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Nirvanix's shutdown highlights the importance of the cost of exit

Nirvanix’s shutdown highlights the importance of  contingency planning and the cost of exit

US-based cloud storage provider Nirvanix announced this week that it has filed for Chapter 11 bankruptcy protection following news a few weeks ago that the company was going to shut down as of September 30.

The company was once seen as one of the more successful cloud storage providers, raising more than $70m in venture capital since 2007 including $25m last May and working closely with other high-profile firms like IBM and Dell to provide cloud storage services to customers that include National Geographic and Fox News.

On its website the company says it has an agreement in place with IBM to migrate customer data over from Nirvanix to IBM (SoftLayer) servers over high-speed connection. The company says it will also try to keep operations going until the middle of October, extending the deadline for migrating data out of its datacentres to the 15th.

There were hints of a possibility that the company would be saved from having to shutdown. Aorta Cloud, a UK  service provider and customer of Nirvanix reportedly lined up a “seven figure commitment” with a bank agreeing to match that investment to provide liquidity to the company for about two months, until the company could come up with a “more considered, strategic response.” But appears those plans have since fallen through.

According to its bankruptcy filing the company has between 50 and 99 creditors and estimated assets and liabilities of between $10m and $15m. Dell, Equinix and CenturyLink are among the top 20 unsecured creditors.

Nirvanix’s bankruptcy has caused quite a stir in the cloud industry, with some questioning the not just the management of the company but the fundamental viability of cloud storage as a business in general.

But Nirvanix’s closure, which echoes a similar affair with European hosting provider 2e2 earlier this year, highlights the importance of contingency planning and the cost of exit more than anything.

“Their actions here risk erroneously bringing significant negative impact on the perception of the cloud market as a whole,” said Andy Burton, founder of the Cloud Industry Forum.

Burton said that end users should be taking steps to mitigate the risk of getting stuck in this kind of situation, highlighting the importance of exit planning, which involves seeking contractual clarity and reassurance from service providers in order to understand how the service will be delivered, who is accountable and liable for which aspects of service continuity, and better understand the process and timescale to disengage and move data in a planned or forced termination.

“When it comes to procuring cloud services, caveat emptor still applies today. Whether buying direct online or via a third party it is essential that an organisation can establish confidence in the Service Providers so that they can be ultimately confident in both their expectations and their experience throughout the life of a contract, and no matter how it ends,” he added.