Storage Made Easy Sees Consolidation, Changing Business Models in File-Sharing

Migrating from “Storage Hell” to “Solution Heaven”

Storage security startup Storage Made Easy foresees consolidation and even company failures as firms in the file-sharing business struggle to compete with cheap or free storage from cloud giants like Amazon (AMZN) and Microsoft (MSFT). “People are realizing you can’t make money out of storage. I expect to see aggregation and dead pools in the next 18 months or sooner,” says Jim Liddle, founder and CEO of Storage Made Easy. He pointed to the case of Nirvanix, which went bankrupt in 2013 under the weight of a huge investment in a worldwide network of storage hardware. “I think we’ll see more companies like Nirvanix,” he says.

Based in Sutton, a suburb of London, Storage Made Easy (SME for short) is different from the standard Silicon Valley startup. It has no venture funding, backed instead by Liddle himself and an angel investor to a current total of $2.5 million. While it does offer a cloud-based consumer file storage service, that’s a small part of its business. Most of its business comes from providing software for cloud security and control to business. Its software provides what Liddle calls a “blanket” for an enterprise to wrap around all of its data, be it on-premise, in a public cloud, or in a software provider’s cloud (think Salesforce or SharePoint). Enterprises use SME to provide security, including encryption, control and audit for data accessed anywhere, anytime. For example, an enterprise IT department can allow employees to use a consumer service like Dropbox, but require them to register it with SME, and then use SME to control access, even limiting time periods when others can access the files, and record details of every user accessing the files.

Security is of course a priority concern for many enterprises. American companies are concerned about North Koreans or east Europeans hacking into their data; Europeans talk a lot about the risk of US spy agencies hacking into their data. Old-fashioned financially motivated cyber criminals stealing large numbers of credit card numbers is a universal concern. Liddle says the cloud in all of its manifestations is making the problem worse, not better, because corporate data is now scattered in so many places. SaaS companies like Salesforce (CRM) typically have a lot of proprietary corporate data on their servers; enterprise file store and share vendors like Box (BOX) or Egnyte make the problem worse, Liddle says, because while they provide significant security around data placed on their platform, each platform adds to the mix of systems and locations that an IT department must monitor and control. “`Bring your own cloud’ is a massive problem for companies. We view platforms like Egnyte or Dropbox as part of the problem, not the solution,” he says. He provides an example of how the SME cloud security gateway works: “If an employee tries to access Dropbox from within the corporate firewall, he will be stopped and get a message asking if he wishes to add Dropbox to the cloud control gateway, and it will then be audited and controlled.”

SME works with leading cloud providers including AWS, Microsoft Azure, Rackspace (RAX), Cleversafe, and others. The company has partnerships with 55 ISPs worldwide, including CBeyond (CBEY) in the US, who resell the SME solution to their customers. Its enterprise customers include Veritext, the largest provider of deposition services to the legal industry. Veritext uses SME to help maintain HIPAA compliance, a stringent standard for security and confidentiality set by the US federal government. SME currently has more than 5,000 customers for its SaaS service.

According to Liddle, SME’s current revenue run rate is $3 million a year, the company is growing at 30% a quarter, and he expects to deliver revenue of some $7M-$10M in the financial year that runs from March 2015 to April 2016. The rapid growth is driven by intensifying concerns over security and “cloud sprawl” as companies and their employees find themselves using more data in more places almost daily.

In recent months, the two cloud giants, AWS and Microsoft Azure, have cut prices and intensified their marketing of enterprise file store and share (EFSS) solutions. AWS renamed its Zocalo product WorkDocs last year, and is offering it at prices starting at $5 a month. Microsoft offers OneDrive as a free service for subscribers to other Microsoft products. The result is intense competitive pressure on many of the smaller EFSS companies. Liddle says the two large players, Box and Dropbox, are big enough to survive. But many of the startups will struggle. “Their challenge is to change their business models, and get out of `storage hell’ and into `solution heaven’ so they can raise their Series B or C round and keep going.” He says SME is already in that heaven since it’s already a software vendor and its solution offers real differentiation. In addition, its applicability to a very wide range of platforms makes it less exposed to competition from giants like Microsoft or Amazon, because even if they develop cloud security solutions with similar features to SME, they are likely to focus on their own environments rather than broad-based security. “History shows that those large companies don’t tend to be open. They don’t embrace everything.”

SME’s competitors include CipherCloud, a Silicon Valley startup that announced a $50 million funding last November, bringing its total funding to over $150 million. CipherCloud is everything that SME is not, with a glamorous website, quotes from leading Silicon Valley gurus like Marc Andreessen on the homepage, and executive bios that feature buzzwords like “leader”, “groundbreaking,” and of course “visionary.” SME is so modest that the visitor will struggle to find the management bios on the SME website, and when he does, he will read about Liddle’s various roles as “general manager” in areas including sales, big data, middleware, and cloud, with no mention at all that he has also been CEO of a consulting firm called Jana Technology Services.

The advantage of running a small business without aggressive venture capitalists on board, is that SME can set its own pace and its own goals. “The cloud is still young and immature. It’s all to play for in the next two to four years,” says Liddle. “My goal is to do a good job running the business.”