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Teradata's Dominance Wearing Thin in Warehouse Space

The firm's premium products, narrow moat will be disrupted by larger IT vendors.

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Moats in the information technology industry are hard to sustain over long periods of time, as IT companies are continuously threatened by nimbler, larger, or better capitalized competitors seeking to offer more valuable products. We think  Teradata's (TDC) narrow moat is shrinking as a result of emerging competitive converged systems for data warehousing. While Teradata's data warehousing systems traditionally have dominated the high-end segment of this market, larger and better-positioned IT vendors such as  Oracle (ORCL),  IBM (IBM), and  SAP (SAP) are rapidly encroaching on Teradata's turf.

Teradata has been a major vendor in data warehousing by selling high-end systems that consist of an analytical database tightly integrated with standardized servers. Teradata's products, which are specifically designed to support online analytical processing (OLAP) operations, gave the company a source of competitive differentiation because other database vendors have tailored their products for online transactional processing (OLTP) workloads. As the graph below illustrates, the market for relational databases (OLTP) is far bigger than the market for data warehousing databases (OLAP).

Rafael Garcia does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.