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Storage Fusion on plumping up drive ahead of sale

No asset stripping going on here

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Comment Storage analytics service firm Storage Fusion is being fattened up for market.

Storage Fusion is the personification in company terms of the storage analytics business inside Itheon, a UK firm acquired by Xploite in 2007. Itheon offered business service monitoring and various application. Xploite is a combination of venture capitalist and activist investor roaming around the UK IT services industry and buying up companies which it can develop and sell on.

CEO Ian Smith said: "We're investors in the IT industry. We invest, build up assets, and sell them on to larger players."

It's an asset aggregator and not an asset stripper. With Storage Fusion it's doing something different, in that it's developing a part of Itheon into a stand-alone business it hopes to sell on as a profitable concern with a future. "Our intention is to make the business a success and find a home for it when it could benefit from a greater scale, in the UK or internationally... when we've taken the business to a sensible level of profitability," Smith added.

The Storage Fusion software remotely inspects a customers' storage infrastructure and then runs an analytic program on it accumulating storage usage stats that take thin provisioning into account. A consumption upgrade is coming which will deliver stats on the amount of raw storage actually used by an application inside its thinly-provisioned allocation.

MD Grahame Wood says the consumption upgrade should be very sticky, meaning customers will want to keep on using it.

The software does not pretend to cover all storage suppliers' products, focussing instead on EMC, HDS, HP IBM, and NetApp and using those vendors' CLI interfaces. Software storage management software from suppliers like Symantec and CA isn't supported.

It is priced at £1,000 per analytic run with a minimum 12-run purchase committment. The pay-off is that such runs are cheap for near-petabyte and petabyte-plus enterprises. The results come back faster than from suppliers' own tools, but are claimed to be just as good if not better, and don't need an expert inhouse group to run the analysis and interpret it.

The real pay-off is that customers, like Barclays, RBS, Santander and Emirates, can reclaim wasted and unused storage and save money.

Smith said: "It's inconceivable to me that anyone would not want to know how much storage they use... [and] It is far easier to generate profit by saving five per cent of cost than developing a new revenue line."

"A grand per month almost doesn't matter; it's an almost neglible cost overhead" to such enterprises. He reckons large IT departments can spend more than that on coffee each month. They wouldn't replace their existing complex and espensive storage operational management software either because it does so much more than analyses of storage use. That makes Storage Fusion no threat to things like EMC's ControlCenter and IBM's Tivoi Storage Manager.

The Xploite Storage Fusion numbers work like this. Itheon was bought for around £6.8m and the firm, minus the Storage Fusion technology was sold on for £3.5m after making £1m profit, leaving Storage Fusion effectively costing £2.3m.

It costs £1m a year to run the service and Smith reckons he needs 8 new customers each month, buying the 12-run analytic deal at £12,000, to build his profitable business. Each set of eight would bring in £96,000 and a year of that would deliver £1.152m, meaning a small profit.

Assuming every customer renewed and there was another year of eight new customers every month, then revenues would be £2.4m at the end of year two, and £3.648m at the end of year three, producing around £2.6m profit - pretty sensible.

At that point Storage Fusion could be sold and, Smith said, "£10m would be a nice day at the office". Indeed it would for a £2.3m outlay and three year's profitable trading.

That is Xploite and Smith's gamble; that Storage Fusion does deliver the storage analytic goods for blue chip customers, as well as having prospects with smaller enterprises, that it is complementary to the ControlCenters and Tivoli Storage Managers of this world, and that its recurring SAAS-based revenue stream will excite interest from would-be purchasers. We'll see if it pays off. ®

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