Amazon is probably the biggest name in the emerging online storage market, but new competition is coming from a startup called Nirvanix that built a storage service to accommodate vast increases in digital media content fueled by the growing popularity of Web 2.0 applications.

Nirvanix was founded one year ago and made its Storage Delivery Service generally available in October.

"The box model is dead," claims founder and CEO Patrick Harr. Harr admits that storage giants like EMC still make a good buck, but he predicts that customers will increasingly see there's little competitive advantage to operating storage in-house when you can do it "in the cloud."

Nirvanix is backed by Intel's capital investment arm and several other venture capital firms.

"Nirvanix has clearly targeted Amazon's S3 [Simple Storage Service] for competition," analyst Deni Connor, a former Network World writer who recently started the analyst firm Storage Strategies NOW, writes in an e-mail. "Both companies focus on developers and businesses at procuring secure storage for their Web applications and content. Whether Nirvanix will be able to compete with Amazon's S3 remains to be seen, but Storage 2.0 Web companies like Nirvanix stand a real chance in the industry of doing something great -- providing scalable and secure storage without the capital expense of buying it."

Intel Capital has invested an undisclosed sum in Nirvanix, which has received at least US$14.5 million in funding from firms such as Mission Ventures, Valhalla Partners and Windward Ventures.

Harr says Nirvanix is targeting a few types of customers, including operators of Web 2.0 applications, businesses looking for data backup, and content publishers or heavy users of content. Nirvanix has about 150 business customers, both small and large, he says, 10 of which are named on the company's Web site.

The startup is building out six storage nodes in co-location facilities, one each on the East and West coasts of America, and four more in Europe and Asia. Customer data can be moved among the sites to ensure information is stored close to where it is used, Harr says.

Nirvanix charges 18 cents per gigabyte of storage each month, more than the 15 cents charged by Amazon. Harr says Nirvanix is cheaper than Amazon for about half of his customers, because of additional Amazon charges associated with looking up data. Where Nirvanix tries to differentiate itself, he says, is in offering extra services like e-mail and phone support, enhanced search capabilities, user account management that helps monitor and control multi-user applications, and maximum file sizes of 256 gigabytes -- compared to five gigabytes with Amazon.

Amazon's Web site says S3 is "intentionally built with a minimal feature set."

While Amazon has a big head start over Nirvanix, having launched S3 almost two years ago, "it's early enough that there's room for competition," says Doug Chandler, an IDC research director.

There's tremendous growth in the amount of data companies need to store, and Web 2.0 functionality like blogs and video sites potentially make Nirvanix an attractive option for customers, Chandler says.

"Online storage in general is going to be very big," he says.

Connor says there is a big need for online storage, particularly "for companies that lack dedicated IT staff or ... don't want to manage the backup process themselves."

Amazon and Nirvanix are not to be confused with storage service providers that offer backup and data protection services, Connor adds. EMC and IBM are getting into the backup and data protection area, she says, pointing to EMC's acquisition of online backup provider Mozy and IBM's purchase of Arsenal Digital.