Diligent Technologies

Diligent Technologies Corp., born at a time when EMC Corp. (NYSE: EMC) was actually shedding software companies, has spent its 18 months of life trying to jump to the front of what has become a crowded line of disk backup vendors.

Now the EMC offshoot needs to stand out in the field it helped pioneer -- that is, if it hopes to make good on its goal to turn a profit by the end of the year.

Last year, EMC spent more than $3 billion buying software companies Legato, Documentum, and VMware. But back in late 2002, it was streamlining its operations. It cut loose its mainframe backup software and gave it to the Framingham, Mass.-based Diligent, along with $5 million in funding, an Israeli R&D center, and an instant customer base. The EMC connection goes further: Diligents CEO Doron Kempel and sales VP Mike Parise are also EMC veterans.

Diligent also received $10 million in funding from Credo Group (see EMC Offshoot Lifts the Hood).

As it forged on alone, Diligent took the CopyCross product EMC used to back up mainframe data to its Symmetrix arrays, and rechristened it Virtual Tape Facility (VTF) mainframe. VTF is called virtual tape because it reads and writes data as it would to a tape device, but redirects it to a disk array. The data is written in parallel so it is faster than tape, and the ability to use RAID makes it more reliable.Diligent CTO Neville Yates says Diligent has grown the mainframe customer base inherited from EMC from 30 to 60. It now has about 70 licenses distributed among those customers. EMC still sells Diligent software through a non-exclusive agreement.

Might EMC regret its choice? “I don’t think they would spin us off today,” Yates says of EMC. “EMC is realizing mainframes make up a bigger piece of their business.” Indeed, EMC beefed up mainframe capabilities when it refreshed its hardware line in February (see EMC Hits Hardware Refresh).

Yet it will take more than the mainframe product for Diligent to make it. It also has launched a virtual tape application for open systems and is trying to raise funding to launch another product by early next year. Yates says the goal is to become profitable by the end of 2004.

“We’re looking at raising a bit of money. We don’t need a lot. We’re looking at becoming profitable, and we’re on target to turn that magic corner this year.”

Judging from recent funding, Diligent should be able to scrounge up at least a few million. Sepaton Inc. ($23.5 million) and disk backup appliance vendors Data Domain Inc. ($17 million) and Candera Inc. ($12 million) all closed funding rounds since December. (See Sepaton Secures $23.5M, Data Domain Picks Up $17M, and Candera Closes $12M Round). All have business plans based on virtual tape.“At a time when money’s easing up a little, you have to say companies in this group have a chance to get some,” says analyst Steve Berg of Punk Ziegel & Co.

Even with new funding, turning a profit might not be so easy, particularly in the open systems arena. Even tape vendors such as Advanced Digital Information Corp. (Nasdaq: ADIC), Quantum Corp. (NYSE: DSS), and Storage Technology Corp. (StorageTek) (NYSE: STK) have disk backup products. Sepaton, Maxxan Systems, and ATTO Technology Inc. offer disk backup hardware; and Alacritus Software Inc. and Neartek Inc. have virtual tape software applications.

Yates claims Diligent's differentiator is that its open system software doesn't rely on a specific tape or appliance, but runs on servers consisting of Intel-based Linux boxes. “Our competition has associated themselves with hardware, either their own or somebody else’s. We look to others to do the hardware work." He says Diligent will work to increase channel partners from 13 to 20 by the end of the year to try and push sales along. EMC is one of the channel partners.

— Dave Raffo, Senior Editor, Byte and Switch