Top Ten Private Companies: Winter 2004

Brrrr! It's cold out there. But indoors, in the editorial offices of Byte and Switch, the kettle's on, the chestnuts are roasting, and the Top Ten Private Companies list is blazing bright as Grandpa's Yule log.

As the flakes fall outside, we recall that when we last revised this list, the snow had just melted. So had the IT spending freeze a bit, at least. The storage networking market looked flush, and there was talk of several IPOs.

The talk was premature. When subsystem player Xyratex Ltd. (Nasdaq: XRTX) went public in June to a lower opening than it had hoped for, other companies pulled their plans (see Xyratex Swims in Public Pool and Xyratex Has No IPO Regrets). Chief among these was SAN maker Engenio Information Technologies Inc., which put its IPO in reverse once it caught the discouraging drift (see Engenio Gets Cold Feet).

Despite all this, it's been a banner year for startup funding, even as IT budgets remain constrained (see Storage Startups Top $500M). In this environment, customers are looking for innovations that will help them streamline storage and trim operating costs, even as data volumes grow. Hence, our emphasis in this Wintertime Top Ten is on management software, clustered storage and filing systems, tools for remote access, and other products that make storage easier to use in a more complicated world.

To review, our basic criteria for consideration are as follows. Each company must be:

Beyond these basics, our Top Ten is based on our own evaluation of each company's likelihood of future success, in light of its own attributes and those of the market in which it's chosen to play.

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, that receptable is overflowing, as more than half of our previous list has landed therein. Kerplunk!

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

You could say CommVault Systems Inc. is wearing out its welcome on our Top Ten list, having been resident there for over two years, since our Summer Tweak 2002.

Still, it's ranking at the top of our list for the second time in a row is a no-brainer: By nearly all accounts, CommVault is the most successful private storage networking company in the market, one of just a couple said to be doing $100 million in annual business (yes, the other one's on this list, too). Company spokespeople won't comment on that figure, although they claim 12 consecutive quarters of double-digit growth.

The question remains, When will CommVault take the public plunge from its home at the Jersey shore? When we last updated this list in June 2004, most industry-watchers predicted an imminent IPO. Following the disappointing debut of Xyratex Ltd. (Nasdaq: XRTX) that month, though, CommVault and others pulled back on public plans (see Xyratex Has No IPO Regrets).While the jury stays out on going public, this 468-employee company continues its forward momentum. It's now up to about 2,500 distinct customers at over 3,000 sites, according to company information. In the last year, it's also expanded its distribution channels by 50 percent with new direct and indirect selling partners.

Product-wise, CommVault continues to build on its chief claim to fame, the ability to extend its wares beyond backup-and-recovery into SAN management and storage resource management, thanks to its use of a common set of code for all programs. Last month, it revamped its QiNetix flagship product (see CommVault Recasts QiNetix).

Its partner list keeps growing and now includes an OEM deal with Dell Computer Corp. (Nasdaq: DELL). (See CommVault Locks In Dell.) It's got a reseller arrangement with Hitachi Data Systems (HDS), as well as strategic partnerships with EMC Corp. (NYSE: EMC) and Hewlett-Packard Co. (NYSE: HPQ). CommVault's also got arrangements to run its software on storage appliances from Network Engines Inc. and StoneFly Networks Inc.

There are downsides: Some customers prefer more detailed SRM products to overarching suites like CommVault's. And the IT software market's a tough one, with customers white-knuckling every dollar. To top things off, there's an 800-pound gorilla that meets CommVault on the way into every prospective site: namely, Veritas Software Corp. (Nasdaq: VRTS).

Can CommVault surmount these obstacles to become the next big storage IPO? Or will it make another dramatic move, such as merging with a larger player? Either way, the year 2005 will mark the company's seventh year in business. With over $130 million in funding under the bridge, it's high time for CommVault to vault to the next level.Xiotech Corp. has done a good job of building momentum, warranting yet another move up in the Top Ten list – from fourth to second place.

There are a couple of reasons we think Xiotech's hot. For one thing, the company's said to be making good money: As the year comes to a close, Xiotech execs say they're on track to reach $100 million annual revenue, up from $80 million in 2003, thanks to the success of their Magnitude 3D SAN.

Xiotech's also making solid moves toward future success. In the second half of this year, it entered a new market with a Windows-based NAS system and jumped into the replication space with an appliance that works with its SAN systems (see Xiotech Launches New NAS and Xiotech Replicates). Xiotech also lined up a key reseller in Bell Microproducts (Nasdaq: BELM), as it continues to beef up its channel sales (see Xiotech, Bell Microproducts Partner).

Xiotech should be interesting to watch in 2005. The NAS and replication appliances were the first offerings to come out of the company’s solutions group, headed by Maranti Networks Inc. founders Kuldeep Sandhu and Santosh Lolayekar (see Xiotech Hires Maranti Founders). That group is planning an entire family of disaster recovery products. The idea is to enhance Magnitude sales though the hybrid NAS system and replication appliance.

There's a downside: While NAS and replication are hot markets, Xiotech is coming in late to both. It especially has a lot of ground to make up in NAS – against a slew of heavy hitters, including Dell Inc. (Nasdaq: DELL), EMC Corp. (NYSE: EMC), Hewlett-Packard Co. (NYSE: HPQ), and Network Appliance Inc. (Nasdaq: NTAP).Still, CEO Alain Andreoli, who left McData Corp. (Nasdaq: MCDTA) to take over as Xiotech CEO a year ago, is ambitious to keep things moving (see Ex-McData EVP to Head XIOtech). “The only thing that keeps me up at night is we’re still too small,” he says. “I think, ‘How can we grow faster?' "

Xiotech has a good idea of who it wants to serve – companies in the $100 million to $1 billion revenue range, particularly in the education, government, and healthcare markets. “We want to dive deeper into some of those verticals,” Andreoli says.

Xiotech also is keeping an eye out for acquisitions to further develop its product line, and the company will be watching the public market closely in 2005, with thoughts of a possible IPO (see Xiotech Ponders Public Path). Andreoli says there’s no hurry and he could easily wait until 2006. But if the market picks up and Xiotech continues to add to its revenues, Xiotech could be racing Engenio Information Technologies Inc. to see which SAN systems vendor makes it public first (see Engenio Postpones IPO).

The success of GlassHouse Technologies Inc. is something of an industry surprise. Despite the general deflation of the "storage service provider" model, this four-year-old startup is expanding its services business by 30 percent quarterly.

GlassHouse has advanced by keeping things simple. Its relatively humble primary goal has been to help large companies streamline backup. The firm advises clients on how to improve backup performance and helps them install and manage products from various vendors."As kind of old-fashioned and unsexy as it seems, [backup is] probably 50 percent of our work at major businesses – Global 2000, big corporations," senior VP and co-founder Richard Scannell told Byte and Switch in November (see Richard Scannell, Co-Founder & SVP, GlassHouse Technologies).

GlassHouse also helps companies formulate plans to comply with new regulatory mandates for data storage and backup, and it has bid on big disaster recovery jobs. In each case, it maintains a "vendor neutral" stance.

GlassHouse plans to keep its consulting work going, but it's also branching out into hands-on management of storage networks, and in this vein acquired a pair of U.K. services companies this year (see GlassHouse Acquires UK Cos). GlassHouse also is working to build up the call center support service based on the support personnel it acquired through its acquisition of the assets of Auspex last year (see GlassHouse Picks Auspex's Bones).

Where the mix of hands-on and consulting work will take GlassHouse remains to be seen. The test will be whether it can keep its focus while finding creative ways to keep its service model compelling to storage buyers. So far, it seems to have worked.

AppIQ Inc. is building on the strengths that made the SAN management software startup regain its footing in our last Top Ten. Specifically, it's gotten a little help from its well-chosen friends.The SRM software startup that sells mostly through OEMs stands to benefit from the new Tagmastore and SMB Thunder storage systems rolled out by partner Hitachi Data Systems (HDS). Also boosting business is a renewed storage commitment from Sun Microsystems Inc. (Nasdaq: SUNW) and a new OEM deal with Engenio Information Technologies Inc. (See Hitachi Struts Mr. Universal, Sun Beefs Up Software Support , and AppIQ & Engenio Join for Software.)

There's some evidence that AppIQ also passed the 100-customer mark in October and continues to pick up some 30 new customers each quarter (see AppIQ Passes 100-Customer Mark).

Two early decisions have paid off handsomely for AppIQ. First, it wrote its software around the Storage Networking Industry Association (SNIA)’s Common Information Model (CIM), guessing correctly that it would become the standard for storage management software (see AppIQ Has a Clue). Native support for the movement toward open software to manage heterogeneous SANs has been a “knockout punch” in closing OEM deals, says CEO Dave Lemont. “It’s been one of the major factors when OEMs decide between us and our competition."

Another smart move was that early in its lifecycle AppIQ forged key OEM deals to help sell its software (see Sun Shines on AppIQ). Lemont says he knew the financial firms AppIQ software is well suited for would rather not deal directly with fledgling startups. So AppIQ lined up partnerships with Silicon Graphics Inc. (SGI) (NYSE: SGI), Hitachi, Sun, and most recently Engenio to get its software into the market (see Engenio, AppIQ Announce OEM ). Now about 70 percent of its business comes though OEMs.

“We sold our first account direct,” Lemont notes. “But Goldman Sachs doesn’t want to buy from us. They want to buy from Hitachi or Sun.”Of course, companies that live by their partners can die by them. Sun and Engenio have had problems lately, and SGI isn’t among the storage leaders outside of the high-performance computing space. If Hitachi doesn’t have as much success with Tagmastore as it hopes, that could stunt AppIQ’s growth.

Still, AppIQ is making a name for itself as it grows up. The company has around 100 employees, including around 25 developers in India. Lemont says his company has graduated from a startup to one with a “small company” feel, and its goal is to become a big public company.

Interestingly, AppIQ is resisting temptation from suitors. “We go out of our way to discourage [acquisition] talks,” Lemont says. “Our goal is to become a public company. We want to become a big software company, and the table has been set for us to be successful. We have a chance to be a $500 million to $1 billion [a year] software company."

Avamar Inc. joins our Top Ten at a relatively high position, by solving backup headaches in a direct and innovative way.

Avamar's Axion software, which includes a patented technique for reducing the "footprint" of backup data, has been sold to upwards of 40 customers. And so far, none of them are disputing its claims to cut backup data by an order of magnitude while reducing network traffic by 10 times that.The customer roster itself is impressive: Adaptec Inc. (Nasdaq: ADPT), MCI Inc. (Nasdaq: MCIP), and Qualcomm Inc. (Nasdaq: QCOM), have all signed on within the last few months.

While it's not likely Avamar will stay unchallenged for long, particularly given the trend toward improvements in backup technology across all segments of the market, the startup has gained considerable first-mover advantage. Its technique is straightforward: "First we chew data into pieces, and then only store what we didn't see before," CEO Kevin Daly told us earlier this year (see Avamar ).

Sounds frightening, but it seems to be working. Axion is sold primarily as software for enterprise customers with 20 Tbytes to 50 Tbytes of storage on big disk systems from the likes of EMC Corp. (NYSE: EMC), Hewlett-Packard Co. (NYSE: HPQ), and IBM Corp. (NYSE: IBM). It's also sold as a $45,000 appliance based on disk storage from undisclosed OEMs.

Avamar's technology, its ability to enhance disk-based backup products, and its relatively small funding profile ($51.4 million to date) make it a likely target for acquisition. Even if it isn't scooped up, it's likely this promising startup will at least turn a profit within the next few months.

Intransa Inc. cracks our Top Ten list for the first time because it appears to be best positioned among iSCSI startups to ride the IP SAN wave when it crests.Indeed, Intransa replaces two iSCSI SAN startups in our last list – EqualLogic Inc. and LeftHand Networks Inc.

It's not that those companies are doing poorly. Far from it. The IP SAN market is building for takeoff. Industry leaders EMC Corp. (NYSE: EMC) and Network Appliance Inc. (Nasdaq: NTAP) say it is about to boom, and IBM Corp. (NYSE: IBM) jumped in with a low-end iSCSI SAN late last year (see NetApp Banks on iSCSI and IBM Slips iSCSI Into SAN). Market research firm IDC says the IP SAN market grew 44 percent sequentially in the third quarter of this year and forecasts it to hit $2.9 billion in 2008.

All that said, the market has not yet reached critical mass. For that reason, we've chosen just one vendor that appears to be gaining a bit more quantifiable momentum than its peers.

Intransa claims 185 customers, picked up $25 million in funding in August, and has forged strong partnerships around the world (see Intransa Scores $25M). And let’s not forget product. Over the last four months, Intransa has rolled out high-end and SMB systems as well as upgrading its original midrange offering (see IP SANs Are Sizzling and Intransa Forges Deal With NewWave).

As for growth, CEO Avi Katz says his company has consistently hit its revenue targets and hopes for 60 percent growth each quarter to reach profitability by the end of next year. With $74 million in funding since 2000, Intransa appears in good shape for the near term in any case.Though Katz would like to take advantage of the bigger vendors’ entry into iSCSI by lining up OEM deals, Intransa appears strong without OEMs. Its partners include Ingram Micro Inc. (NYSE: IM) in Asia/Pacific, Bell Microproducts (Nasdaq: BELM) in the U.S., and Zycko Ltd. in Europe – all signed this year (see Ingram Micro Chooses Intransa Bell Micro to Resell Intransa, and Intransa Chooses Zycko). Its global presence includes a sales office in Israel and development team in India (see Intransa Gets Support From India).

Will it be enough? The space is certainly crowded with other firmly planted companies. There was a raft of new iSCSI product and partnership announcements this fall, and others have since entered the game (see IP SANs Are Sizzling, iStorage Goes Public, and Rackable Systems Adds iSCSI ). And EqualLogic and Sanrad Inc. also closed funding rounds this year (see EqualLogic Scores $20M and Sanrad Closes $8M Round).

Perhaps as the market builds, winners will clearly pull ahead. Until then, Intransa is our pick for the startup with a star on its forehead.

Isilon Systems has targeted one of the more notorious bugaboos of NAS: scaleability. It's a formula that seems to be perking up this Seattle-based startup like a shot of hot espresso.

Whereas traditional NAS devices exist in isolation from one another, the Isilon IQ system employs a clustered file system – the company's own OneFS – which allows data volumes to span multiple physical devices while maintaining a single namespace. That means the clustered nodes in Isilon's rackmounted system have a "ridiculously large" capacity limit, according to marketing VP Brett Goodwin. Practically speaking, though, the system's high speeds hold up to around 80 Tbytes.Lab tests and customer testimonials seem to support that claim, at least for the large files common with broadcast media (see ESG Oohs & Aahs Over Isilon). Indeed, power users of digital content headline Isilon's account lineup, including NBC Sports, ABC, Sony Pictures Imageworks, Sports Illustrated, and Paramount Digital Entertainment (see NBC Chases Digital Gold). All told, Isilon has publicly announced 16 customers. Goodwin claims that's "a fraction" of Isilon's total.

How big of a fraction remains anyone's guess, but we'll venture one anyway: Considering the 1,000 Tbytes (1 Petabyte) the company says it has shipped, and assuming, conservatively, an average installation of 20 Tbytes, we deduce a customer count of around 50. If accurate, that's not bad for a year and a half of general availability.

Other signs also point to strong momentum. Since the beginning of the year 2004, the company doubled its headcount to 100 and scored $15.5 million in a third round of funding (see Isilon Ices Cool $15.5M). That latest investment brings Isilon's total to $40 million, and it has its sights set on a final mezzanine round in the first half of next year.

In addition to product development plans that include boosting clustered capacity and delivering new software features, Isilon will put its new funds toward expansion into other data-intensive industries such as energy.

Energy may give Isilon the extra pep it needs to move ahead: While the digital content market is hot, Isilon will have to appeal to an even wider audience if it hopes to take on the big boys of NAS and well funded competitors, most of which now push some version of a scaleable file system. But if Isilon's recent caffeinated surge is any indication, a liquidation event might soon hit the spot.Bigger isn't always better. Small and focused can be just as good. Onaro Inc. is proof, having unobtrusively climbed aboard our Top Ten with fewer than 20 customers and not quite 30 employees.

We're impressed with Onaro mainly because it's taken aim at change management, a huge headache for storage managers and one that hasn't been addressed by other SAN software vendors. This target may seem nichey, but it's solid. Onaro's employees should still have jobs (and some interesting bonus prospects) by the end of 2005 – when Onaro's execs say the company will be profitable.

This progress is impressive, especially considering that Onaro's taken a relatively small amount of VC funding ($11.5 million to date) compared with other SAN startups (see Storage Startups Top $500M).

Onaro's SANscreen software, released in June 2004, 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 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).At least one customer, State Street Global Advisors, has widely published comments on the product's usefulness. Onaro spokesman Steve Feldman says the startup's total customer base numbers "in the teens."

So what's not to love? Onaro may be competitive, but it's still small and therefore vulnerable to market maneuverings of larger firms. Still, this startup seems to illustrate what's meant by the term first mover advantage. That's a solid foundation for moving up – or even being acquired by a larger firm. We'll be watching.

When it comes to virtualization, few startups can make the claims of Acopia Networks Inc. By putting its Adaptive Resource Switch between a NAS filer and clients in an Ethernet LAN, customers can centralize control and access to a range of storage gear, whether that gear's in the next county or in another country.

Acopia does this through virtualization combined with a native global namespace that gives attached servers a common filing system. The result is a way to manage data stored on multiple devices centrally and without replacing existing storage equipment. At $150,000, Acopia's product isn't cheap, but it's probably more cost-effective than building a new SAN or hiring more experts to get data under control in several places.

Since Acopia's product, thankfully abbreviated ARX, addresses a key CIO pain point – control and management of burgeoning stored data – it seems to be selling in the right places. Though the startup has announced just two customers, Merrill Lynch & Co. Inc. and Warner Music Group, word has it another dozen companies are in the process of buying the ARX.With a new $25 million and a roster of 90 employees, Acopia's in an enviable position (see Acopia Aces $25M and Acopia Ships Its Switch). Still, life in networked storage is tough, and Acopia has a couple of strikes against it, including growing competition that's gotten a headstart.

Acopia was late to the party compared with a couple of similar startups, including NuView Inc. and Rainfinity. Those rivals have agreements with Network Appliance Inc. (Nasdaq: NTAP), to boot.

For now, though, Acopia's gaining recognition, including from this site's parent publication, Light Reading, which gave Acopia a Leading Lights award for "Best New Product from a Private Company" (see LR Reveals Leading Lights Winners). With its technology and backing, the question is how far Acopia will go, not whether it succeeds.

Tacit Networks Inc. has joined our list thanks to notable performance and a bit of old-fashioned good luck.

Tacit lives in that area where the storage Venn diagram overlaps the IT one: wide-area file services (WAFS). The startup is one of several that specialize in caching files and offering centralized, bidirectional (read/write) access to multiple remote sites. The point is to overcome the bottlenecks associated with sending files to remote sites with traditional protocols such as CIFS for Windows and NFS for Unix.So how does Tacit distinguish itself from a growing pack that now includes Riverbed Technology Inc. and Signiant Corp. as well as Cisco Systems Inc. (Nasdaq: CSCO), thanks to its acquisition of Actona Technologies? (See Watch Out for WAFS and Cisco Wades Into WAFS.)

At least one industry source says Cisco's entry into WAFS bodes well for at least one other startup, since buyers will probably want to have two distinct vendors, and Cisco's a sure bet. As to the other players, Tacit says its secret is product performance and flexibility. According to CEO Greg Grodhaus, WAFS technology isn't rocket science. What's tricky is to make it work well – able to deliver remote files as though they were local. There's a lot of WAN expertise involved.

Tacit is evidently convincing outsiders of its expertise. It's got OEM agreements with BlueArc Corp. and IBM Corp. (NYSE: IBM). While just two buyers are named, Mullin Consulting, a financial services outfit, and Northpoint Software and Services, which offers risk-management advice and software, the company has grown from 21 to 40 customers this past year. The employee roster has grown from 13 to 60.

Tacit also has a new president, Chuck Foley, formerly of InfiniCon Systems Inc., and it scored $16.9 million in new funding last May (see Tacit Ready to 'Spar With Gorilla' and Tacit Takes In $16.9M).

There are whispers that Tacit's angling to be acquired. Whether that's the case or not, it looks as if this startup's in an interesting segment at a very interesting time in its lifecycle.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 they're doing exceptionally well.

Take next-gen NAS firm BlueArc Corp., for instance. After taking up residence on our Top Ten list over two years ago, we see no energetic advancement. Instead, BlueArc appears to have settled into complacency mode. Even its CTO has taken a part-time job elsewhere (see BlueArc Still Hot for IPO). Sorry, guys, squatter's rights don't apply to this list.

Two more cases in point: Softek Storage Solutions Inc. and CreekPath Systems Inc., formerly numbers 3 and 10 on our list, respectively. Neither has taken our breath away lately.

Softek's blended into the SRM establishment, adding a few customers here, a performance tuner there, and focusing on maintenance renewals (see Softek Reports Revenue Growth and Softek Intros Performance Tuner). Still awake?

Last time we checked, CreekPath had no news for months, aside from a handful of executive changes. Wait, did we mention it got another $22 million in funding? (See CreekPath Reels In $22M.) Too bad its customer count hasn't also gone up – at least publicly – in over six months.As for EqualLogic Inc. and LeftHand Networks Inc., it was a tough call. Fact is, the IP SAN market is building but still on the horizon. Meanwhile, segments like management software and WAFS are forming small cyclones.

What can we say about Compellent Technologies Inc.? That they've added a few new customers? (See Compellent Adds Customers and Small Firm Counts SAN Success.) Hasn't everybody? Sorry, folks, that's just not, well... compellent enough for us.

To sum up, the storage networking market is one of the strongest in the IT space, and plenty of startups are moving vigorously to claim their stakes, so there's no reason to coddle laggards.

That said, today's Top Ten could move to further glory as public companies or acquisitions. Or they could join the Bit Bucket crew. What's more, the Bucket Brigade could catch fire again and land back on the list. We'll catch you later.

Table 2: The Bit Bucket

— The Editors, Byte and Switch