most pundits have figured out, is as a SOHO and small business hardware play. It would fit with EMC's SMB channel initiative, which includes a number of hardware and software products.

EMC may also be looking at the China market with the Iomega deal, as has been suggested by some pundits. Iomega is currently in the process of acquiring a Chinese-based storage manufacturer, ExcelStor. However, EMC has also other China-based initiatives, and doesn't really need a manufacturing site there.

Anyway, I'm not convinced that EMC wants to spend a lot of time promoting a low-margin business like removable data storage devices, especially during a time when EMC has explicitly stated it wants to gradually decrease its dependence on hardware and become a strong software and services vendor.

And that's why the potential Iomega acquisition is really about services, especially to the thousands of small businesses worldwide who may not have completely accepted the idea that they need to be a service provider to their customers, but who more and more are waking to the realization that this is a trend many will not be able to avoid.

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