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Symantec, Veritas Marriage Gets Mixed Reviews

While vendors slugged it out over new customers over the last couple of months, two giants in their respective markets were hatching a plan to ambush the software market with a blockbuster merger.

Symantec's bid to acquire Veritas Software for $13.5 billion Thursday reverberated through an industry beset by consolidation, as the software market has been nothing if not an expanding and contracting industry.

The deal dwarfed Oracle's recent offer for rival PeopleSoft by more than $3 billion.

More importantly, the Symantec and Veritas merger appears at the outset to be as friendly as they come. Symantec and Veritas partner Network Appliance praised the deal, recognizing it as a win for their own customers.

Both Symantec CEO John Thompson and Veritas CEO Gary Bloom said on a conference call they believe security and storage are bounding down a path toward convergence. Both men are intent on accelerating their companies' trips.

"This is not a defensive move by any stretch of the imagination," Thompson said. This is an offensive move focused on leveraging the combined capabilities of the two companies in a way that addresses the No. 1 issues for CIOs: How do I ensure the integrity of the information that's flowing through my network."

Bloom said the combined outfit will provide customers infrastructure that detects threats on the Internet. The software would automatically raise the service level requirements on applications and provide automatic restore in the case of a corporate virus outbreak.

Bloom also claimed the deal, slated to close in the second quarter of 2005, would yield comprehensive e-mail management from the edge of the corporate network to the central e-mail server. The combined product sets will provide spam filtering, detect viruses, archive e-mail and protect the system against planned and unplanned outages.

These are all crucial activities. Enterprises are terrified of losing crucial data in the face of more stringent compliance regulations, such as Sarbanes-Oxley and HIPAA, as well as laws, such as the California Database Breach Act.

Analyst Noise

Forrester analyst Steve Hunt said the acquisition was good for both companies for very different reasons. He said Veritas was clever for looking to add security to its products, particularly because it didn't have a channel for security.

"They were clever in recognizing that the security market had some revenue available and some need for storage or data management," Hunt said. "In fact, in a security architecture, the storage component is also the most expensive and heinous part because engineers who build security architectures for companies know everything except storage."

For Symantec, Hunt said the deal is in step with the outfit's plan to evolve from a security vendor that sold to consumers and enterprises, to a provider of information integrity, something the company couldn't do without data protection software from Veritas.

"This maintains or stimulates the enthusiasms that vendors and customers have about the role of security in the enterprise," Hunt said. "For Symantec, this helps them tell their new story. If it is correct and true and worthwhile, then they'll make money. If not they were going to fail anyway."

Veritas rival EMC isn't quite ready to buy into the whole storage and security convergence line, according to spokesman Todd Cadley, who said EMC believes Veritas' primary motivation for the merger is to stop losing market share in the storage software space.

"I think that was a very forward looking statement," said Cadley. "We credit them for taking a very big jump and risk. It's one of those 'their risk equals our reward' scenarios, where EMC thinks it can gain traction and take market share in the short term, whether or not the melding of security and storage will come together."

Cadley said Veritas had to try something to staunch the revenue loss in the storage software arena, where it has steadily lost. According to IDC estimates, EMC is the No. 1 provider of storage software after overtaking Veritas in the wake of acquisitions of Documentum and Legato last year.

In comparing EMC's acquisition success and subsequent integration, Cadley argued that, regardless of whether or not the deal succeeds, the entity would still be more than a year and a half behind EMC in terms of diversifying its portfolio. EMC is intent on providing technology bundles of hardware, software and services.

"We see this as a tremendous opportunity to take share," Cadley said.

More Consolidation on the Way

As much as EMC refuses to recognize the dovetailing of storage and security, Enterprise Strategy Group analysts believe it is a necessary and inevitable step companies will take to offer customers trustworthy gear.

"It was inevitable that storage and security were going to converge," ESG analyst Pete Gerr said. "It's a natural extension of data protection and data management, especially when you add in the influence of compliance and regulatory issues and fear of litigation."

In an example of one of the specific benefits of the marriage, Gerr said Symantec's security software and approach might be applied to leading Veritas products such as BackupExec and NetBackup.

"[BackupExec and NetBackup] have an inherent security but they're not built from a security mindset, they're built from an integrity mindset, which is: Let's make sure the bits don't get slipped; Symantec can provide encryption and data security."

Gerr said he expects the deal will trigger additional acquisitions, ramping consolidation in an already shrinking market. It may already have prompted some action.

Microsoft, which has for months vowed to establish itself as a powerful anti-virus and anti-spam software supplier, acquired anti-virus software maker Giant Company Software Thursday. On other competitive fronts, Gerr said it will be interesting to see how systems vendors react.

"I think any hardware-centric vendor may have a challenge [integrating a security software vendor]," Gerr said. "But rivals may acquire a small vendor to react from a marketing messaging standpoint until they have a product solution."

Acquisition bait could include security software providers and Symantec rivals such as McAfee , RSA Security , Trend Micro , or even possibly Computer Associates , he said.