Virtualization Vendors Vie for OEMs

Crunch time is approaching for FalconStor Software Inc.and DataCore Software, two of the leading suppliers of software solutions for virtualization” of storage networks -- the pooling of storage so that it can be shared among multiple applications and multiple servers.

Both companies are striving to outgun each other by lining up OEM deals with industry heavyweights. And guess what? Both companies appear to be targeting exactly the same list, namely: Hewlett-Packard Co. (NYSE: HWP), IBM Corp. (NYSE: IBM), and Hitachi Data Systems.

At present, DataCore appears to have stolen an early lead. Its SANsymphony virtualization software is already being sold by HP and Fujitsu Ltd. (KLS: FUJI.KL). FalconStor, on the other hand, has got an impending reverse merger to contend with, which might become a distraction.

Still, it’s very early days. FalconStor’s IPStor software has some attractive technical credentials that might stand it in good stead in its battles with DataCore.

In the long run, however, it’s far from clear whether either company will win. Other, larger players, such as

Compaq Computer Corp., have already got their oars in the water (see Compaq Gains on Virtualization). And the heavyweights that decide to resell DataCore or FalconStor products are quite likely to view this as a stopgap measure -- a way of jumping onto the virtualization bandwagon while they figure out which way the market is evolving.Once that becomes clear, the chances are they’ll develop their own products or acquire appropriate startups. By then, the debate over whether virtualization should be hardware- or software-based may have been settled, and DataCore and FalconStor may have lost their luster.

Right now, DataCore and FalconStor have got their work cut out, persuading their target audience that their virtualization software is the one to sell to their customers.

The biggest differentiator between the two companies' products is that Falconstor's software runs on the Linux operating system while DataCore's runs on Windows 2000/NT.

Windows 2000/NT isn't exactly known for its stability. “If you are running virtualization software that is controlling the entire network of storage and host servers, and it crashes because it’s running on a Windows platform, you will not be happy,” says William Hurley, storage analyst with the The Yankee Group. “It’s contrary to the whole idea of virtualization.”

Augie Gonzales, director of product marketing at DataCore, brushes this off as “myths." He says, “Windows 2000 is well tested, sold in strong volumes, and companies are confident they can run their enterprises on it. Any comments to the contrary do not have merit in the real world."This view appears to be substantiated by DataCore's list of customers, which includes Chase Manhattan Bank, Alcatel, and The Dannon Company, (the yogurt guys). DataCore also just did a deal with the Plumbers & Pipefitters National Pension Fund (see Plumbers Pick DataCore).

Linux -- FalconStor's choice of operating systems -- lacks the corporate clout that Windows 2000 has behind it. However, Linux is well known for its stability. A significant percentage of Internet sites, for example, run on Linux. It also has a small footprint compared to Windows 2000, enabling it to run on less powerful CPUs while maintaining performance -- an important issue for virtualization of this type.

FalconStor’s IPStor software also has other attractions. In particular, it can connect via Ethernet back to the enterprise servers and any NAS devices and, in the other direction, connects to the storage via SCSI, FC, SSA, and soon iSCSI and Infiniband interfaces.

DataCore, on the other hand, connects Fibre Channel storage only. There is no native IP connection yet, although the company says this is coming soon. Thus, DataCore only offers SAN- or block-based virtualization, whereas FalconStor can provide both SAN- and NAS-based virtualization.

FalconStor announced today that it is pushing into Japan through reseller deals with NEC Corp. (Nasdaq: NIPNY) and Advanced Technology and Systems Co Ltd. (ADTX).“FalconStor is leveraging its deep connections to the East Asian business market, showing its ability to execute against the promise of its technology and building a stable of reference accounts ahead of other players that portend either wide-area SAN integration or virtualization, but rarely both,” says Hurley.

These connections to Japan are through FalconStor’s CEO, ReiJane Huai, who was the chief architect of Cheyenne Software’s ARCserve software, the industry’s first client/server storage management solution. On the back of this technology, Cheyenne was sold to Computer Associates International (NYSE: CA) for $1.2 billion in 1996. Most of the Cheyenne management team and engineers are now at FalconStor.

One of the big challenges this company faces is a reverse IPO due any time within the next couple of months. It’s a cunning way to go public without submitting to today’s risky IPO climate, but it’s a big distraction. And all the while its competitor DataCore will be plugging away at signing more OEM deals.

Publicly traded company Network Peripherals Inc. (NYSE: NPI) pumped $25 million into FalconStor last year in exchange for a third of the company. Then it realized FalconStor’s business was growing much faster than its own and decided to sell off the rest of its business and effectively marry itself to FalconStor through a reverse merger. FalconStor will take on NPI’s publicly-traded status.

“This won’t be a distraction,” says Gerry Biggs, general manager for FalconStor Europe. Maybe not to Gerry, but his colleagues in the U.S. face rigourous scrutiny from the SEC before its trading status becomes official.Meanwhile, DataCore is still privately held. The company has raised over $40 million in funding so far, with the likes of

Van Wagoner Capital Management Inc.,New Enterprise Associates, andOneLiberty Ventures behind it.

And it’s not out of the question that DataCore could be bought in the time it takes FalconStor to go public. Veritas has expressed a strong interest in the company, and one of the big systems vendors could easily decide to keep DataCore all to itself. Regardless of how these two companies proceed, the landscape is shifting fast, and neither has time to stand still.

— Jo Maitland, Senior Editor, Byte and Switch http://www.byteandswitch.com