In Flight Or In Flux? The Demise Of Nirvanix Shines A Light On The Broken Cloud Model

The spectacular demise of Nirvanix could one day be a business school case study.

The provider of cloud storage technology announced its quick death via a Sept. 17, 2013 letter to customers giving them to the end of that month to migrate their data to other clouds, causing a panic as customers and their technology and channel partners scrambled to find an alternative.

Nirvanix shortly thereafter declared bankruptcy, leaving technology partners such as Equinox, CA, and especially Dell trying to recover millions of dollars owed them by the company.

Yet, despite the crash and the initial concerns that customers could possibly lose access to petabytes of data because of a lack of time to migrate it to other clouds, Nirvanix in the end surprised many of its customer-facing partners with unexpected support.

The end of Nirvanix showed that the cloud model is still in flux, and that a wrong decision about which cloud services to use carries a huge potential risk to a company's data and potentially its very life. For some, the lesson is that cloud storage, or even the cloud itself, is a broken model. For others, the lesson is that the cloud is already mature enough to survive potential catastrophes.

The final failure of Nirvanix as a business entity is not a unique story. Cloud and non-cloud businesses fail all the time.

Instead, any case study built on the Nirvanix crash would be a multifaceted teaching opportunity about the risk of going head-to-head with competitors so big they don't care how much money they lose if it means getting rid of potential competition, and in the dangers of signing long-term pricing agreements when prices will only fall over time.

Just as important, the resolution of Nirvanix customers' issues after the vendor crashed also shows just how far cloud technology has advanced in terms of helping customers migrate their data, and offers assurances that the industry harbors a deep sense of community, and even responsibility, when it comes to post-shutdown services.

The Rise Of Nirvanix

San Diego-based Nirvanix was founded in 2007 after the original developer of the technology, StreamLoad, split into separate business and consumer units. The consumer business, MediaMax, eventually failed, causing thousands of customers to lose their data.

By May of 2013, Nirvanix had raised $70 million in funding, including from Intel and Khosla Ventures.

Nirvanix provided enterprise-class public, private and hybrid cloud storage as a service. The company owned its own public cloud infrastructure based in nine data centers, or nodes, around the world. It also used its technology to help customers build private clouds using either the customer's own storage infrastructure or a segmented, non-shared part of the Nirvanix public cloud.

It was a model that worked, said German Garcia, president of Bitopia, a Chatsworth, Calif.-based solution provider and customer software developer.

Several of the applications Bitopia develops require on-line storage, and the company founded it in Nirvanix technology starting six or seven years ago, Garcia said. "We also looked at Amazon S3, but it didn't have the kind of granular controls Nirvanix had," he said.

Over the years, Nirvanix attracted a stable of well-known customers, including several top media companies, health-care companies and educational institutions.

For instance, the company in October of 2011 said that Kansas City, Mo.-based $2 billion health-care solution provider Cerner would deploy Nirvanix as part of its Cerner Skybox Storage service. Cerner expected its health-care clients to use the service, which is no longer available, to consolidate a variety of medical images and data, including patient data, in a secure, enterprise-grade storage cloud.

Another major customer was the University of Southern California (USC), which in November of 2011 signed a deal to deploy 8 petabytes of unstructured data in a private cloud based on Nirvanix technology. The Nirvanix technology was used both for USC's external clients as well as for internal storage requirements, such as the USC Shoah Foundation and the USC Digital Repository.

Nirvanix in August of 2012 said that Fox Networks Group selected the Nirvanix Cloud Storage Network for use as part of a digital content collaboration solution, as well as a replacement for multitier data and tape backup. Using Nirvanix's global namespace capabilities, Fox was able to upload a file in one location and know it was accessible in any other location, and that changes to a single file were immediately reflected across the whole cloud.

Other media companies who worked with Nirvanix included NBCUniversal, which implemented a 3-petabyte storage cloud based on Nirvanix technology, and the National Geographic Society, which moved its backup and archival of large, unstructured multimedia files to the Nirvanix Cloud Storage Network.

Nirvanix's technology also was used as a way to provide cloud storage by such data center operators as Verizon Business and San Diego-based American Internet Services.

Among Nirvanix's resellers were IBM and Dell.

Nirvanix in September of 2012 unveiled an agreement with Dell under which Dell would provide Nirvanix technology as part of its public cloud offering. However, a Dell spokesperson later told CRN the company did little if any business with Nirvanix.

IBM, on the other hand, was a major reseller of the Nirvanix technology, using it as part of its IBM SmartCloud offering. That relationship later took a back seat when IBM in mid-2013 acquired SoftLayer.

Nirvanix in its first few years as an independent company had great funding, widely accepted technology, a growing family of channel partners, and the kind of customer base small technology developers dream of.

Indeed, the main thing Nirvanix seemed to have lacked was the understanding that its pricing model would be destroyed thanks to Amazon, the Internet behemoth with the scale to do pretty much what it wants to do to build its business.

NEXT: The Fall Of Nirvanix

The Fall Of Nirvanix

Nirvanix was founded in 2007, back when Amazon hadn't yet taken advantage of its nearly infinitely scalable storage capacity, said a former Nirvanix employee, who talked to CRN under condition of anonymity.

"The Nirvanix solution and its premise were solid," the former employee said. "The cost model wasn't."

Nirvanix initially built its cloud storage infrastructure on Dell EqualLogic storage technology, thanks in part to good pricing offered by Dell with the help of former Dell executive Major Horton, the former employee said. Horton served as vice president and general manager for Dell Financial Services from 2001 to 2006, but in 2007 accepted the post of senior vice president at Nirvanix. Horton, who left Nirvanix in October of 2013, started with the company as CFO and later become its head of corporate development.

Nirvanix, when it started, could charge 12 cents per GB of data stored per month, the former employee said. That was before Amazon started taking advantage of the hundreds of petabytes of unused storage capacity it had built and which it could offer at ever-lower prices.

"But by 2010 or 2011, Amazon was into cloud storage," the former employee said. "Early adopters started working with Amazon S3. But then cloud storage began to pick up speed. Pricing had dropped to 8 cents per GB per month in 2011. Nirvanix at that time could still emphasize the security it provided vs. Amazon, especially in the first half of 2011 when Amazon suffered a major outage. It was easy to sell our value."

However, that value eroded with the price of cloud storage, which from Amazon now runs about 2 cents per GB per month, the former employee said.

"When our price reached 50 percent higher than Amazon's, we had two choices," the former employee said. "We could stop selling, or drop our price. So we dropped our price."

Towards the end, Nirvanix also changed its strategies from a focus on SMBs to more of a focus on global companies.

"It was a flawed strategy," the former employee said. "The company overcompensated, like a golfer might do with his swing. The offering was solid. The GUI was solid. The technology was solid. And when we realized we needed to offer more value, we added an appliance to go with the cloud storage for financial customers. But it was a little helter-skelter. We changed the business model and the execution path."

The former employee said one example of the impact of Nirvanix's quickly changing models is the case of two media companies. Some time after the first signed with Nirvanix, the second signed with a significantly lower-cost-per-GB, news of which filtered back to the first company. "The first company tried to renegotiate its contract," the former employee said. "Nirvanix said no, and that a contract is a contract. But vendors can't get away with saying that to those kind of customers."

Nirvanix's customer service suffered as well. "When customers tried to call Nirvanix's 1-800 support line, they couldn't get ahold of a person," the former employee said. "Even if they tried to order more capacity, they couldn't get ahold of a person." Nirvanix Closes, Leaves Customers And Partners Scrambling

Nirvanix in mid-September without warning sent a letter to customers advising them that the company was closing and that all data would have to be migrated off clouds that use Nirvanix technology by the end of September. That deadline was delayed a couple of times through October.

Nirvanix on Oct. 1 filed for Chapter 11 bankruptcy. As of the date of publication of this article, that application is still tied up in court as creditors negotiate the terms of the bankruptcy and as potential buyers of all or part of the company consider their options.

Dell Financial Services is the biggest creditor, claiming to be owed about $12.4 million for the use of the equipment on which Nirvanix's cloud-based systems were run, according to Law360, an online publisher focusing on topics related to legal issues.

Unsecured creditors Nirvanix listed in its Chapter 11 filing include Dell Marketing LP, an affiliate of Dell with an unsecured claim of $407,463.03, and Nimsoft, a developer of IT performance and system availability monitoring technology acquired in 2010 by CA Technologies, with a disputed unsecured claim of $156,100.00.

Also high on the list was hosting services provider Equinix. Equinix (Germany) has a secured claim of 127,133.97 euros, or nearly $171,000, while Equinix New York has a secured claim of $129,060.46. An industry source told CRN that Nirvanix hosted much of its cloud storage using Equinix facilities.

Nirvanix in September said on its website that it is helping migrate customers to alternative cloud offerings, including IBM SoftLayer, Amazon S3, Google Storage and Microsoft Azure, and has an agreement with IBM to aid in the migration.

Even so, the initial reaction to the news was panic. "Customers are flipping out on us," said one solution provider, who asked to remain anonymous.

Bitopia's Garcia said he was concerned when he first saw the Nirvanix letter announcing the pending closure.

"They weren't giving us a lot of time," he said. "They didn't provide tools we needed to do the migration. But they did give us a list of vendors we could work with."

One of those on the list was Attunity, a Burlington, Mass.-based provider of cloud replication and migration tools.

"We could have moved customers' files to Amazon S3 in time, but the cost of using Attunity was much lower than if we had done it ourselves," Garcia said. "We were down to our last client on Nirvanix, who had 200 GBs of data to move. It only cost $250. That's super-cheap. When we were facing a time crunch, I knew there's no way I could do this cheaper."

The technology most cited for helping migrate customers off Nirvanix-based clouds on time was that of Panzura, a Campbell, Calif.-based provider of cloud storage and cloud data migration technology.

Aorta Cloud was one of the companies that partnered with Panzura to migrate Nirvanix customers. Aorta Cloud, a London-based cloud service provider, was one of the first to go to Nirvanix customers with options for migrating data.

In fact, Panzura did such a good job that Aorta is in the process of rearchitecting its services platform and is considering a deeper partnership with Panzura, said Steve Ampleford, Aorta Cloud CEO and co-founder. "Panzura has a good kit," Ampleford said. "They pulled out all the stops in helping Nirvanix customers."

Aorta also partnered with IBM and IBM SoftLayer, as well as with managed storage services provider BroadCloud, Ampleford said.

Aorta helped several companies migrate from the Nirvanix-based public or hybrid clouds, with the largest having about 750 TBs of data, "We said anyone who asked for help, we'd help," Ampleford said. "And we did. We did gain some new customers from it, but others we just helped."

Companies who used the Nirvanix technology to create private clouds were less likely to have problems, Ampleford said. "The data is likely in their own data center, where they can touch and feel it," he said. "The ones that were screaming had their data on public clouds."

Migrating data from a public or hybrid cloud is a "pain," Ampleford said. "You have to drop the data from the Nirvanix app stack," he said. "You can't just point at a disk and say, that's my data."

However, cloud providers like Aorta had help.

"Nirvanix employees really stepped up and helped," Ampleford said. "I don't think a lot of them were being paid at the time. There was a real sense of community. You had competitors working together. You had Nirvanix employees not being paid. And Panzura was out there working with everyone. It was an awfully lot of people working awfully hard. It was good to be helping people out. And it was good to be successful."

Aorta also looked at acquiring part of Nirvanix, and did due diligence. "We decided it wasn't for us. We looked into its financials, and realized we weren't in a place where we would be able to achieve what we would want to do."

Jamie Shepard, regional vice president of Lumenate, a Dallas-based solution provider, said Aorta was key in helping migrate Lumenate's Nirvanix customers. "All of our Nirvanix customers have been migrated," Shepard said. "Customers got hurt. But Aorta rescued them."

Another solution provider, North Hollywood, Calif.-based Velocity Network Solutions, worked with Hewlett-Packard to migrate Nirvanix customers' data to the HP Public Cloud.

NEXT: Assessing Nirvanix And The Cloud

Assessing Nirvanix And The Cloud

Shepard called the Nirvanix issue a "travesty," but he didn't lay all the blame on the cloud vendor.

"Some of our customers are in the petabyte range," he said. "My message over the last 15 years has been, the cloud is just another platform in our virtualization practice. We're asking the tough questions. We have a hosted solution for health care. When you put health-care data in the cloud, you have to know who you are talking to. I tell customers, 'I'm Jamie Shepard, and I've been doing this for 20 years.'"

The problem with startups is a lack of trust factors, Shepard said. For instance, every cloud should have a failover capability. "We educate our customers," he said. "If they are going to work with us, we look at what clouds they want to use, what the goals and funding of those clouds is."

Lumenate works with the VMware Hybrid Cloud Services, and tells customers its cloud offering can be used for medical records. "Even so, you still want to keep backups of your records," Shepard said. "You need to be proactive in protecting your data. This is nothing new to us."

None of Nirvanix's customers should have been in a scenario where they could have lost their data, Shepard said.

"They were pushed to get all their data into the cloud to eliminate on-site resources and reduce operating expenses," he said. "That is a naive message. We should be moving to the cloud to take advantage of agility pricing, flexibility, scalability and chargeback capabilities. We should not be moving to the cloud just for the cloud. You don't just move everything to the cloud."

Part of the blame also has to go to the venture capitalists who invested in Nirvanix, wrote Steve Duplessie, founder and senior analyst at analyst firm ESG, in a September 2013 blog post.

There is no real reason a service such as that offered by Nirvanix be shut down so quickly other than the venture capitalists did not want to pay to keep the service available for a few more weeks, Duplessie wrote.

"The same VCs who would make gazillions off of those very customers had it succeeded are not willing to spend PENNIES to keep it up to help those customers. These are NOT poor VC's - Khosla is worth billions alone. Sure it sucks that they wasted $70M or so - but spending another few grand to help customers would give them MARKETING fodder if nothing else ("we helped the customers, blah blah blah"). ... It's just wrong," he wrote.

The cost and hassle of migrating data from Nirvanix-based clouds underscored the value of working with channel partners, said Chris Pyle, president of Champion Solutions Group, a Boca Raton, Fla.-based solution provider and Nirvanix partner for about 12 months before that company closed.

"I feel bad for the customers who worked direct with Nirvanix," Pyle said. "Nirvanix told them, 'We're shutting down. Get the hell out of here.'"

With a partner like Champion, customers had a place to ask the question, "What now?" Pyle said.

"We can tell them, 'Here's what we're going to do, how we're going to do it,"' he said. "The burden is on us, not on the customer. In a day when some people question the value of the channel, the Nirvanix case proves that value. We tell customers what we're going to do, how to do it and where they will be at the end. And they say, 'Thank you!'"

However, Nirvanix was not universally thought of as a channel-friendly technology partner.

Nirvanix was not really a good channel partner, said Rich Baldwin, CIO and chief strategy officer at Nth Generation Computing, a San Diego-based solution provider, which was an early adopter of Nirvanix technology.

Early in Nirvanix's history, the company seemed like a good channel play, Baldwin said. However, after Nth opened the door for several of Nirvanix's top clients, Nirvanix took the deals direct.

"Nirvanix cut us out of deals," he said. "We closed one deal with a single meeting, but Nirvanix didn't even pay us a referral fee."

Part of the problem was that while large customers were looking for low-priced cloud storage, Nth thought it was dealing with fixed prices, Baldwin said. "But Nirvanix wanted to cut the margins," he said. "Eventually, they wanted to cut them to 4 [percent] to 5 percent."

The big winner in the Nirvanix closure is Amazon S3, Bitopia's Garcia said.

"Over the years, S3 has been getting better and cheaper," he said. "In the past, Amazon had Nirvanix and other competitors. Now that there's no Nirvanix, we can't say what will happen in the future. S3 is a great product. But we had millions of objects stored on Nirvanix or S3. It's a testimony to the quality of Nirvanix."

PUBLISHED JAN. 3, 2013