Scale Eight's Special Sauce

Its patent-pending software provides the ability to use the public Internet to offer redundant storage capability for clients

In the spring of 1999, Joshua Coates went to his bosses at Inktomi with an innovative idea. The 26-year-old software guru claimed he could use off-the-shelf hard-disk drives linked over the public Internet with specialized software to create a far cheaper way to store and retrieve data. Inktomi took a pass, and that summer Coates struck off on his own to start Scale Eight.

Smart move. Today, Scale Eight has raised $31.5 million in venture capital, making it one of the hottest startups in a red-hot market. The company has a truly revolutionary business model -- to transform data storage from a hardware business into a software business. Coates boasts that his service isn't just more reliable but that he can provide it for 80% less than the existing hardware systems. That could overturn the cart for some big apples such as Sun Microsystems, Network Appliance, EMC, and others (see BW Online, 4/13/01, "Fujitsu's Late Start in Storage").

Too good to be true? There are question marks. Storage pros say using the public Internet to store and deliver files might be slower than using directly attached storage equipment. And, by Scale Eight's own admission, its system won't work with big Oracle databases that require the superfast response times that only a direct-attached storage system can bring.

BALLOONING COSTS.

  The company counters that it is aiming for retrieval of media files from the Internet, a scenario where response times are measured in seconds as opposed to microseconds. But even if Scale Eight can capture a fraction of today's $20 billion storage-device market, the company would be a success.

Clearly, the market opportunity for Scale Eight is huge. As storing and retrieving data has become increasingly essential to doing business, storage infrastructure costs have ballooned to consume more than 50% of the information technology capital budget of many corporations. The global market in storage devices is expected to triple to $60 billion by the year 2003.

The prevalent storage solution is to pay engineers big bucks to manage pricey specialized hardware designed specifically to reliably store and quickly retrieve data, largely from databases. These "refrigerators" sit astride corporate networks in one location and guard all the data.

RELIABLE.

  Scale Eight takes an opposite approach. Customers contract with the company to store a certain amount of data, and Scale Eight maintains the infrastructure. Customers located across the globe can access, update, and store a rich-media file while viewing a common file system that looks like a disk drive on your desktop.

When a file is uploaded to one of Scale Eight's storage centers, the data is geographically mirrored across all the company's data centers in Tokyo, San Jose, London, and Reston, Va. This redundancy creates reliability Coates claims is 99.9%. In the data centers are off-the-shelf disk drives linked with patent-pending software that is the special sauce of Scale Eight's business plan.

Coates says large increases in storage can be provided in minutes, and customers pay based on how much data they access and how often. In contrast, companies opting for traditional storage would have to buy and install new hardware storage devices to add their own capacity -- a process that could take weeks. "We really haven't seen, in a long time, a company that adds so much value. The degree to which the team has thought this whole thing out is incredible," says Nick Allen, an analyst with tech consultancy Gartner Group.

"WHERE THE MONEY IS."

  Scale Eight claims that its storage system is particularly suited to monstrous unstructured files that include everything from e-mail logs to rich media such as audio or video. Coates may be right on target, considering the increasing tendency to store everything from PowerPoint presentations to phone messages on corporate intranets, as well as the rising tide of rich media on the Internet.

The worldwide installed storage of rich digital media is expected to grow from 900 terabytes (a single terabyte equals 1,000 gigabytes) today to 7,000 terabytes in 2003, according to the International Data Corp. "That's where the money is and the need is," asserts Coates.

Naysayers say Scale Eight's radical approach could be stymied by bandwidth. "The 'last mile' problem is as yet unsolved," says Jai Menon, an IBM storage expert, referring to what typically is still the weakest link, the connection from the user to the Internet service provider's computers. A bottleneck in the last mile could lead to slow retrieval times.

Futhermore, Scale Eight is not as well-suited to the storage needs of companies that want top performance for databases attached directly to their networks. That means it's at a disadvantage in most of the storage market today or in dealing with corporate customers that want both direct-attached and Internet-based storage. "Scale Eight has a niche play within the storage space," says Brad O'Neill, director of corporate strategy for competitor StorageNetworks.

TOO GOOD TO PASS UP.

 But if companies take a cotton to using the Internet to store and retrieve video files and audio files, counters the company, then who cares? "Over the Internet it's a whole new paradigm. If a user wants to pull up a video file or a MP3 file, they'll never notice the difference," says Patrick Rogers, vice-president for product management at Scale Eight.

And Scale Eight's prices might be too good to pass up. The company's MediaStore service costs $25,000 per managed mirrored terabyte per month. That compares to Storage Networks' $120,000 per terabyte per month. By relying on off-the-shelf hardware and software knowhow, Scale Eight's model should be easier to scale and should control costs more easily than the proprietary hardware on which corporations rely.

Coates also has a secret weapon in chief scientist David Patterson. A University of California at Berkeley professor, Patterson's 1987 invention -- known as the redundant array of inexpensive disks (RAID) -- forms the foundation of all existing storage systems today. Coates says the software he and Patterson developed is so good it will give them a hefty head start on any competition.

VOTE OF CONFIDENCE.

 The 95-person company has already snagged some big customers, including Web-site performance enhancer Akamai and Sony spin-off Unsurface, which stores music catalogs online. And in March, Scale Eight got a huge vote of confidence when it started storing and serving all the rich-media files for Viacom's MTVi, which covers 30 sites including MTV.com and VH1.com.

Coates also has a stellar resale partner in market-leading Web-hoster Exodus Communications. Scale Eight has lined up several Fortune 100 customers to use its service on a trial basis. The company aims to be profitable by mid-2001. That could be ambitious in light of the tech slump. But if Scale Eight can scale up business fast enough, it could turn into one of the monsters of storage.

By Kalpana Mohan in San Jose, Calif.

Edited by Alex Salkever