Innovating Web 2.0 Storage: Fabrik CEO Mike Cordano (Part 5)

SM: How did you go to market with this? Where did you position it, and where did you see uptick?

MC: The final feature is total aggregation, which we will announce and take to market in the fourth quarter. It will initially go with our consumer products, which are sold in retail. The base version is free.

We see a number of ways to achieve monetization. There is a premium version that has additional services which would be charged. Our name for this service is Joggle. If someone wants to do backup using Joggle that cost would be done on a meter basis with a monthly fee. We think we have built a virtual platform off of which we can do services. We will do photo printing services with a partner as well as other affiliate relationships with other web properties such that we are able to become a funnel to the web.

One of the things we do very efficiently is migrate content into the web to whatever distribution is desired. An attractive option for the media-based sites, be they social webs or other hosting sites, is our ability to quickly integrate content into their locations.

SM: That is the evolution from hypothesis, through a 15-month experiment, to the point where you are coming out to the market with a different product. However, you do have some revenues already.

MC: We have three lines of external storage products. The SimpleTech brand is for the consumer, we have G-Technology which is our Apple product line, and we recently launched a small business line under the SimpleTech brand.

SM: Is it all external storage?

MC: It is all external storage with various degrees. What we are doing differently from other companies in the hard drive business is that we are much more vertically oriented. Everything from the product definition up through the route to market we do facing a specific market. Our SimpleTech line is very dedicated to a retail channel. We can be very edgy with our industrial design. That is a contrast to others, where a product was designed which would be applicable to all markets and then be taken to market with separate channels even though it was the same underlying product. We were the first company to do multi-colors and edgy industrial designs for external hard drives. We were able to push the envelope because we were not trying to sell that same line of drives into the small or medium sized business.

SM: You launched that through Best Buy?

MC: Best Buy and others. We are widely distributed in the US. We are tracking towards $200 million in revenues in the current calendar year.

SM: What kind of margins are you experiencing?

MC: They are in the mid to high teens on that product line. It is high volume.

SM: Do you have an ODM?

MC: Our strategy has morphed over time. When we acquired SimpleTech we had what I would consider to be local CMs. It was not a highly developed supply chain with all of the things we look for with ODMs. We look for logistics and manufacturing as well as their engineering capabilities. With our Q1 2007 acquisition of SimpleTech we have grown that business about five times in terms of unit volume and revenue. That has allowed us to pursue relationships with much larger and sophisticated ODMs, mainly in Asia. We are in the middle of migrating from local ODMs here in California to first-year ODMs in Asia, which gives us greater product capability but also much bigger margins.

Scale brings us a lot of things. It improves our margin, and it improves our ability to manage our balance sheet because we can take the raw work in process and it becomes virtual to our partner so we do not have to finance all of the inventory we have in progress. It has great P&L and balance sheet benefits.

SM: You were doing two parallel experiments: you had the cloud business and then you were doing this external storage business. At what point did you think you needed to acquire SimpleTech and why?

MC: When we looked around at data service companies and web based storage companies we knew we wanted a few things to be different. The ability to connect devices to those services in a direct way was a unique opportunity for us. The other strategic benefit is that we felt it would give us relevance. The fact that we had a brand with reasonable retail volume would gives us some revenue scale. Ultimately we knew for the types of services we wanted to deliver, people who buy external drives were the perfect target audience. They have lots of content and they tend to be media-intensive people. From the services perspective we are doing over 500,000 units per quarter. Today we are not totally integrated with the products, but they are very complimentary.

SM: The integration will come.

MC: It is coming. If you use your imagination you can see that we will take it to the next step where we will do various things. People who are users of Joggle, and buy an appliance that comes out of that eco-system,will see that it will auto-configure and do things that could never be done in the past.

This segment is part 5 in the series : Innovating Web 2.0 Storage: Fabrik CEO Mike Cordano
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