In the next couple of days, expect to hear an announcement about yet another buy-out of an industry start-up by a software conglomerate. I can’t say who just now, except that I have followed them since they were a smile on mommy’s face that daddy didn’t understand. Why are they being purchased? Good question.

It isn’t because of their install base, obviously. The company, like many small software companies with big ideas and bigger venture capital investments, was forced to hang a pretty hefty price tag on its wares and to wrap them in tin and disk. They priced themselves out of the tens of thousands of $ per copy of product market into the hundreds of thousands of $ per copy of product market. A few sales generated a lot of cash, but not a broad clientele.

Still, the few sales helped establish them as players. At one time, they were the company that EMC would have most liked to take out of its sky. As I recall, Hopkinton tried on a couple of occasions to make their life hellish — which was enough reason in my mind to do some work for them at next to nothing cost.

The reason that the company is being sold is that the VCs want their money — pure and simple. They probably won’t get but a 3 to 5X multiple on their original investments — disappointing since VCs look for 10X ROI from acquisitions and many times that number on IPOs. Still, the investors may see the handwriting on the wall — the implosion of the storage market is upon us.

As in the life of stars, over time matter is sucked into a gravity well and the star’s density increases until matter literally folds in on itself. From what I read in the science pubs, the star then either becomes a black hole or, depending on factors such as the original mass and components of the protostar, reaches a critical state of activity and explodes outward, creating new planets and even small stars.

Metaphorically, the storage industry seems to be at the point of increasing density. Little players are being swallowed up by the massive gravity wells of big stars. And I doubt very much that the VCs have the patience to wait and see whether the stars will explode outward again, creating new markets, or will simply become black holes (into which enormous amounts of money are sucked). I will need to ask my son about the astrometrics involved and time tables such things typically entail — it has been awhile since I studied astronomy in college and he is completing a sandbox astronomy class this semester.

On the upside, the outcome of the acquisition, assuming that the intellectual capital of the company that is being acquired will continue to be developed by the acquiring company (a BIG if), might be a reduced price and a broader market. Gigantor Software doesn’t need to wrap the little firm’s software in tin or to charge enormous fees for licensing it. If they are smart, they will make it more affordable to the broadest possible audience.

On the downside, Gigantor might just buy the software company to demolish it. Given Gigantor’s track record with other acquisitions, this is the more likely outcome. The company has an unfortunate tendency to destroy acquisitions either deliberately (as a function of its “not invented here” bias about third party wares) or inadvertently (as a function of a “masses of asses” bureaucracy that too often leaves acquired products dying on the vine). Current customers who have heard about the acquisition through the grapevine have already started voicing concerns to me in emails.

Ultimately, the outcome will be determined by the least interesting factor: money. That the company being acquired has come up with an innovative workaround to one deficit of file systems — their self-destructive nature — doesn’t enter into the equation. That the new technology is potentially helpful to many companies who today are wasting money on point-in-time mirror splitting using their most expensive disk to safeguard their data written to other expensive disk is equally irrelevant. That the technology could well become the core of a real off-array storage operating system is also overlooked. Money talks.

I will wax philosophical again, since this seemed to garner nicer comments than usual in my previous post about Warhol’s Mao. Last time, I referenced Plato and Aristotle — and Socrates, their teacher — who established the pecking order for human endeavor. On the lowest rung was economia — buying your property including wives, slaves and children and engaging in a profitable business. Next rung up was politike — involvement in the affairs of the community, looking outside the wealth and well-being of your family and property toward the broader success of the community as a whole. Finally, you might reach philosophia — a life in which you seek to illuminate the meaning of good, setting objectives and goals for politike to pursue and helping individuals lead better, more meaningful lives.

It is a fact that the modern era has seen the destruction of such fine old concepts. Descartes and the scientific revolution spawned a lot of change. Some for the good, some not. Contrast guys like Hobbes and Rousseau. Hobbes took the engineers approach: since life in nature was nasty brutish and short, the objective was to establish sufficient control to manage and sufficient checks and balances to create order. One man with a club large enough to wave over the heads of all others would rule. It was no longer important to understand the essence of a thing (the good), but only to understand enough about a thing to control it. The engineer’s creed.

The Rousseau camp went another way. Man was good in the state of nature, but corrupted by society — by power, money, obligations, etc. In their view, it was time to shuck off all of the institutions (including money) and to let the finer nature of humanity simply bubble up to the surface. This thinking was the foundation of lots of stuff, including Marxism. Karl and his buddies talked a good game about the finer nature of man, but ultimately spawned an inverted view of the Platonic ideal in which economia came to be defined as the highest pursuit of man. Workers gave value to their products by virtue of their labor. Not surprisingly, this concept first caught on in Russia, where the language provided keen support for it. In Russian, you do not say, “This is my pen.” The literal translation is “By me, by my labor, there is this pen.” Peasant farmer mentality: the wheat used to make the bread we are about to eat would not exist except for my labor.

There are lots of currents and eddies in modern thought to be sure, but the dominant mantra today appears to be that money talks and bullshit walks. The pursuit of wealth is substituted for the pursuit of the good. It doesn’t matter whether the small storage software company that is about to be swallowed up by the huge conglomerate had best of breed software but lacked the muscle to market the hell out of it. The VCs could not be convinced that it was worthwhile for them to throw more money at the operation and to see their investment flourish in organic growth. Money talks, bullshit walks.

It also didn’t matter if a couple hundred customers would be left twisting in the wind when their preferred software choice becomes part of a vendor’s brochure that they previously rejected. As the Ferengi Rules of Acquisition state, “Treat customers like family, exploit them.” Money talks, bullshit walks.

The cynicism I greet in every talk that I give is astounding. Consumers feel like the whole game is rigged: Marx has won and economia is now the foremost driver of tech (and possibly of everything else).

In general, customers are not happy to pay exhorbitant fees for proprietary boxes of commodity components. They are forced into this model by a market in which good ideas are bought out and incorporated into proprietary software suits, or more often directly onto inferior, overpriced monolithic arrays. The game is rigged because it discourages the rise of independent innovators. Even if independents can get funding, upon entry into the market they must contend with a fairly unique phenomenon of our era. First is the marketing problem: consumers get loads of FUD from established players and warnings about investing in anything that doesn’t come from a supplier with a two or three letter acronym for a name. Second is the problem of long term growth: VCs want their money back and will compel the sale of the company over any objections of its founders.

There are exceptions — like Tek Tools, where CEO/founder Ken Barth is dead set against selling out to competitors because he is enjoying running his company and mentoring his people. Add DataCore Software to this list, where George T., Ziya A. and Bettye Grant (who really runs the company), bought out their VCs and now operate the company for sheer love (which has begun to return hefty dividends to them). And let us not forget Zetera, whose IP storage interconnect has outsold all SANs in its first year of existence, spewing clouds of exhaust into the faces of detractors in the analyst community.

Zetera’s management team is visionary, just as DataCore’s and Tek-Tool’s. They are striving to provide the first real networked storage we have ever seen. The first realization of the ENSA vision from Digital-through-Compaq in which peer nodes of storage and servers work and play well together effortlessly. Z-SAN has its bugs, but nothing that is insurmountable and a lot of consumers have correctly seen it as a harbinger of cheaper, more efficient storage in the future.

DataCore is also innovating. Traveler went almost unnoticed in the trades (though I will feature it in an article today that I am writing for SearchStorage and I intend to recognize it with a Toigo Award later this month on ESJ.com). Did you hear about it? Did you sense the awesome potential of this idea of limitless disk with block write level CDP built in that does not require you to buy Brand X hardware? Chances are that you overlooked it altogether. The trades certainly did.

What about Tek Tools’ Storage Profiler? Have you been following how Ken and Company have been slowly and surely breaking through barriers to add visibility into vendor arrays so they can be effectively managed despite their best efforts at obfuscation?

Add to these innovators up and coming products from Gear9, Crossroads Systems, and a few others and you see the exceptions that point out the rule: to a one, they are not VC controlled and money, while important, is not their core objective. Most of the money in this business is being made by the big players. These little guys only survive because their business model is different: they are motivated by a love of what they are doing and common sense about how to deliver it to the market.

I will raise a glass to them over my bird this Thanksgiving.

This entry was posted on Tuesday, November 21st, 2006 at 11:28 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.