Microsoft Buys Cloud Gateway Provider StorSimple

In an apparent effort to support its Azure cloud storage service, Microsoft has acquired http://www.storsimple.com/default.aspx StorSimple, a maker of appliances that can integrate with cloud-based storage. StorSimple's appliances provide a standard iSCSI interface to cloud and object storage infrastructures such as Amazon S3, and of course Windows Azure.

StorSimple was always the most Microsoft-oriented of the cloud storage gateway vendors. The 3-year-old company initially pitched its appliance as a primary storage product tuned for Microsoft applications like Exchange and SQL Server. It later shifted focus to secondary storage applications like backup and archiving, but retained its Microsoft connection with strong and early support for Azure.

StorSimple's appliances combine flash and spinning disks to provide a local cache of data that's also stored out on the cloud. For applications that need low storage latency, customers can force the appliance to cache an entire volume, and use cloud storage as a real-time backup. The appliance encrypts deduplicates and compresses data before sending it to the cloud, which not only ensures that customer's data is secure and minimizes the monthly bill, but also allows StorSimple to use cloud objects to create an unlimited number of snapshots of its volumes.

StorSimple had a successful $10.5 million C round of funding in June, bringing total funding to about $31 million. Even though Microsoft and StorSimple are keeping mum about the terms of the deal, it seems clear that StorSimple's funders are cashing, as opposed to bailing, out. I would be surprised if the deal was for less than $50 to $60 million, but this is only speculation.

Microsoft's involvement validates the whole cloud storage gateway market, which should be good news for StorSimple competitors such as TwinStrata, and for the file based gateways from Nasuni and Panzura.

While Microsoft has acquired key products like PowerPoint and Visio in the past, as far as anyone I've spoken to can remember, the StorSimple deal represents Microsoft's first foray into core IT hardware. Microsoft's previous hardware products have been peripherals such as mice and keyboards or Xbox game consoles.

While some observers at the SNW trade show expressed concern about Microsoft as a hardware supplier, StorSimple's appliances, like many others, are really software wrapped in tin. The hardware is a conventional server--the real intellectual property is in the software. If Microsoft runs StorSimple as an arm's-length subsidiary for the near future, users shouldn't have much to worry about.