Startups Flock to Storage

Seek share of growing, lucrative market but face wary IT managers and entrenched competitors

With both demand and revenue rapidly growing, the staid data storage industry is witnessing an unprecedented level of entrepreneurial interest.

Dozens of startups have come out of the woodwork in recent months, hoping to capture some of the lucrative market that has been dominated by giants such as EMC Corp., Compaq Computer Corp. and Network Appliance Inc.

While many of the companies, such as Nishan Systems Inc., Cereva Networks Inc., BlueArc Corp. and FalconStor Software Inc., are delving into storage from varying angles—including data management, the transporting of block data across an IP network and storage subsystems—they face considerable challenges in an industry with well-entrenched players.

One of the primary obstacles is persuading users to migrate to their solutions in the first place. While demand for storage is expected to increase as e-business grows, IT managers are reluctant to move their mission-critical data from an established company to a startup that has an interesting business plan but lacks a track record.

"How many of us are willing to put our CEO files on a brand-new technology that has not been around for more than a year?" asked Min Christopherson, director of IT at DNA Sciences Inc., in Fremont, Calif. "If you make a huge commitment to this new company, I would say you are gambling. In life, you dont gamble unless you can afford to lose. Data is something you cant afford to lose."

Still, there seems to be little happening to discourage the startups. Robert Gray, an analyst with International Data Corp., in Framingham, Mass., said he keeps a list of storage startup companies, and right now it stands at 50 and is growing.

In the last four months, venture capital company Matrix Partners, based in Waltham, Mass., has had at least 12 new storage companies knocking on its door. No doubt, one of the main reasons for the influx is the hope of cashing in on what is estimated to become a $40 billion storage industry by 2004.

Nishan, of San Jose, Calif., in December launched products to move data over IP. A month later, Cereva, of Marlboro, Mass., said it will release a storage subsystem aimed at storage service providers. On March 25, BlueArc, of Mountain View, Calif., will introduce its SI7500 network-attached storage product—featuring the companys SiliconServer technology—which officials said will use programmable chips to speed up data throughput.

Next month, FalconStor, of Melville, N.Y., is expected to unveil its IPStor storage management software, which performs such tasks as high-end clustering and virtualization.

Despite the obstacles, one advantage these startups may have in enticing businesses is pricing. An official at EMC customer CyberBills Inc., of San Jose, said it is increasingly difficult to justify spending $3,500 for one 36GB RAID disk from EMC when it can buy a 73GB disk for $2,000 from a competitor. CyberBills would consider a new vendor that has financial backing from reputable companies.

"If they are cost-effective, reliable and secure, we are going to be very interested,"said Bill Miller, vice president of engineering at CyberBills.