Coraid raises $50 million for cheap scale-out storage push

Scale-out SAN vendor Coraid raised $50 million in venture funding in a Series C round led by Crosslink Capital. Seagate, (s stx) Kinetic Ventures, and Silverlake AG are also new backers in this round. The seven-year-old company has now garnered a total of $85 million. Early investors were Menlo Ventures, Allegis Capital and Azure Capital Partners.

Coraid is banking that the commoditization craze that gutted server prices before spilling into networking gear, is now affecting storage. The company’s stance is that its reliance on cheap, off-the-shelf hardware running its software on simple Ethernet networks make it a cost-effective option.  Coraid relies on the ATA-over-Ethernet, or AoE, protocol, rather than the iSCSI protocol popularized by storage rivals such as EqualLogic, now owned by Dell (s Dell) and LeftHand Networks, which is now part of Hewlett-Packard (s HPQ).

“The networking and storage layers were still running on the mainframe model. In the last year, the networking economics flipped. One layer is left — storage. It’s a $30 billion industry and the EMCs (s EMC) and IBMs (s IBM) of the world from the storage 1.0 era, added some software and vitamins, but for the most part are unchanged,” said Coraid CEO Kevin Brown, a former NetApp (s NTAP) executive.

As more businesses virtualize their workloads and move to cloud computing, they need to be more flexible with their storage as well. “Once you’re virtualized, you need to get your disk drives out of your servers,” Brown said.

Such flexibility is key to Coraid’s pitch, and last month, the company bought Yunteq, a maker of orchestration software for public and private clouds, to bolster its options in cloud infrastructure. Terms were not disclosed. “Modern data centers are moving to automated cloud architectures, but legacy storage lacks the flexibility and scalability to get there,” Brown said in a statement at the time.

Coraid, based in Redwood Shores, Calif., now claims 1,500 customers ranging from small and mid-sized companies to universities and large government agencies including the U.S. Department of Defense.

Upstart storage companies pushing cheap hardware while charging for their own special-sauce software pretty much set the agenda now. Legacy storage giants can no longer afford to ignore this trend. In the past, these companies — much like IBM in its mainframe heyday —  hesitated to offer low-cost solutions for fear of cannibalizing sales of their flagship products. But it’s increasingly clear: If they don’t cannibalize themselves, the cheap-hardware guys will do it for them.