Scale Eight Set to Close $30M

Call it a study in contrasts. While some of its peers in the storage service provider (SSP) market are starting to suffer from a shortage of funds, Scale Eight Inc. is set to score another $30 million in a third round of financing -- bringing the total invested in the company to date to nearly $60 million.

The news pushes Scale Eight up a position in the Byte and Switch Top Ten Private Storage Networking Companies.

Still, Scale Eight is not completely immune from the tough market conditions still plaguing this sector. Dick Watts, the companys chief executive, says investors forced him to “slightly” lower the overall value of the company. He's unable to give more details on this until the round closes, sometime next week.

So how is Scale Eight able to buck the trend and sustain the SSP business model where others are failing? (See SSPs Switch to Selling Software.)

"ManagedStorage International Inc., Creekpath Systems Inc., and others had a much more capital-intensive program for getting their services up and running than did Scale Eight,” says Watts. These companies spent millions of dollars buying EMC Corp. (NYSE: EMC) hardware, which they deployed liberally in data centers across the U.S. to host their customers’ storage. But when business didn’t coming in fast enough, Watts says, they got stuck with huge debts.Conversely, Scale Eight has deployed much less expensive, off-the-shelf Intel Corp. (Nasdaq: INTC) servers in its four locations -- Tokyo, London, Virginia, and San Francisco. It claims its patent-pending software makes these industry-standard platforms work like an EMC or Network Appliance Inc. (Nasdaq: NTAP) system would (a claim its competitors chortle over).

Still, Microsoft Corp. (Nasdaq: MSFT) is a Scale Eight customer, which is a pretty impressive endorsement. Also, several online digital photography companies are trialing Scale Eight’s infrastructure to offer "photo-locker" and medical image services.

Scale Eight's latest round will be led by Oak Investment Partners, which also led the company’s second round. All existing investors will buy into this round, as well as a new buyer, Star Ventures.

The funding should last Scale Eight through late 2002, Watts says.

The majority of the money will be spent on beefing up sales, marketing, and engineering teams. Scale Eight currently has 85 employees and is considering building its next data centers in South East Asia and Latin America.— Jo Maitland, Senior Editor, Byte and Switch http://www.byteandswitch.com

Want to know more? The big cheeses of the storage networking industrywill be discussing this topic in a session at StorageNet, Byte andSwitch’s annual conference, being held in New York City, October 2-5, 2001. Check it out at StorageNet2001