Data-storage manufacturer Seagate (NYSE:STX) announced earlier today that it is acquiring EVault, a privately held provider of online backup services, for $185 million in cash. This move continues a trend of purchasing data-storage service providers that the company started in 2005. In the past year, Seagate has also acquired Mirra, a provider of digital-content protection, and Action Front, a company that specializes in data recovery.
All of these moves make sense, because online backup and recovery, as well as archiving for small and medium-sized businesses, promises to be big business in the near future. These acquisitions also give Seagate a toehold in this burgeoning industry, which might allow it to compete successfully with the likes of Amazon.com (NASDAQ:AMZN) and Google (NASDAQ:GOOG), which are both moving aggressively into this space.
The move also makes sense from a broader strategic perspective. The extraordinary advances that the data-storage industry has made in the past three decades in terms of price, performance, and size have been just as extraordinary as what Intel (NASDAQ:INTC) Advanced Micro Devices (NYSE:AMD), and IBM (NYSE:IBM) have achieved in the semiconductor industry.
However, all of this progress has come at a considerable cost. The data-storage industry has essentially commoditized its product. Luckily, other technological advances have allowed an ever-increasing amount of information to be stored digitally, and these developments have allowed Seagate, SanDisk (NASDAQ:SNDK), and others to continue to profit even though industry margins become squeezed ever more tightly on a regular basis.
This reality will undoubtedly persist for the foreseeable future, and Seagate has demonstrated that it is well equipped to handle this pressure. However, as data storage continues to progress from gigabytes to terabytes, and then to petabytes and eventually exabytes, the broader business opportunity is less about supplying massive amounts of data storage to businesses, and more about helping them manage the information that is contained inside.
The acquisition of EVault is a move toward that end, and it is a sign that Seagate is evolving in the right direction.
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Fool contributor Jack Uldrich is currently ranked 8,892 out of 18,088 participants in CAPS. He does not own stock in any of the companies mentioned in this article. The Fool has a strict disclosure policy.
