StorageNetworks goes to the wall

Dismembered

Last week StorageNetworks, Inc. announced that it would seek the approval of its shareholders for a plan of liquidation of the company, writes Tony Lock of Bloor Research.

At the same time the company announced that it has "terminated" all remaining employees of the company with the exception of a small transition team to oversee the wind down of the business. Paul Flanagan, CEO and president, also said that he is leaving the company immediately.

StorageNetworks was an organisation that focused solely on the provision of storage management software and services. Indeed, it can fairly be said that the company was one of the pioneers in bringing the concept of managed services to the storage sector.

The company was set up to provide solutions to issues that still concern nearly every enterprise, namely how to increase effective storage utilisation rates from the industry average of below forty-five percent to closer to ninety to ninety-five percent. To achieve this goal the company utilised sophisticated “command and control” software to manage all aspects of storage systems built using multiple hardware devices. The facilities provided cover the elements of provisioning, change control, status and event management, forecasting, billing and fabric switch control.

Alongside these the company had a “Virtual Storage Portal” (VSP) suite of management software that can provide storage and service management from a single application. Many of these tools were employed in the managed service business that had originally formed the spine of the company’s business. StorageNetworks had the ability to architect storage solutions, to handle the subsequent installation of products purchased by the customer or finally to design, buy, install and manage the ongoing day-to-day running of the system.

However, the managed service business, around which much of the company had been built, did not prove to be as successful as was hoped and by June 30, 2003, StorageNetworks had succeeded in exiting the managed services business entirely with the termination of all employees associated with those operations.

Recently StorageNetworks engaged in efforts to seek out third parties that might be interested in acquiring the company and its assets. The search proved unsuccessful and Flanagan stated, “Interest in acquiring the company was limited, and the only interest that was expressed was at price points below what we estimated as our liquidation value.” Efforts were then made to evaluate the possibility of StorageNetworks acquiring technology or companies with technology, again without success.

The company also investigated whether it had an opportunity to continue to operate as an independent software vendor in the storage resource management (SRM) space but decided that the competitive landscape in the area made it likely that even if successful it would take many years for this approach to deliver any meaningful return on investment to shareholders.

Flanagan concluded, “Reviewing the options available to the company, the Board of Directors has determined that the best way to maximize shareholder value is to immediately liquidate the business and distribute the excess cash in the company to the shareholders.”

It is interesting to note that StorageNetworks found no one prepared to purchase its solutions at a price that it considered fair. The company possesses a number of sound software technologies and has built up a pool of experience that it is sad to see dispersed. It will be fascinating to see if any of the storage heavyweight vendors now look to acquire any of the remaining software technologies in the final fire sale. Storage software is one of the “hottest” areas in IT today but this news shows that competition in the sector is fierce. We can expect to witness a continuing consolidation amongst the storage software vendors.

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