Stung by

EMC's

(EMC)

gains in the $15 billion storage network market,

IBM

(IBM) - Get Report

is attempting to leapfrog its rival in the development of a key new technology.

Storage virtualization, a way to simplify the management of large quantities of data housed on multiple servers, is likely to become a "must have" feature for large businesses in the next few years, analysts say. On Friday, IBM, which already has a solid lead over EMC in virtualization, is expected to announce that its products will now work with storage devices made by its rival.

In the arcane world of enterprise storage, such so-called interoperability is critical. That's because many large businesses store important data on devices sold by competing vendors, and insist that those devices -- or any devices they may need to add on -- work together.

EMC says it has a similar product, but it won't be ready for market until sometime in the first half of 2005, and some analysts say that even then it won't match IBM's entrants. "I don't think it will be a competitive offering," Tony Asaro, an analyst with the Enterprise Strategy Group, a Milford, Mass.-based consultancy specializing in enterprise storage, said of EMC's offering.

Even if EMC makes its "storage router" more competitive, Asaro said, IBM has gained a critical advantage by getting to market first, and gaining experience with a new and complex technology in a real-world environment.

In the short run, however, virtualization technology will not immediately translate into fists full of dollars, says Kaushik Roy, who follows storage for the Susquehanna Financial Group. "Is there a market for this? Sure," he said. "Is it booming? No. For now people are more worried about issues like disaster recovery"

EMC executive vice president Howard Elias agrees with at least some of Roy's analysis: "2005 is a tire-kicking year," he said. "Virtualization will drive significant revenue in 2006," he said. As to those who think EMC's storage router isn't up to snuff, Elias says confidently: "They haven't seen it yet. Wait till they do."

IBM, meanwhile, hopes that Roy is too bearish. Big Blue is struggling to take back ground lost to EMC, a company that in the last few years has become one of the major players in technology.

According to market researcher IDC, EMC's external storage revenue grew by 19.5% to $719 million in the second quarter, and the company added 2 points of market share. IBM's revenue grew by 4.7% to $471 million, but it lost a half-point of share. In a related area -- disk storage -- EMC made the biggest year-on-year gain in market share, moving from 12.6% to 14.4%, although it trailed IBM and

Hewlett-Packard

(HPQ) - Get Report

, according to IDC.

EMC is also the leading seller of storage software, a position it grabbed by acquiring Legato Systems in 2003.

A key part of IBM's strategy in the storage wars is to dig into the depth of technical expertise contained in its many units. IBM is using its fastest microprocessor, the Power5, developed for use in application servers, in its newest storage servers, which contain the virtualization technology, said Jens Tiedemann, IBM's general manager for storage software. "We are leveraging the cost of the R&D for this technology across three product lines," he said.