Both approaches have advantages and disadvantages. Using deduplication that is integrated into your backup software gives you the opportunity to seamlessly switch between source and target deduplication (or no deduplication at all if it's not warranted) as the workload or backup job requires. It also gives you the opportunity to use commodity disk as the target for your backups.
However, most of these solutions are not as scalable as their disk appliance brethren, and top out at around 100 TB per deduplication pool. Organizations with very large environments usually opt for a backup deduplication appliance, as they tend to be more scalable and faster to deploy. An appliance with virtual tape library (VTL) capabilities can also emulate tape, a feature that many larger companies still require for legacy environments.
Also, all-in-one backup appliances that include data store, media server and the backup software pre-installed have gained significant momentum over the past year or so. At first, these converged backup appliances were mostly attractive to small and medium-sized businesses looking for simplicity, better integration, faster deployment and "one throat to choke." However, as these types of solutions have become more scalable and feature-rich, and as more providers have entered the space, converged backup appliances have gained significant traction with enterprises as well. Today, they fit in the market in the gap between software-only deduplication solutions and backup appliances.