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FalconStor: Can MSPs, FreeStor Save Storage Company?

At first glance, the picture over at FalconStor Software  is pretty bleak. Revenue at storage-focused company fell to $7.4 million in Q1 2016 (down from $8.7 million in Q1 2015), and the net loss was $4.6 million. So why am I taking precious time to blog about a shrinking, struggling software company that stumbled after an accounting scandal several years ago?

Take a closer look and there’s a glimmer of hope — actually, two glimmers of hope — for the company. One involves a product called FreeStor. The other involves the company’s evolving channel strategy — which more greatly emphasizes MSPs.

Technology historians know FalconStor was a promising storage startup in the early 2000’s. Many of the company’s original leaders were from Cheyenne Software, another storage company that CA Technologies acquired in 1996. However, FalconStor founder ReiJane Huai stepped down in 2010 after becoming embroiled in an accounting scandal and he later committed suicide. His successor, Jim McNiel, cleaned up the accounting issues but the damage was done.

Indeed, annual revenues in 2011 were $82.9 million — or about $20.75 million per quarter. In the company’s most recent quarter, revenues were roughly one-third of that figure.

FreeStor and MSPs: Saving FalconStor?

Still, there are some signs of progress. Under current CEO Gary Quinn, FalconStor has bet the company on FreeStor — a software defined storage platform that “reduces vendor lock-in and gives enterprises the freedom to choose the applications and hardware components that make the best sense for their business,” the company claims.

According to FalconStor:

  • FreeStor MSP business increased 282% in Q1 2016 compared with FY 2015 MSP bookings results.
  • During Q1 2016 FreeStor achieved 49% of its total Enterprise customer subscription bookings for all of FY 2015.

Of course, percentage figures can be misleading. FalconStor has never had much of an MSP presence, so a huge percentage growth rate — essentially going from nothing to a little something — doesn’t blow me away. But I don’t know the actually figures so perhaps there are real dollars and cents at work here. And CEO Gary Quinn says MSPs will drive even more growth.

“The MSP route to market we believe is the strongest route into the future, as customers look to utilize their services for back to business service, DR as a Service, Database as a Service and eventually moving of workload to their hosted private cloud,” Quinn said during an earnings call earlier this week. “We also believe these service providers will utilize and manage Amazon Web Services and Microsoft Azure on behalf of their customers — which will also have a significant play for FreeStor in the very near future.”

Still, Quinn concedes that Q1 2016 didn’t generate strong enough results. “But we are still confident that FreeStor and FalconStor are in a position to capture the SDS marketplace in the very near future,” he asserts. “The management team, the employees and the board are all cognizant of our current position and committed to delivering the result you demand as our shareholders.”

Among the next potential moves: Perhaps a company name change? Check the company’s home page and there are some clues that the company could rebrand from FalconStor to FreeStor…

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