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Summary:

Other than the availability of bigger boxes it’s hard to point to big changes in the way we store our stuff. But much like the physical storage industry, which has seen slight innovations in recent years, business-class data storage is quietly making its own incremental improvements — with support from venture capitalists.

Other than the availability of bigger boxes (or clear, plastic ones) it’s hard to point to big changes in the way we store our stuff. Shifts in data storage are similarly mundane. But like the physical storage industry, which has seen slight innovations in recent years, business-class data storage is quietly making its own incremental improvements — with support from venture capitalists.

Enterprise storage companies raked in $237.7 million in venture capital during the first half of this year, up from $145.9 million during the same period a year ago, according to data from the National Venture Capital Association. That’s the highest level since the first half of 2002.

Three trends are making storage startups…well, if not sexy, then at least a focus for IT managers: virtualization, the incredible increase in data, and the opportunities offered by cloud computing. Paul Gottsegen, a V-P of marketing for HP’s enterprise server and systems group, told me that companies building out large-scale computing systems to deliver software as a service, and even computing clouds, are far more interested in better storage features than tweaks for servers. And they’re willing to pay extra for them. That focus on storage is one of the reasons that HP said on Wednesday that it had agreed to spend $360 million to buy LeftHand Networks, whose software can be used to create virtualized storage clouds on an Ethernet network.

We’re not talking about online backup services, which include players like Carbonite or Mozy, but rather software and systems that offer businesses a way to filter and keep data in a place that makes it easily accessible. Backup is only a small aspect of the storage equation, where the real solution is managing the onslaught of data. IBM, which in September launched 30 new storage products, estimates the amount of data saved for the average business user will rise to more than 16 terabytes by 2020 from just one terabyte today.

Companies want to store this data more compactly, get to it faster and provision it quickly. To reduce the amount of redundant data stored, the big vendors have pushed a technology called “deduplication,” which intelligently scans the data to be kept and only stores changed files. Pushing that idea further are venture-backed startups Ocarina Networks, which has raised an undisclosed amount of money from Kleiner, Perkins and Highland Capital Partners, and Storwize, which received $19 million in April from Sequoia Capital and Bessemer Venture Partners. Both offer a way to further compress each individual file by using proprietary algorithms.

Getting to the data faster means adding more disks, speeding up processing power or upgrading to faster networks. Or there are some startups peddling appliances that can help. Gear6 and Atrato both claim to work with existing equipment to cache data that’s likely to be needed so it can be accessed quickly. Atrato raised $18 million in February from Aweida Venture Partners, and Gear6 raised $10 million in March from Horizon Ventures, U.S. Venture Partners and InterWest Partners.

Rapid provisioning, and making it easy to tie storage to a cloud of virtualized servers, has been a focus for some time now; LeftHand Networks and EqualLogic, which was acquired by Dell last year for $1.4 billion, both offer tools for those tasks. Most startups are steering clear of direct competition with the large disk-drive filled storage boxes sold by the likes of HP, IBM, EMC and NetApp, and are instead trying to focus on markets or areas of the data center where the big guys don’t play, or where they can add more value.

Others are taking to the clouds. Greg Gretsch, a managing director at Sigma Partners, says he’s interested in the idea of cloud storage offerings for small businesses delivered through a managed service provider. To that end, he’s backing Zetta, a startup trying that model that’s still in stealth mode. Gretsch also funded EqualLogic; Zetta, he says, draws on the experience of EqualLogic founders to sell into the small- and medium-sized business space.

“Virtualization and the amount of data has been the biggest thing in the last 18-24 months for storage, but the next thing is a move toward cloud storage,” says Gretsch. “Cloud computing will require cloud storage, and [Amazon's] S3 has some limits to it.”

Last year, other VCs backed a direct competitor to S3, Nirvanix, another cloud storage service sold to programmers, with $12 million in funding. An enticingly named startup called CloudSwitch also appears to targeting cloud storage, and is backed by Matrix Partners. So while data storage might be the computing equivalent of a garage, sometimes that’s the place where great companies are built.

This article also appeared on Businessweek.com.

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  1. Slight correction – it’s mozy, not moxy (the online backup service). Moxy would be a pretty sweet name though :)

  2. We wish to give away Encache.com and Encache.net to one the promising storage startups.

    Do contact us – look us up on Register.com for contact details.
    Jay

  3. They’ve turned it in to VC funding… I don’t consider VC funding to be turning something into cash, because eventually those VCs will want their money back (and then some). Turning something into cash is showing profits, which this article does not touch on at all.

  4. Stacey Higginbotham Friday, October 3, 2008

    Lotus, we fixed it, and I’m looking into moving that “x” away from the “z” key: )

    Michael, turning something into cash really just means selling it for money. A company can bring in cash without being profitable. And thanks to the wonders of GAAP accounting, in certain cases they can even make profits without bringing in actual money.

  5. Nirvanix Adds $5M to Keep Data in the Cloud Wednesday, April 15, 2009

    [...] for companies to own their own storage facilities, especially as they’re increasingly required to archive data that may not be essential to their day-to-day business. [...]

  6. Venture Capital’s Data Side Story Tuesday, August 10, 2010

    [...] Storage Startups Turn Cache Into Cash [...]

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