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Job Axe Swings at Storage Startups: Page 2 of 3

"It is a terrible time to be in IT and an equally terrible time to be in storage," said a spokesperson for Scale Eight. "But, we are happy Exodus has declared bankruptcy, as at least this means they will stay in business longer." He said the company hosts its services from Exodus’s "most densely populated" data centers, which should hold out -- although Scale Eight is taking no chances and is currently seeking alternative partners.

Harsh Kumar, an analyst with Morgan Keegan & Company Inc., said, "Many startups in this sector that initially received loads of funding have seen that dry up, and now need to get very effective, very quickly." He cites Cereva Networks Inc. as a case in point. "I’d hate to see the terms of their latest round." (see Cereva Skids to a Halt and Cereva's Back on Track).

In the case of Scale Eight, the problems may not be as much financial as strategic. Although the company recently raised a third round of funding (see Scale Eight Set to Close $30M), experts say the longterm prospects of its business model could be problematic.

SSPs around the globe have been scrambling to reposition themselves as software firms as they discover that it is too capital-intensive to deploy storage resources in data centers across nations. "They have learned the hard way that the build-it-and-they-will-come mentality is bullshit," says one Wall Street analyst, who requested anonymity (see SSPs Switch to Selling Software and StorageNetworks: Big Layoff).

Scale Eight is adamant that it does not fall into this category. "We are not one of those SSPs abandoning one business model in favor of another," says a company spokesperson.