StorageWay Snags $42M

A dose of good medicine for the storage service provider market came today as SSP StorageWay Inc. snagged $42 million in additional funding from two top venture firms (see StorageWay Gets $42 Million).

This brings the total equity investment in the company to $98 million, with a cumulative total of $150 million in equity and lease financing since StorageWay opened for business in October 1999.

The seal of approval from Matrix Partners and Redpoint Ventures

is significant for a couple of reasons.

To start, the financial market is skeptical of SSPs as a business model after the failure of application service providers (ASPs) and managed service providers (MSPs) to get off the ground before going broke. Thus, additional funding at this point is a significant vote of confidence in StorageWay's ability to succeed.

And secondly, these two venture capital firms have an impressive record. Matrix was an early investor in Sycamore Networks Inc. (Nasdaq: SCMR), PSInet Inc. (Nasdaq: PSIX), and Veritas Software Corp. (Nasdaq: VRTS). Redpoint can claim involvement in the success of Juniper Networks Inc. (Nasdaq: JNPR), Foundry Networks Inc. (Nasdaq: FDRY), and Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7), among many others.StorageWay plans to use this funding to expand its service offerings, build the second generation of its Liquid Architecture technology, and extend its network infrastructure.

The second-generation system will enable enterprises paying for its service to share applications over the shared infrastructure, as well as sharing physical storage space. Like the storage virtualization service, it will be sold on a pay-as-you-grow basis.

Its also worth noting that Cisco Systems Inc. (Nasdaq: CSCO) was an early investor in StorageWay and that a number of senior executives from Lucent Technologies Inc. (NYSE: LU) -- including Rob Farris, who was VP of Lucent’s service provider business, and J. Kim Fennall, senior executive of Lucent’s spinoff Avaya Inc. (NYSE: AV) -- formed StorageWay.

The trouble is, there are so many of these SSPs it's unlikely they'll all survive. StorageNetworks Inc. (Nasdaq: STOR), Sanrise Inc., Scale Eight Inc., WorldStor Inc., Storage Telecom, and Storability Inc., to name a few, are all after this market (see Storage Services Sprout in Europe). One advantage StorageWay clearly has over the others now is plenty of money.

But it’s easy to see why there’s so much activity here: Analysts are predicting a top prize.

Salomon Smith Barney predicts the SSP market will exceed $8 billion in 2003 and account for 25 percent of the market for storage products. IDC predicts the market for storage "utilities" will reach $5.5 billion in 2003. Thus, StorageWay and its competitors have plenty of pie to slice.— Jo Maitland, Senior Editor, Byte and Switch http://www.byteandswitch.com