Finis(ar) for InterSAN

Less than three years after occupying the top spot on Byte and Switch's Top 10 Private Companies list, InterSAN Inc. has gone down the gullet of Finisar Corp. (Nasdaq: FNSR), which gobbled it up for around $9.5 million in stock this week (see Top Ten Summer Tweak and Vonage Announces UK Launch).

The news was no surprise, given that InterSAN was long ago relegated to a minor player in the SRM field. But InterSAN's purchase price compares sadly with its $31 million in venture capital funding. At least InterSANs Pathline SRM software and its employees will go on as part of Finisar, which already had an OEM deal to sell Pathline along with its testing tools.

“Our investors were still willing to support us, but this is the better choice,” says InterSAN CEO Chris Melville. Melville will join Finisar as a VP of its Network Tools Division.

InterSAN was among the first standalone SRM software vendors to make a splash, rising to No. 1 on the B&S list of private companies in July of 2002 after closing a $17.8 million funding round. By the end of that year, it had a reseller deal with Hitachi Data Systems (HDS), interest from EMC Corp. (NYSE: EMC) and Sun Microsystems Inc. (Nasdaq: SUNW), and designs on becoming the de facto standard in SRM software (see InterSAN Lands $17.8M, HDS Resells InterSAN, CommVault, and Sun Into InterSAN?).

That plan worked -- for someone else. Soon after it relaunched its company around standards-based SRM in October of 2003, rival startup AppIQ Inc. scored a reseller deal with Hitachi (see AppIQ, Take Two and HDS Expands Software, Services).It was downhill from there for InterSAN. Other storage vendors followed the lead of AppIQ, which now has deals with Engenio Information Technologies Inc., Hewlett-Packard Co. (NYSE: HPQ), Silicon Graphics Inc. (SGI) (NYSE: SGI), and Sun. It didn’t help InterSAN that major players such as EMC and IBM Corp. (NYSE: IBM) developed their own SRM packages.

“They put all their eggs in one basket,” says a former InterSAN insider of the company’s relationship with Hitachi. “When the Hitachi deal didn’t take off, they didn’t have the sales force they needed to recover.”

Infighting began soon after at InterSAN, according to several sources. One VC wanted to sell the company and tried for force out CEO Melville (see Who's In at InterSAN?). Melville survived and InterSAN shifted to an OEM-only strategy, but Finisar was its only significant customer. “We’ve been laying low,” Melville says, “trying to convert on our business model.”

Now its one OEM offers a haven for Melville and his team. InterSAN’s 15 employees have been offered jobs as part of Finisar’s Network Tools division. Part of that division will move from Finisar’s Sunnyvale, Calif., headquarters to InterSAN’s Scotts Valley, Calif., digs. Finisar will continue to sell Pathline as a standalone product. Finisar also will package Pathline with its NetWisdom monitoring and Xgig analyzer tools.

Network Tools made up 13.2 percent of Finisar revenue last quarter, but the head of the division says Pathline could broaden its market by making it an SRM play. “We sell highly technical products for people who make SANs,” says Kevin Cornell, Finisar’s Network Tools SVP. “Now we’d like to sell to people who use SANs.”Finisar execs say Pathline’s ability to provide an overview of a SAN’s fabric connections and identify trouble spots make it a good fit with the acquirer's monitoring and analysis tools. Cornell says Finisar will add to Pathline’s feature set. “You can only go so far with just licensing a product,” he says. “Now we can choose the path we want to go down.”

— Dave Raffo, Senior Editor, Byte and Switch