Top Ten Private Companies: Early Summer 2004

As spring melts into summer, the days are getting hotter. Heat is building, too, in the editorial offices of Byte and Switch, where we've been cooking up the latest iteration of our Top Ten Private Companies list.

Yes, we know: We're late. Very late. In fact, we're shockingly late. No excuses offered. Suffice it to say that fate and schedules intervened to stall our efforts beyond what we'd planned, and from here on we intend to update this list at least quarterly. Honest!

Given the time lapse since our last update, it's no surprise that our list is nearly completely revamped. We're looking at a whole new ballgame in storage networking, as renewed interest in the public markets spurs a flurry of pre-IPO talk we haven't heard in four years. What's more, a faster-moving market means it's taking less time for startups to ride the conveyor belt to stardom or stalldom.

Not surprisingly, the companies on the Early Summer 2004 Top Ten reflect market segments where demand is beckoning new companies: We have four software specialists and two IP SAN suppliers, along with SAN and NAS makers.

Our basic criteria for consideration: Each company must be privately held and have shipping products and named, revenue-producing customers. Beyond that, the companies on this list are the ones we think most likely to succeed in terms of profitability in the near term. Why? Our methods are our own.One thing to keep in mind: This is a list of ten, and as such is a snapshot of promising firms. Absence from this list doesn't mean we at Byte and Switch don't think you have captivating products or services.

A word about the Bit Bucket: Being there doesn't mean we don't like a company's technology or services or think they'll succeed. But in a list that's limited to the top 10 private storage networking companies, some firms show signs of moving more quickly to the next level than others. Sorry, folks, but it's that simple. And landing in the Bit Bucket needn't be a permanent condition, as we proved by snatchin' out AppIQ, dusting it off, and thrusting it back on the list with a loud smack!

So without further ado, we hit refresh, revealing what we at Byte and Switch consider to be the top ten private firms in storage networking, based exclusively on our own evaluation of each company's likelihood of future success, in light of its own attributes and those of the market in which it's chosen to play.

So enjoy... Hit that Message Board with your own picks and pans, and stay tuned for the next iteration.

For a writeup on each company, click on its name below:Table 1: Top Ten Private Storage Networking Companies

The Editors, Byte and Switch

CommVault Systems Inc. takes first place on our list, thanks to ongoing success in storage networking software.

CommVault's strength comes from its ability to stay flexible and establish key partnerships. Since its products are based on a common set of code, CommVault's been able to extend its wares beyond backup-and-recovery into SAN management and storage resource management. It's also been able to span market segments by adding features that address the needs of enterprises as well as small businesses.

CommVault's partnership list just keeps getting more impressive. CommVault recently signed an OEM and distribution deal with Dell Computer Corp. (Nasdaq: DELL) (see CommVault Locks In Dell). This augments a slate of deals that includes a reseller arrangement with Hitachi Data Systems (HDS); strategic partnerships with EMC Corp. (NYSE: EMC) and Hewlett-Packard Co. (NYSE: HPQ); and OEM deals to run on storage appliances with Network Engines Inc. and StoneFly Networks Inc.On the downside, CommVault's reliance on partners may have hindered its ability to establish an independent identity. Doing that is key to competing successfully against Veritas Software Corp. (Nasdaq: VRTS), which dominates mindshare in storage networking software.

Indeed, it's high time for CommVault to move to the next level. Nearly eight years after senior management bought the company with venture input in 1996, CommVault hardly qualifies as a startup anymore. Management claims the company adds between 200 and 300 customers a quarter. Figures on Hoovers Online show CommVault's 2003 revenues at $44.4 million, but industry sources say that number is a serious understatement.

According to VP of business development David West, the firm stopped publishing its growth rates and customer numbers last year, when it proclaimed in a press release that it closed the year ended March 2003 with 495 new customers and year-on-year growth of 193 percent (see CommVault Counts 495 Wins for 2002). "We thought it was important to let people know where we were, but we didn't have any announcements after that," West says. Aw, shucks!

Talk of an imminent IPO has reached din level. Indeed, rumors of a public offering "sometime soon" are already as old as many startups in this business (see CommVault Aims for IPO). With many Wall Street analysts thinking "when" instead of "if," a filing this year would be anything but a surprise (see CommVault 'Well Positioned' for IPO).

Still, nothing's definite in the world of startups. Since 1998, CommVault's gotten over $130 million in funding from various sources, so it's about time for that IPO. Having reached the pinnacle of our Top Ten – and of industry expectations in general – the only place for CommVault to go from here is down the list or up and off it.NAS vendor BlueArc Corp. is the longest-running resident of our Top Ten list, which means it's headed onward or offward. Still, signs are pointing to the better outcome: CTO Geoff Barrall says BlueArc is on track for an IPO in the first quarter of next year, thanks to a big jump in revenue after it released its modular-drive Titan system (see SAN Snacks From SNW and BlueArc Titan to Battle Giants).

BlueArc has had no trouble getting investors in its corner. It took down $47 million last summer when dough was hard to come by, bringing its total haul to $157 million (see BlueArc Wallows in $47M Haul). BlueArc's well-funded status helped it attract a new president, former McData marketing boss Mike Gustafson, who joined BlueArc this week (see BlueArc President Speaks Up and BlueArc Names President). Now it has to show something for all that investment.

Then there's its product line: While the Titan hasn’t made as big a splash among traditional enterprise NAS systems as BlueArc executives originally hoped, it has helped win some higher-priced deals. Barrall says the Titan’s average sales price of more than $400,000 doubles the ASP of BlueArc’s original SiliconServer product (see BlueArc Unveils SiliconServer Family). BlueArc’s customer base remains primarily in the digital content and high-performance computing spaces, although a relationship with Oracle Corp. (Nasdaq: ORCL) might help it gain more traditional NAS customers (see Oracle Blesses BlueArc's Titan).

Why has BlueArc slipped from the top spot it held last summer? That has a lot to do with CommVault’s success, but we are also a bit concerned about BlueArc’s competition. While it's hard to call a company that raised $157 million in funding an underdog, BlueArc’s biggest problem is that it lives in the shadow of the NAS duopoly of EMC Corp. (NYSE: EMC) and Network Appliance Inc. (Nasdaq: NTAP). Those two don’t leave much market share behind, which may be why BlueArc is still struggling along to profitability.

BlueArc has an interesting architecture going for it, though. The Titan’s chassis lets customers swap four application-specific blades for flexibility and performance gains down the road. For instance, companies can exchange a 4-Gbit/s blade for a 10-Gbit/s blade when the higher rates become available in a couple of years' time. BlueArc CEO Gianluca Rattazzi says the Titan’s system will eventually support 20-Gbit/s speeds by swapping out blades.One last thing: This grizzled startup is proud to be the storage system of choice for The Cat in the Hat, and Dawn of the Dead (see BlueArc Knocks 'Em 'Dead' and BlueArc Says Hello to Hollywood). Now, that's unique!

Softek Storage Solutions Inc. isn't your average startup. Instead of the hardscrabble upbringing common to other young storage resource management companies, it grew up with silver spoon in its mouth, under the wing of parent Fujitsu Ltd. (OTC: FJTSY; Tokyo: 6702), from which it spun off earlier this year (see Softek Taken in Management Buyout).

Now Softek is profitable and plans to go public sometime next year.

The move out of Fujitsu, which took place as the result of a management buyout for an undisclosed sum, had been in the works for at least three years. Back in 2001, Fujitsu decided to spin off its software group, putting Steven Murphy in charge. Murphy had overseen the software group of Amdahl Corp. before that company was acquired by Fujitsu in 1997 for $850 million.

Over the years, Softek made some interesting moves under Fujitsu's auspices, such as licensing Legato Software's block-level replication software code in March 2001 and licensing the virtualization source code from DataCore Software Corp. in 2002 (see Softek Buys DataCore Code). Softek also bought the SAN switch management portion of Vixel Corp. (Nasdaq: VIXL) for $10 million in 2002 (see Softek Acquires Vixel's Software).But the storage market is an unforgiving place, where even big companies can falter. The influence of a deep-pocket parent only goes so far. Despite the hazards, Softek's come through with some choice contracts, such as the one it announced in February with the U.S. Defence Information Systems Agency (see Softek Wins DISA Deal).

Softek's VP for open systems, Karen Dutch, told Byte and Switch in March that the new company is about 12 to 18 months away from going public. “It was like we hit college age, and now it's time to leave home,” she said.

The legacy of its privileged childhood should continue to serve Softek well, and in many ways it's unfair to compare it with startups that have had to bootstrap their way to market. On the other hand, Softek needs to continue to think like a startup if it's going to make it in the long run.

Others are already encroaching: In the Heavy Reading Fall 2003 Storage Networking Market Perception Study, for example, Softek ranked lower than CreekPath Systems Inc. for SAN management software. And while respondents appeared to like the performance of Softek's storage resources management products, they didn't seem to like its prices as well.

The software markets Softek's chosen are also still forming, so it's going to remain a challenge to keep ahead of the curve. But if Softek can do that, its future could be solid.Xiotech's ability to adapt to its chosen market – SAN storage arrays – has moved it up in our Top Ten queue.

Last year, Xiotech managed to quell negative response to its Magnitude 3D product, responding with a distributed cluster architecture to customer complaints about a lack of redundancy (see XIOtech Fixes a Failing).

Xiotech also focused on augmenting its distribution chain and expanding its international presence, spearheaded by internationally minded CEO Alain Andreoli, who joined the company in December 2003 (see Ex-McData EVP to Head XIOtech). And there's a new, entry-level SAN, the Magnitude 3D Edge, announced in February 2004 (see XIOtech Stresses Simple SANs).

All this has helped propel Xiotech into an enviable position: While not yet profitable, it claims to be on track to do more than $100 million in revenue this year and boasts hundreds of customers, including Washington University Medical Center and Warner Brothers. Xiotech also has partnerships with Microsoft Corp. (Nasdaq: MSFT), Oracle Corp. (Nasdaq: ORCL), Novell Inc. (Nasdaq: NOVL), and the major switch vendors, claiming significant wins through its Cisco reseller relationship.

So far, the future looks bright. Two cofounders of another startup, Maranti Networks Inc., recently joined Xiotech as part of a new development team focused on management software (see Xiotech Hires Maranti Founders). Kuldeep Sandhu and Santosh Lolayekar will set up shop at a new company office in Silicon Valley to develop software applications that automate disaster recover, migration, rapid deployment, and other services for the 3D.Time is working both for and against Xiotech. In its favor, Xiotech has time in the market and a slew of solid relationships under its belt, some with big companies. It's also proven its ability to cope with challenges, so far.

Working against Xiotech is the fast-paced storage networking market, which waits for no one. Nipping at its heels are a number of firms, including tyro Compellent Technologies Inc., a newcomer to this list, which was founded by the same trio that started Xiotech. Indeed, the two companies have been trading lawsuits, though the outcome was still up in the air at press time (see Compellent, XIOtech Swap Suits).

Bottom line? Xiotech's at a critical juncture, big enough to start thinking IPO in a market that is gaining momentum. If it can't get to the next level in these relatively favorable conditions, its next place on this list could be the Bit Bucket.

Last summer, the EqualLogic Inc. sales staff probably agreed with Fibre Channel stalwarts who wonder about the wisdom of IP SANs. The company released its first PeerStorage Array in June 2003, becoming one of the first storage companies to take advantage of iSCSI technology (see EqualLogic Unfurls iSCSI Flag). Still, phones weren’t exactly ringing off the hook with interested buyers in those early months.

“They were begging for leads,” John Joseph, EqualLogic’s VP of marketing, says of the sales staff last summer.EqualLogic wasn’t in our Top Ten last August. Things are different now, though. IP SANs are winning their place in the market, and EqualLogic is riding the wave. The Nashua, N.H.-based company claims nearly 100 customers and at least 150 units in the field. Besides being one of the first iSCSI systems to launch, EqualLogic has already added disaster recovery, a feature not always available in IP SANs.

Equallogic's been busy with more than sales. The startup has been developing relationships with strategic partners and resellers. For example, EqualLogic’s PeerStorage was the first iSCSI product to win certification by Sun Microsystems Inc. (Nasdaq: SUNW) last September. EqualLogic has a reseller deal with Sun, and Sun’s professional services provides service and support for PeerStorage.

Other partners include Cisco Systems Inc. (Nasdaq: CSCO), CommVault Systems Inc., QLogic Corp. (Nasdaq: QLGC), and Veritas Software Corp.

(Nasdaq: VRTS).

EqualLogic could use an OEM deal with a major systems vendor looking to move into iSCSI. “We’re still talking to Tier 1 companies," says Joseph, "but they’re not ready to make a deal yet."

EqualLogic last September hired a new CEO, Jack Boyle (see EqualLogic Names New CEO). Boyle’s last position was CEO of security management software company Cogentric, which was acquired by TruSecure Corp. last August. EqualLogic executives are working on a new funding round which they hope to close in July to use for international expansion. The firm's last funding round was for $15 million in March 2003 (see EqualLogic Tallies $15M).There are two reasons why LeftHand Networks Inc. remains on our Top Ten list. The first is that IP SANs have finally built up steam (see ISCSI Shakin' Goin' On and Panel Prompts iSCSI Love-In). The second is that LeftHand has managed to keep its footing in spite of some strategic missteps.

As far as the first issue goes, LeftHand continues to gain traction with more than 100 customers, including a spate of government agencies (see Storage Counts on Gov't Spending and Eagle Flies With IP SAN).

For the second issue, LeftHand started shipping IP SAN products in November 2001 based on a proprietary Ethernet protocol. That could have left it off the lineup once IP SANs based on iSCSI took off, but LeftHand adjusted in time. Last October, it announced a Network Storage Module (NSM) with support for standard iSCSI (see LeftHand Picks Up iSCSI).

The startup, which has gleaned $39 million in funding to date, continues to evolve its product line, adding a multiprotocol SAN filer built on Microsoft Windows Storage Server 2003. It also started to license its software to hardware vendors last March (see LeftHand Complements its IP SAN and LeftHand Reaches Crossroads), in partnerships that allow customers to bring its IP storage software into SANs based on Fibre Channel.

LeftHand has announced one OEM partner, Crossroads Systems Inc. (Nasdaq: CRDS), and says it has a deal with a Fortune 100 company that it won’t identify.LeftHand's biggest competitor so far is EqualLogic Inc., with which it's often compared. The distinctions aren't readily apparent, though EqualLogic, which supports a clustering capability in its IP SAN, seems to appeal to a slightly larger enterprise customer. On the other hand (no pun intended), at least one source says lack of features such as clustering can give SANs a bit more throughput. Still, sources say both companies appear to have an equal shot at market position, thanks to their early market entry and solid customer base.

As it is for other iSCSI startups (and LeftHand competitors), EqualLogic, Intransa Inc., iStor Networks Inc., and StoneFly Networks Inc., the hard part for LeftHand might be just starting. Now that a market has been established for IP SANs, albeit a small one, the major Fibre Channel companies will move in. That will leave LeftHand and others seeking OEM deals to provide the big boys with iSCSI – or going head-to-head with them.

Here's a lesson in how times have changed in storage networking: After jettisoning AppIQ Inc. from the last B&S Top Ten for lack of dramatic improvement, we've smacked it back on – with a vengeance.

AppIQ's market niche and business profile have improved dramatically enough in recent months to recapture our attention – and apparently, we're not alone. Last quarter, the company, founded in 2001 and still running on $20 million of venture funding, claimed a 300 percent increase in sales. If all goes as planned, it hopes to reach profitability this year and, if market conditions are favorable, go public within 18 months.

AppIQ specializes in SAN management software, and its strategy is to be practical, simple, and easy to use. Its approach is typified by the recent announcement of GUI-based storage provisioning (see AppIQ Tackles Provisioning).So far, the tack seems to be working. AppIQ claims 50 customers worldwide, including APL, Boston Stock Exchange, CNF Services, Instinet, Nielsen Media Services, Princeton Financial Systems, SunTrust Banks, and The Weather Channel.

AppIQ has developed strong business partners that have helped its distribution and exposure – an improvement that's also helped it emerge from the Bit Bucket. Last year, it forged a deal with Silicon Graphics Inc. (SGI) (NYSE: SGI). (See SGI, AppIQ Ink OEM Deal and Can SGI Expand Its Turf?.) It has a resale arrangement with Hitachi Data Systems (HDS) (see HDS Expands Software, Services), and this year became the first vendor to be included in the management suite of Sun Microsystems Inc. (Nasdaq: SUNW), when the two signed a distribution and development deal (see Sun Shines on AppIQ). Sun sells AppIQ’s technology for heterogeneous storage management with its own suite, branding the product as "StorEdge Enterprise Storage Management, powered by AppIQ."

Through another agreement with Intel Corp. (Nasdaq: INTC), AppIQ is jointly developing interfaces for iSCSI storage components that comply with emerging standards, including the Common Information Model and the Storage Management Initiative Specification (SMI-S).

AppIQ faces a range of challenges. Customers, long frustrated by hyperbole and specious claims in all areas of IT management, are very demanding of software vendors, and price changes or product delays can be dealbreakers. In addition, competition is tough, since established vendors like EMC Corp. (NYSE: EMC) and Veritas Software Corp. (Nasdaq: VRTS) recognize the value of management to customers and are throwing their weight behind new products as well. That leaves little room for error from up-and-comers.

Still, AppIQ seems to be holding its own. We'll see if its focus, customer base, and OEM success can bring it to the next level.After a couple of solid years, GlassHouse Technologies Inc. may see its interesting business model finally pan out.

GlassHouse is riding a growing trend toward professional services for designing and outfitting storage networks in large enterprises. Its value proposition lies in giving strategic advice to customers with specific storage projects, customers that don't wish to get locked into their vendors' own consulting or take on full-bore services from the likes of Electronic Data Systems Corp. (EDS), Hewlett-Packard Co. (NYSE: HPQ), or IBM Corp. (NYSE: IBM).

While it will create RFPs (requests for proposal) on clients' behalf and even pick vendors, GlassHouse is firm that it doesn't endorse or resell anyone's hardware or software – leaving it free to serve clients as it deems best.

At the same time, GlassHouse got into a bit more hands-on servicing of SANs when it bought the remnant customer support business of defunct NAS vendor Auspex in June 2003 (see GlassHouse Picks Auspex's Bones). GlassHouse now says roughly 200 of its clients are part of that growing business, which involves call-center help, remote monitoring of equipment, and some "break fix" services.

GlassHouse did more shopping this June, buying U.K.-based storage companies Source Consulting and Sagitta Performance Systems in a stock transaction (see GlassHouse Acquires UK Cos). The acquisition adds 300 clients, bringing GlassHouse's total to nearly 700. Source and Sagitta will merge as a wholly-owned subsidiary called GlassHouse Technologies U.K. Ltd."The plan was to expand into Europe towards the end of the year," GlassHouse CEO Mark Shirman says. "But we heard these two companies in the U.K. were merging and establishing themselves as GlassHouse look-alikes. They would have the same go-to-market message, similar clients, similar number of employees. We thought we had the opportunity to do something bigger."

The transaction added about 100 specialists and consultants to GlassHouse, raising its total to around 220. And it may be still growing. Shirman has target continental Europe as the next growth spot through acquisition.

The U.K. acquisitions came after GlassHouse opened an office in Washington, D.C., and scored $7.1 million in a third round of funding (see GlassHouse Opens New Office and GlassHouse Gleans $7.1M).

So far, so good. But it's a wicked-tough world out there, and the next few months will be crucial to determining whether enterprises continue to be attracted by GlassHouse's mission.

Compellent Technologies Inc. is among the youngest companies on this list, but since its founding in 2002, the modular SAN vendor has managed to score 19 distribution partners in the U.S. and Canada and more than 50 customers, including Ohio State University, HighJump Software, MRO Software, and AEA Federal Credit Union, plus a small platoon of newly unveiled ones (see Compellent and Compellent Adds Customers).Compellent's claim to fame is its Storage Center SAN, which comprises software that provides an underlying block-based transport for a range of storage devices and interfaces, including ones supporting Fibre Channel, Ethernet, and iSCSI. Controllers, enclosures, and drives are included. (The company uses Fibre Channel, serial SCSI, and SATA drives in its products.) On top of the customized hardware, Compellent's added storage management, replication, and mirroring software.

It's also slapped on low pricing: While not divulging specifics, the company's goal is go lower than competitors such as Dell Computer Corp. (Nasdaq: DELL) and EMC Corp. (NYSE: EMC), to name just two.

Compellent's aiming at the SMB/SME market, largely as what a spokeswoman calls "a path of least resistance," where there seems to be more opportunity for young companies. Whether Compellent stays in this niche, and whether it's able to grow beyond the low-end into the higher-end storage networking markets, remains to be seen.

Compellent's gotten $23 million in funding to date and has made no secret of its plans to go public at some point, even if that point's in the distance, say, five years ahead. In the meantime, it's occupied with swinging its market punches while keeping its feet planted on solid ground.

In an interesting twist, the fact that Compellent was started by the same guys who founded Xiotech Corp. has turned into a legal battle, with accusations on both sides (see Compellent, XIOtech Swap Suits). Neither company will comment on the proceedings, but sources say it could take years to resolve.CreekPath Systems Inc. got its place on this list by thinking big about solving storage management headaches, such as provisioning of storage resources.

Forget SMBs: According to CreekPath senior VP of marketing Scott Hansbury, CreekPath's focus is on the world's largest companies, ones that need an integrated software suite that can secure, assign, and track usage of large enterprise SANs based on a variety of vendors' wares – including all major Fibre Channel switchmakers.

So far, CreekPath's served a number of customers the company won't disclose, but which rumor puts at around 50, including United Airlines and the U.K.'s Barclays Bank (see United Puts SAN on Autopilot). Wins like this have enabled CreekPath to successfully compete with the likes of established vendors such as Computer Associates International Inc. (CA) (NYSE: CA) and Veritas Software Corp. (Nasdaq: VRTS), as well as other startups like AppIQ Inc..

Indeed, CreekPath outshone larger SAN management software vendors Sun Microsystems Inc. (Nasdaq: SUNW) and Softek Storage Solutions Inc. – then part of Fujitsu Ltd. (OTC: FJTSY; Tokyo: 6702) – in price, product performance, and product quality in the Heavy Reading Fall 2003 Storage Networking Market Perception Study (see Sun SANs Slapped).

CreekPath's also got the requisite partnerships. A recent distribution deal with Computer Sciences Corp. (CSC) (NYSE: CSC) tops off several others, including one with Capgemini (see CreekPath Partners With CSC and CreekPath Seeks Partners). It's also managed to tie in with all the Fibre Channel switchmakers and the leading storage vendors to ensure its wares work with theirs.CreekPath, founded in 1999, is cagey about its curriculum vitae. It won't disclose the number of employees, for example, or customers – or its plans for the future.

CreekPath has obtained $36 million in funding to date, but saw its last round in 2002 (see CreekPath Streams in $16M). It's said to have its radar up for IPO, though no date's set (see Window of Opportunity