Microsoft unveiled an agreement to acquire data appliance pure-play DATAllegro. The announcement came at a financial analyst briefing today. Terms of the deal were not disclosed.

Data warehouse appliances, plug-in combinations of hardware and software optimized for high throughput and mixed workloads, have quickly become an important market in data management. Borrowing in part from a model created by Teradata in the 1980s, startups including DATAllegro, Netezza, Dataupia, Greenplum and ParAccel have brought lower-cost data appliances to the fore under different models in just the last several years. DATAllegro itself is five years old; it’s first round of funding came in 2004.

Once the deal is finalized, DATAllegro will become a part of Microsoft’s SQL Server Group, which sits in the server and tools business at Microsoft. DATAllegro CEO Stuart Frost says his company has focused on the high end of the market, which makes it a good fit for Microsoft.

“They’ve been moving up market as they’ve enhanced SQL Server 2008, which is now a very good data warehouse platform but didn’t offer any real scale out,” Frost told DM Review. “There is very little overlap in the installations we have and technically it’s very easy to move over to SQL Server.”

Frost says going forward, DATAllegro will support only SQL but will maintain service for legacy customers. “We’ve briefed all of our customers and they will be taken very good care of. Support will continue on the current products until they no longer need it. Most of them are big SQL Server customers in areas of their database infrastructure and view this as strong vindication that they made a good choice in the first place.”

Frost will stay on to head up what he calls “the high-end data warehouse group at Microsoft” and will reportedly take an engineering role. The company will keep its staff and headquarters in Aliso Viejo, California.

James Kobielus, a senior analyst at Forrester Research, says the shock of the first major acquisition in the data warehouse appliance sector will likely trigger more deals in the next one to two years. “Given that data warehouse appliance pure-plays boast low acquisition cost per usable terabyte, it stands to reason that incumbent enterprise data warehouse (EDW) vendors acquire these vendors outright rather than attempt to hit those price points through time and resource-consuming modifications.” Kobielus names Oracle, SAP and HP as the companies most likely to follow Microsoft’s lead.

Longtime industry analyst and strategic advisor Curt Monash, who writes the blog dbms2 says Microsoft has “seriously leapfrogged” Oracle in data warehousing technology. “All doubt about maturity and versatility notwithstanding, DATAllegro has a 10X or better size advantage versus Oracle in warehouses its technology can straightforwardly handle. Oracle cannot afford to let this move go unanswered.”

The acquisition is of immediate concern to the high-end data warehouse vendor Teradata, which the appliance startups have targeted in particular. “DATAllegro is second only to Teradata in proven high-end data warehouse scalability,” says Monash, who puts Teradata in the same camp as the pure-play appliance vendors. The analyst says that while Teradata continues to prosper, it also “has the most mature and versatile product of any of the alternatives,” and could be a target for Oracle, albeit a very expensive one.

Both analysts say that the acquisition does not immediately provide Microsoft with full-service, high-end data warehousing capability.

“What’s still missing from Microsoft’s high-end EDW product capability is a coherent go-to-market approach where EDW appliances are concerned,” says Kobielus. “Most important, Microsoft needs to launch a targeted EDW-appliance product branding, packaging and licensing approach similar to that which IBM rolled out with its InfoSphere Warehouse family.”

Monash says Microsoft’s platform is still lacking hard-core multiuser concurrency and support for more esoteric tools and functionality. “Both are largely a matter of product maturity and as a young company DATAllegro isn’t quite there yet. That said, integration with Microsoft SQL Server is apt to be a big help in addressing both issues.”

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