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2/17/2012
11:58 AM
George Crump
George Crump
Commentary
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What's Behind The Storage Startup Boom?

Conditions have been ripe for new storage companies to launch. We're now seeing the fruits of their labor.

The storage industry has an interesting pattern of innovation. Engineers with great ideas found a company, then add people with sales and marketing acumen; venture capitalists come in to fund it; and a new organization steps onto the scene that promises to change the way we deal with performance, capacity, price, management, or some combination of those issues. This happens all the time, but there are certain times, like now, when the birth rate of storage startups booms.

To make sense of the storage startup boom, Storage Switzerland is compiling a list of the Top Storage Startups To Watch. In our last entry, we defined the type of company that will make our list, and why it's important for IT professionals to pay attention to these startups.

Today, we'll look at three reasons why this boom is happening: the economy, big companies acquiring small companies, and the availability of a new technology that can fundamentally change the way storage problems are solved. These factors have to be in place two to three years prior to the actual boom. A startup boom, like a baby boom, has an incubation period.

Pre-Boom Economy

Storage startup booms seem to happen after the economy has a significant downturn. Certainly 2008-2009 meets that qualification. There is high degree of job transition during these times. People quit, get laid off, or fired. When they try to find a new job, no one is hiring. Their only option is to create their own job or partner up with a few individuals that have started a new company. I also think that being laid off or fired causes people who were good at one job to be put in a situation where they become great at another.

Pre-Boom Acquisitions

Prior to a startup boom, there is typically an acquisition frenzy by larger companies taking advantage of the bad economy. They are looking to find good deals in technology and to round out their product portfolio. This acts as a floor-sweeping that clears out the previous wave of startups, leaving a temporary vacuum in the market.

The acquisition phase is critical because it pools talented, entrepreneurial, creative people into larger companies. Generally these individuals fit in at a big company like a bull in a china shop. Both sides try to make it work, but eventually these individuals leave out of frustration with the larger organization. Where do they go? Where they feel most comfortable, to another startup. As a result, the startup adds even more talented people to its organization.

Pre-Boom Technology

Lastly--and maybe most important--is that there has to be a technology that the larger, more established players haven't or aren't motivated to leverage. Solid state disk (SSD) is an excellent example. It is an expensive technology that solves a common storage problem...performance. It has proven hard to retrofit into existing systems and still get maximum benefit. As a result, startups have exploded on the market with solid-state specific solutions.

The combination of these three factors--economy, acquisitions, and technology--have been in effect since 2008, potentially longer than any other time in the storage industry's history. Not only are we heading toward a boom in storage startups, we may be heading for the largest number of startups we have ever seen in a two- to three-year timespan.

This proliferation of storage startups makes our task of compiling the Top Storage Startups To Watch list complex, but essential to help the IT professionals who are daunted by the busy landscape. In our next entry we'll take a look at the types of problems these new companies are trying to solve.

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George Crump is lead analyst of Storage Switzerland, an IT analyst firm focused on the storage and virtualization segments. Storage Switzerland's disclosure statement.

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