Top Ten Private Companies: Summer 2005

NEW YORK CITY, August Time for iced lattes, air conditioning, and weekend trips to the shore. Time to grill hot dogs on the patio of the red-brick Tribeca HQ of Byte and Switch. What better time for a fresh take on the Top Ten Private Companies list?

Cool yer jets. We are aware that last time we updated this list, snowflakes were falling. Apologies! And no excuses offered, except that covering storage networking's often a bit more than a full-time job.

That's good news. Despite ongoing budget constraints, storage is growing (see Survey: Storage Spending Will Slow). Startup funding is up, a market for services is taking off, and there's plenty of M&A, if not IPO (see One Way Out).

This isn't to say the livin's easy this summer. Far from it. Buyers are tight-fisted, some companies are finding the federal market's not all it was cracked up to be, and even Hopkinton's feeling the pinch (see EMC Guides Low ).

What's more, the shape of storage networking is shifting. Indeed, it seems to be shrinking. Virtualization, blade servers, clustering, optimization of WAN bandwidth and file transfer, and a range of other techniques aim to simplify storage, even as its importance in the data center grows.And that leads us to our Top Ten. In this go-round, we present what we think are the companies most in tune with the forward progress of the industry. Of course, they have to be nifty businesses as well. How do we determine this? Our basic criteria for consideration are as follows. Each company must be:

Beyond these basics, it's our own subjective evaluation, plain and simple.

Bear in mind that this is a list of 10, and as such is a snapshot of industry trends. Absence from this list doesn't mean we at Byte and Switch don't think you have captivating products or services.

Conversely, presence on this list doesn't guarantee a firm won't make our Bit Bucket next time around. In fact, as usual, half of those that made our last list are now rattling in that receptacle.

So without further ado, enjoy our latest list. See you on the Message Board!For a writeup on each company, click on its name below:

Table 1: Top Ten Private Storage Networking Companies

— The Editors, Byte and Switch

CommVault Systems Inc. tops our list for the third time in a row. Surely, that's no surprise. By all accounts, this is the world's most successful storage "startup," and the only one on our Top Ten we believe to be grossing over $100 million annually.

Indeed, at least two industry sources tell us CommVault has been profitable for a couple of quarters. The only reason it's not public is market sluggishness on tech IPOs.CommVault won't confirm these financial tidbits, but execs acknowledge that sales are up 30 percent since last year. And since we checked in December 2004, CommVault has increased its employee roster from 468 to 514, and the number of sites with its software has risen from 3,000 to about 4,000.

This is no surprise. As compliance requirements take root, customers are looking for better management of stored data. CommVault's common code base has made it easy to extend a basic suite of backup-and-recovery tools to include service-level management, archiving, storage resource management, email policy management, and related desirables.

CommVault's also benefited from strong partnerships. Last year, it solidified an OEM deal with Dell Inc. (Nasdaq: DELL) that's significantly boosted sales (see CommVault Locks In Dell). And in June, a reseller arrangement with Hitachi Data Systems (HDS) evolved into a full-fledged OEM agreement as well (see Hitachi, CommVault Strike OEM Deal). CommVault also enjoys strategic partnerships with EMC Corp. (NYSE: EMC) and Hewlett-Packard Co. (NYSE: HPQ).

All this doesn't take away from CommVault's challenges. While it could benefit in the short term from the distractions attending the merger of rival Veritas Software Corp. with Symantec Corp. (Nasdaq: SYMC), there's work to be done. The issue of CDP (continuous data protection) looms especially large.

CommVault's management knows it must move on CDP. "I think all established vendors have a strategy, even though the market's a couple of years away from maturing," says Chris Van Wagoner, CommVault's senior director of product marketing. But he adds that CDP is the key piece that "really addresses the paramount strategy of value to customers."When or how CommVault will launch CDP isn't clear. Perhaps it will acquire it with some of the money it's made these last couple of quarters. That could launch CommVault to another level, even if it doesn't choose to go IPO.

Isilon Systems is on a roll. With $20 million in new funding, it's gleefully mopping up in several areas where next-generation NAS gear is in demand (see Isilon Lays On $20M Icing).

Like other "neo-NAS" players, Isilon takes aim at the weaknesses of traditional NAS systems from the likes of EMC Corp. (NYSE: EMC) and Network Appliance Inc. (Nasdaq: NTAP). Specifically, its Isilon IQ system allows data volumes to span a cluster of NAS devices, using a global namespace for all files. Each system holds up to 168 Tbytes and includes replication, load balancing, and optional InfiniBand links between systems (see Isilon Embraces InfiniBand).

That all adds up to a lot more bang for the buck for customers that need a lot of storage quickly. Not only does Isilon use less hardware to add capacity, it makes all that storage easier to add and manage than anything on offer from bigger players.

This is why Isilon is making a name for itself among companies with heavy-duty storage requirements, like those in digital imaging, media and entertainment, geospatial technology, and government (see GlobeXplorer and Lights, Camera... NAS!).While Isilon won't give customer counts, spokespeople claim the company doubled its customer base in the last six months. Shipments have increased, they say, from about 1 petabyte to 2 petabytes in that timeframe. Customers include the likes of Cedars-Sinai, Kelman Technologies, Kodak EasyShare Gallery, LexisNexis, NBC, and Sports Illustrated.

Smooth sailing's not guaranteed indefinitely: The tide that's raising Isilon is doing the same for its rivals, companies like BlueArc Corp., ONStor Inc., and Panasas Inc. Some sources predict an imminent shakeout.

Bottom line? Isilon's made it in the short sprint. The crucial next few months should establish its long-haul capabilities. We'll be watching.

GlassHouse Technologies Inc. continues to be in the right place at the right time. Despite formidable competition, this provider of consulting and hands-on help for storage networking seems to be more than holding its own.

Execs say GlassHouse is growing at 20 to 25 percent quarterly. While that's slightly less than the 30 percent the company claimed last winter, it's still way above the roughly 6 percent CAGR expected by IDC for storage services through 2009 (see Storage Services Surge).What's more, CEO Mark Shirman says the size of deals increased substantially this last quarter. "We won over five seven-figure deals. While we do have relationships worth millions over time, we've seen more discrete projects over $1 million," he says.

GlassHouse has added 82 new customers in 190 deals, bringing the company's total number of customers to about 620, Shirman claims. Much of the company's business is with financial services and insurance firms.

So where's that IPO? Shirman says it's still too soon to talk about the "P" word, but next year, if growth continues and the market is suitable, the company may start to consider it.

The GlassHouse success strategy is simple. It gets its foot in the door by consulting on something apparently mundane but broken, such as backup storage, in which larger outfits don't necessarily have specific expertise. Solving the problem leads to more work at the same company.

GlassHouse claims about its revenue sources reflect the evolutionary nature of its business model. While GlassHouse earns most of its money from setting up and implementing storage technology solutions, about one third of revenue comes from hands-on help with storage solutions the company has helped to design and implement. GlassHouse has two monitoring centers in the U.K. and the U.S., which enable it to keep live tabs on storage systems it's put into place.Another 10 percent of GlassHouse's revenue comes from a call-center support service based on the personnel it acquired through its acquisition of the assets of Auspex in 2003 (see GlassHouse Picks Auspex's Bones). Through this business, GlassHouse now handles multilevel support for Acopia Networks Inc., Copan Systems Inc., EqualLogic Inc., and Sepaton Inc., among others.

GlassHouse's ascendance as a heterogeneous storage consultancy has put it in a precarious position. On one hand, one of GlassHouse's claims to fame has been its objectivity. No consultants from GlassHouse resell any vendor wares. On the other hand, there is a fair amount of informal recommendation between GlassHouse and a handful of specific firms, including EMC Corp. (NYSE: EMC), Hitachi Data Systems (HDS), and, to a lesser extent, Network Appliance Inc. (Nasdaq: NTAP). In turn, these and other vendors provide technical information to GlassHouse personnel to improve GlassHouse's hands-on knowledge.

Keeping all these relationships in the air and working to its advantage could be a tad tricky for GlassHouse as EMC continues to develop its own storage services. But if the past is any indicator, this company has a better-than-average shot at making it work.

3PAR Inc. returns to our Top Ten after two years in exile. (See Top Ten Private Companies: Summer 2003, page 10.) We reckon it's not a moment too soon. Indeed, we don't think it's a stretch to put 3PAR in the spot recently vacated by AppIQ Inc., thanks to its purchase by Hewlett-Packard Co. (NYSE: HPQ). (See HP Chomps AppIQ & Peregrine.)

We know: In three years of shipping its InServ Storage Servers, 3PAR claims only 100 customers. But that's 70 more than it claimed two years ago. Further, it's a question of quality, not quantity. 3PAR thinks big. As CEO David Scott told us not long ago: “We don’t target SMBs that are all the rage today. We go after the other end of the spectrum. A couple of our customers have 150 Tbytes of capacity.” (See David Scott, 3PAR CEO .)Among 3PAR's customers are the U.S Census Bureau, American Management Systems Inc., Thomas Weisel, Infinity Pharmaceuticals, UniquE Solutions, GrayHair Software, and Allant. Big networks, all. There are also online companies, like eHarmony, Priceline.com, and FreshDirect. (See Cogent Revenues Jump in Q2, 3PAR Books Priceline.com, and 3PAR in FreshDirect.)

But it's the carrier side of things that most intrigues us. MCI Inc. -- (Nasdaq: MCIP) recently unveiled a suite of managed services based on technology from 3PAR and AppIQ (see MCI Sells Storage .) That sends a clear signal that 3PAR isn't just playing in a limited field. It's convinced one of the world's largest carriers that it's a solid choice as the underlying technology for services that promise huge growth.

Part of 3PAR's claim to fame is that it's taken utility computing as a mantra. It was first to use thin provisioning -- a form of disk virtualization that lets customers set up a volume without buying the full amount of storage required. (See BigBand Strikes Up $15M.) A similar technique has been adopted by a range of big players, including Network Appliance Inc. (Nasdaq: NTAP) and EMC Corp. (NYSE: EMC).

Don't get us wrong. 3PAR's success so far doesn't guarantee its future -- either in data centers or on this list. It's still nowhere near the size of the vendors with which it's chosen to compete - and whose resources exceed 3PAR's albeit substantial funding of $153 million. But for now, it's at least solidly underway.

EqualLogic Inc.

returns to the top 10 as the private company best taking advantage of the emerging iSCSI-based IP SAN market.IP SAN revenue grew nearly 22 percent year-over-year in the first quarter of 2005, outpacing the overall SAN market growth of 16.7 percent (see iSCSI Ramping, Says IDC and SAN Ceasefire!). That brings opportunity as well as increased competition for startups such as EqualLogic, Intransa Inc., and LeftHand Networks Inc.

“People have accepted fact that iSCSI protocol is mature, it delivers all the performance they need for applications, and it’s secure,” EqualLogic marketing VP John Joseph says. “Now everybody knows all the fear, uncertainty, and doubt the Fibre Channel guys were spreading was just a bunch of hoo-ha.”

EqualLogic appears to have pulled a bit ahead in the IP SAN race. According to IDC, EqualLogic was among only three vendors with more than 10 percent of the iSCSI market in 2004. EqualLogic had 11 percent of the market, trailing only Network Appliance Inc. (Nasdaq: NTAP) and EMC Corp. (NYSE: EMC).

EqualLogic apparently has carried that momentum into 2005. It claims to have gained 400 new customers from July 2004 through July 2005, and 500 total customers for its PS storage array series (see EqualLogic Hits 500 Mark ).

EqualLogic’s new CEO Don Bulens is a storage newcomer but an experienced channel builder from his days at Lotus Notes, and he’s looking to improve EqualLogic’s channel and build up international sales (see Don Bulens, President & CEO, EqualLogic). EqualLogic has beefed up its staff to 119, with the additions coming in sales, marketing, and customer support.Despite its gains, EqualLogic faces a serious challenge in the coming months. Its revenue is closer to the pack of companies lagging behind it than the two established vendors it is chasing. EMC and its partner Dell Inc. (Nasdaq: DELL) just got serious about iSCSI a few months ago see Dell Enters IP SAN Game and EMC Mounts iSCSI Blitz). With IBM Corp. (NYSE: IBM also in the iSCSI game and other Fibre Channel vendors waiting for the right time to jump in, EqualLogic might have a tougher time holding market share than it had in building it up so far (see IBM Slips iSCSI Into SAN).

Six-year-old Mellanox Technologies Ltd., a new entrant to our Top Ten, is also an anomaly. A silicon vendor that recently gave up its end-user business, the company is rising on the tide of a single technology – InfiniBand.

Indeed, anyone examining that interconnect is likely to run into Mellanox. Among its 100-odd customers are the leading InfiniBand suppliers, such as Topspin Communications, now owned by ; SilverStorm Technologies Inc. (formerly Infinicon); and Voltaire Inc.

Other OEMs include Dell Inc. (Nasdaq: DELL), Engenio Information Technologies Inc., Hewlett-Packard Co. (NYSE: HPQ), IBM Corp. (NYSE: IBM), and Isilon Systems.

The upside is that as InfiniBand rises, so does Mellanox. And right now, that equation's working in the company's favor. Thanks to its availability and speed, InfiniBand is increasingly deployed in short-range data center applications, within storage clusters, between NAS devices and servers, and in high-performance computing environments.Mellanox has helped define the new market by introducing silicon for host adapters, servers, and devices that support 10-, 20-, and even 60-Gbit/s InfiniBand links (see Mellanox Doubles InfiniBand and Mellanox Stakes 10-Gig Claim).

Mellanox is enjoying its reign. The company, which has 140 employees based in Santa Clara, Calif., and Tel Aviv, claims to be profitable. Growth has been in the triple digits every year for the last three years, execs say. And in order to get out of its own way, Mellanox recently decided to forego its end-user business entirely. Instead of competing against its OEMs with InfiniBand switches of its own, it will focus entirely on being an InfiniBand silicon supplier.

Some shadows lurk. One is competition. So far, there isn't much. PathScale Inc., however, is deploying InfiniBand as part of its charter to improve Linux clusters (see PathScale Touts InfiniPath Interconnect). IBM Corp. (NYSE: IBM) and Sun Microsystems Inc. (Nasdaq: SUNW) are reportedly developing in-house solutions. At least some of this activity could crimp Mellanox's style.

At the same time, industry experts say InfiniBand is likely to enjoy its status as a high-speed interconnect only until Ethernet components come out at similar speeds and lower prices. That could happen within the next couple of years.

By that time, Mellanox may have parlayed its success into an acquisition, or grown out of its one-trick-pony status. There are hints it will expand its horizons when necessary. "Mellanox is delivering the best price/performance interconnect technology that meets market demand," says director of product marketing Thad Omura. That certainly sounds general enough to allow for future possibilities. For now, though, Mellanox seems content to ride the tide.Over the past year, startups dedicated to making life easier for people in remote offices have been a hot commodity in the storage and networking worlds.

Cisco Systems Inc.

(Nasdaq: CSCO) bought two wide-area file services (WAFS) startups; Juniper Networks Inc. (Nasdaq: JNPR) acquired a WAN optimization vendor; and Brocade Communications Systems Inc. (Nasdaq: BRCD) made a strategic investment in another WAFS outfit. (See Cisco Acts on Actona, Peribit Deal: More to Come, and Brocade Invests in Tacit).

In the wake of those deals, Riverbed Technology Inc. emerged as the best positioned independent WAN acceleration startup, now that Brocade owns 10 percent of previous Top 10 startup Tacit Networks Inc. Riverbed claims 200 customers for its Steelhead WAN optimization appliance in just over a year of shipping, and it signed an OEM deal with HP in May that should boost its revenue growth (see Watch Out for WAFS and HP Upgrade Features OEM Crowd). Riverbed is rolling out version 2.0 of Steelhead this month.

Since the start of the year, Riverbed has attracted $20 million in funding and former executives from Cisco and EMC Corp.’s (NYSE: EMC) VMware division (see Riverbed Reels in $20M). Former VMware exec Bertrand D. Yansouni joined Riverbed in January as VP of channel sales, and Keith Zubchevich signed on from Cisco as VP of business development in June, a few weeks before he married Access Hollywood host Nancy O’Dell (see Riverbed Adds VP of Channel Sales and Former Cisco Exec Joins Riverbed).

The $38 million investors have sunk into Riverbed could be a bargain if major network and storage companies maintain their keen interest in WAN acceleration. Juniper coughed up $337 million for Peribit, Cisco paid $82 million for Actona and $70 million for FineGround, and Brocade ponied up$7.5 million for a 10 percent stake in Tacit. That’s a tad under a half-billion in less than a year for technology still in its infancy.On the downside, Riverbed might need to be acquired to make it against Brocade, Cisco, and Juniper – pretty hefty competition for a startup.

Acopia Networks Inc. made it onto our list last winter by solving a key problem for storage networkers: Its Adaptive Resource Switch (ARX) creates a file management system across multiple NAS filers using global namespace. It also deploys load balancing to ensure optimum use of NAS. That's a key value proposition in the age of data center consolidation.

Acopia is one of a handful of suppliers providing so-called network file management – a group that has gained sufficient momentum to be on the verge of a mini-shakeout. Its competitors include NeoPath Networks, NuView Inc., and Rainfinity.

Acopia compares most closely with NeoPath, since both make an in-band appliance, which sits in the network between the file servers and NAS boxes. While claims pro and con abound for this kind of solution, at least one source says the use of underlying hardware is key to scaleability and performance. NuView is software only, and Rainfinity is a hybrid.

It's tough to draw performance distinctions between Acopia and NeoPath without actual testing. Both claim high throughput, especially since they don't introduce a new file system but use the existing NAS file system to virtualize CIFS and NFS files. But NeoPath is still, well, a neophyte, having only just emerged on the market (see NeoPath Names Baratz CEO and NeoPath Enhances File Management). While it claims 15 customers, it won't name any of them.In contrast, Acopia won't quantify its customer base, but a spokesman says the vendor just finished a "record Q2," adding at least five new customers, including Time Inc., Archive Systems Inc., Raytheon Co., and "a leading pharmaceutical company and a large semiconductor company." In all, Acopia claims to have expanded its installed base by 40 percent.

There's another differentiator. Acopia offers a couple of multisite features that are still a gleam in NeoPath's eye. These include the ability to incorporate NAS from remote sites in the global namespace, instead of including only NAS from the same data center. While NuView and Rainfinity already support multisite capabilities, NeoPath doesn't yet, though a spokesman says it's on the roadmap.

Bottom line? It's a tough call to discern among network file systems, but so far, it looks as though Acopia is ahead, if just for now.

Asigra Inc. illustrates why this is a list of privately held companies, not startups. This Canadian-based supplier of backup-and-restore software is 19 years old and claims to have been profitable for over seven years, even though its latest chapter is perhaps its most exciting one.

Originally, Asigra sold its software to service providers, which in turn used it to augment their hosting or backup services. But starting last year, the company saw that enterprises wanted what Asigra had to offer, and management changed the licensing model to include them (see Asigra's Path Forks).Since then, Asigra hasn't looked back. While this 60-employee company claims 40 service provider customers and roughly 10 or 20 enteprises, including accountants, law firms, and the U.S. government, that's a bit misleading (see Fisher Meredith Selects Asigra, Pro-Tax Picks Asigra, and Air Force Drafts Asigra). Asigra has adopted a two-tier channel selling structure, so it's tough to tell how many customers it actually has. VAR Zycko Ltd., for example, resells Asigra worldwide through a network of more than 3,000 resellers (see Zycko Resells Asigra).

Asigra seems to be selling well because it is simple. There's one software package for the data center and one for each remote site, period. One machine at the remote site assumes responsibility for backup on all workstations at the site. There's no need for agents on each machine. Whether a company has 100 or 1,000 desktops doesn't matter, the same two pieces of software do the job.

Another point of distinction for Asigra is its support of the OSX operating system from Apple Computer Inc. (Nasdaq: AAPL) (see Asigra Bites Into Apple OS X ). "The Mac space has been disrespected," says Asigra EVP Eran Farajun.

It's just as well Asigra's got an eye for the niche, since it has a ton of competition (see Who Makes What – Updated, page 12). Even its Apple corner isn't safe, since Atempo Inc. and BakBone Software Inc. have Mac products, too (see Atempo Supports Mac OS X Tiger and BakBone Launches Suite for Mac Tiger). But if things continue to unfold as they have, Asigra just may see competition serve to highlight its advantages.

Since its debut on our Top Ten last winter, Onaro Inc. has continued to gain momentum in storage management, doubling its customer roster and expanding its outlook.Onaro's claim to fame is SANscreen, a software package released in June 2004 that automatically discovers devices on Fibre Channel and iSCSI networks and applies algorithms to the information it gleans in order to predict the effect of changes on a SAN (see Onaro Ships Change Manager).

Onaro picked a winning spot for its first foray into the storage center market -- change management, a huge headache for storage managers and one that had not been addressed by other SAN software vendors. As the first product of its kind, it won Onaro close to 20 customers and development partnerships with major storage vendors in its first six months of shipping product (see Onaro Eyes Data Centers and Shai Scharf, CEO & Co-Founder, Onaro).

Now, its customer list is up over 40, with 50 projected by year's end. VP of marketing Andrew Bird, who came aboard with several execs this year, says Priority Health, CareGroup, Cisco IT, ConAgra Foods, and Paychex are among new takers (see Onaro Adds Execs and CareGroup Healthcare System). Additionally, he claims "the world’s No. 1 Consumer Bank" is also an Onaro user, though he can't name it.

Onaro has worked with major storage vendors to ensure its ability to discover mainstream SAN gear. Partners include Brocade Communications Systems Inc. (Nasdaq: BRCD), Cisco Systems Inc. (Nasdaq: CSCO), Computer Network Technology Corp. (CNT) (Nasdaq: CMNT), EMC Corp. (NYSE: EMC), Emulex Corp. (NYSE: ELX), Hewlett-Packard Co. (NYSE: HPQ), Hitachi Data Systems (HDS), IBM Corp. (NYSE: IBM), McData Corp. (Nasdaq: MCDTA), and QLogic Corp. (Nasdaq: QLGC).

Despite its first-mover advantage, Onaro faces a challenge in keeping its place on our Top Ten. Competition isn't waiting around, and AppIQ Inc., Computer Associates International Inc. (CA) (NYSE: CA), and EMC Corp. (NYSE: EMC) have all released products to help SAN change management (see EMC Tackles Change Management).Onaro's working hard to stay ahead. By next month, Bird claims, there will be a new product announced for business continuity, to be followed by another before the end of the year.

Whether the new wares will be enough to help Onaro keep its place remains to be seen, but so far, things are on track. Bird says the company hopes to be profitable by the end of 2005.

As we said in the Introduction to this Top Ten, landing in the Bit Bucket doesn't mean we think companies aren't doing well. It's just that we can't find any signs of distinction from ordinary do-wellers. Sometimes it's a question of perspective.

Case in point: Xiotech Corp.. This company's very momentum has lobbed it off our list. Our view of Xiotech was high enough to place it second on the Top Ten, but its actual performance this year is said to be way below the three-digit revenue figures execs were expecting. It's also cut staff and announced a repositioning (see Xiotech Regroups). That smacks of retrenchment in the face of fierce competition. Xiotech may still be doing well, but its excitement quotient has dropped for us right now.

Then there's Avamar Inc. What can we say? Despite reports of great technology, this company seems afraid of success. It's still selling rip-and-replace, when all the world is heading the other way. And it stubbornly refuses to hop on the CDP bandwagon, though it has more to qualify it than a few pretenders aboard. For now, we're sending Avamar back to school. Perhaps new management will help (see Avamar Appoints New CEO).Intransa Inc. is a tough call. Indeed, it was the toughest call we had in setting up this Top Ten list. The iSCSI players are doing well by most reports. But Intransa isn't doing quite the sales of rival EqualLogic -- at least not yet. While the market builds, we'll probably interchange some of the iSCSI players regularly.

As for Tacit Networks Inc., we think it's effectively sold its soul. The vendor's deal with Brocade Communications Systems Inc. (Nasdaq: BRCD) is, for better or worse, investment with an option to buy. Brocade has some exclusive rights to sell Tacit in its channels, and the nature of SAN gear rivalries means Tacit's closed the door on other acquirers for now. That's not necessarily a bad thing, but Brocade's looking a bit tapped out at the moment (see Brocade Bloodied Again). We'll check it out in a year or so.

Table 2: The Bit Bucket

— The Editors, Byte and Switch