Data warehousing (DW) appliances are being touted as potential market changing technology by technology and financial analysts alike.

Vendors say these bundles of hardware and software can save companies money and shorten implementation time. But will they really change the DW market?

Some say yes. The Motley Fool’s recent article “Baby Breaker Birth Announcements” identified DW appliances and specifically DATAllegro Inc. as a “market breaker.” The article is part of a series trying to uncover companies that are breaking the rules and may present great investment opportunities.

DATAllegro had just announced another round of financing the day before the article was published. The Motley Fool writes “Why all the interest? Appliances are arguably the new big thing in information technology. They save money and effort by combining a mishmash of hardware and software in one box, custom-designed to handle a single complex task. For IT managers, data warehousing is about as complex as it gets.”

The article points out that creating a DW is tough and then gaining access to that data warehousing by business intelligence (BI) tools is “hindered by the complexity of data warehouse design.” The Motley Fool concludes that “DATAllegro addresses that problem by reducing the number of break points — a smart idea.”

A solution in a box?

Does this product really make data warehousing and business applications easier to implement? Do appliances make business sense?

In order to examine these questions, let’s divide the current vendors into two camps: the DW appliance pure-plays and the major hardware vendors.

The most visible pure-play DW appliance vendors are DATAllegro and Netezza Corp. And obviously, there must be a market opportunity because major hardware vendors, such as IBM, Hewlett-Packard Co. (HP) and Sun MicroSystems Inc. (Sun), have created DW appliance offerings, too. Some of the vendors do not use the “appliance” label, but the reality is that their combined hardware-software bundles easily fit the definition.

Netezza and DATAllegro saw an opportunity to provide a cost-effective product to ease and improve DW implementations. Their great customer references support that claim. The fact that major vendors are getting into the market also validates the market opportunity.

What do the pure-plays do? Their DW appliances include commodity hardware and storage, open source operating systems and databases, and usually some proprietary software that the pure-plays add to improve performance. These vendors configure the appliances to different thresholds of data and usage. In addition, as the DW appliances have caught on, these companies are also partnering with other DW, ETL and business intelligence (BI) vendors to include their software in bundles.

Certainly these data warehousing appliances can be very cost-effective from the hardware side, because they use commodity components, open source operating systems (such as Linux) and databases, and the vendors pre-configure the whole system. Despite the benefits, however, there are two points to keep in mind:

First, what if you have standardized on a vendor’s hardware, storage or database product? Do you want to introduce something different?

Second, and most important, no matter what product you use, it’s still “all about the data.” The Motley Fool’s comments are correct that many implementations are confronted by the “complexity of the data warehouse design.” But you and I know that this has more to do with the difficulties, complexity and challenge of integrating data from many data source and making it consistent with integrity and quality. Installing and configuring software and hardware is usually a very small portion of a DW project. These projects succeed or fail on the data integration, not on the hardware and software configuration or tuning.

Bigger isn’t necessarily better

So, do the large hardware vendors offer the same kind of DW appliances as the pure-plays? IBM, Sun and HP are offering pre-configured bundles with their hardware (servers and storage), maybe their operating system (vs. Linux) and often a commercial database such as Oracle (rather than an open source database.) A major difference from the pure-plays is that the commercial hardware vendors are not offering anything “special” to boost performance, such as patented technology for parallel processing and I/O optimization.

It reminds me of a situation I encountered 15 years ago when I was working at a major hardware vendor that offered pre-configured bundles of hardware (servers and disks) and software (database and applications.) — just like today’s appliances. In fact, they had several decision support systems (DSS) which were the precursor to BI. So it appears this is old hat to hardware vendors. These bundles are convenient, but don’t provide the “break the mold” offerings that The Motley Fool was discussing.

So, do data warehousing appliances create a new market? Yes. A major one? To be determined. Do they change the rules of the game? They are useful, especially the pure-plays, but they’re not a short-cut to success in data warehousing and business intelligence.