Tech Industry

Microsoft taps start-up for MSN streams

Scale Eight grabs its biggest customer to date, a win for a company trying to play in a sector that's been punished by the collapse of Web business models.

Scale Eight has won its biggest customer to date--Microsoft--which is using the company's global storage system to send streams of audio out from its MSN site, the companies plan to announce Monday.

The deal is worth at least $1 million to the San Francisco company, said Patrick Rogers, Scale Eight's executive vice president of marketing and business development. And it's an important endorsement for a company trying to get started in a sector that's been punished by the collapse of Internet business models. The MSN site launched over the course of several months in 2001 and now sends out about 20,000 simultaneous streams of audio--both songs and Internet radio stations.

"I think it's huge," Lehman Brothers analyst Harry Blount said of the deal. "They really haven't had that reference-able account." And, he added, Microsoft will be a "major source of revenue."

Scale Eight has a network of about 2,000 relatively inexpensive Intel-based servers at four data centers around the globe.

At the heart of the network are servers that use a made-from-scratch operating system to share data, automatically distributing it globally. This protects against a failure of part of the network; if London servers go down, say, Tokyo servers can take over. It also takes care of changing customer needs. If, for example, several thousand teenagers in California suddenly decide to listen to the latest Britney Spears track, the network can automatically adjust data distribution to fit the demand.

Other servers link the core to the outside world, handling the sending of video and audio streams.

The privately owned company won't release revenue figures, but fourth-quarter revenue grew 30 percent from the third quarter and about double from the year-ago quarter, Rogers said. The company expects profitability about a year from now and believes the $55 million it raised in three investment rounds will be enough to carry it to an eventual initial public offering.

"We're not planning to raise any more money, other than through some public offering," Rogers said. Profitability "will happen somewhere around a year from now."

The deflation of the Internet bubble has punished many Internet infrastructure companies--such as Akamai Technologies, CacheFlow and Inktomi--that hoped to profit on the need to shuttle data around the Internet so that those who need information will have it as quickly as possible.

But the down economy might actually have helped Scale Eight by discouraging competitors from getting into its market, Blount said. Scale Eight's chief competition right now springs from the home-grown systems its potential customers are building.

In 2000, Akamai signed a partnership with Scale Eight, agreeing to use and resell Scale Eight's services.

Microsoft also uses Scale Eight for storing customers' photos on an MSN site and for video streaming, Rogers said. Other Scale Eight customers include Viacom's MTV video streaming service and Octavo's online historical document archive.