Last week in my analysis of online storage sector, How to standout in the sea of storage startups, I pointed out that many startups were having a tough time convincing folks to upgrade from free to paying services. That post got many reactions, including a comment from Raghu Kulkarni, founder and CEO of Pro Softnet, a Woodland Hills Calif.-based company.

His company runs two online storage services, IDrive and IBackup. While IDrive is a more consumer-focused backup service, while IBackup caters to the enterprise crowd, because of its additional capabilities. Think of them as Mozy and Mozy pro, says Kulkarni, who claims that his self-funded (bootstrapped) outfit is growing almost 50 percent every year.

Revenues for 2008 are projected to be $12 million, up from $8.3 million in 2007 and $5.4 million in 2006. The company has been profitable for three years now, but Kulkarni declined to share profits data. At present, the revenues are split 70/30 in favor of IBackup, but he is betting this is going to change soon. “The conversion rate for free to paid for IDrive is about 15%,” he wrote to me in a subsequent email exchange. “Early 2007, we had to create a version of IBackup to compete in the low priced segment, hence the IDrive product offering.” The company has about 250,000 users and stores many petabytes of data, Kulkarni says.

Wow…this came as a complete and total surprise. VMware has announced that Diane Greene, president and CEO of the hot virtualization company is leaving and will be replaced by Paul Maritz, whose company, Pi Corp., was acquired by EMC Corp. back in February. I am flummoxed by this move since VMware has been on an upswing and despite increased competition, has been pretty bullish about the future.

Greene didn’t give any hint to her departure when I met her at a recent tech gathering. More importantly, when I was hanging out with VMware co-founder (and Greene’s spouse) Mendel Rosenblum at our Structure 08 conference, he pointed to rosy skies ahead. At the bottom of the press release announcing her departure, however, is information indicating that the company might be facing a rough 2008, which explains the sudden change in management.

VMware expects to announce earnings for the quarter ended June 30, 2008 as scheduled on July 22, 2008 at 2pm PDT. On that call Paul will make observations about the second half of 2008. While VMware is not updating guidance for Q2, we expect revenues for the full year of 2008 will be modestly below the previous guidance of 50% growth over 2007.

The markets aren’t too happy — the stock has tanked more than 30 percent already to as low as $36.51 a share. Shares of EMC are taking a pounding as well, falling as much as 13 percent to change hands for $13.18.

I think something big is going on — no CEO and co-founder just up and quits the company. The numbers might be worse than they seem. Did Greene pay the price for the missed numbers or is there something else going on? 

I couldn’t help but notice the fact that Joe Tucci, chairman of VMware’s board and CEO of EMC, was all over the press release announcing Greene’s departure, with not so much as a word from her, Mendel or any of the VMware co-founders. Of course, the fact that Diana’s replacement, Maritz, works for EMC only adds to the mystery.

By way of background, Maritz retired from Microsoft in 2000 and in 2003 started Pi Corp., a software startup focused on building cloud-based solutions for new ways of doing personal information management. Pi Corp. was acquired by EMC last February, and Maritz became president of EMC’s cloud division. Greene and her four co-founders launched VMware back in 1998. The road leading up to the company’s blockbuster IPO and subsequent stock market darling status was a long one.

Update from Stacey: Greene’s departure is likely more politically than financially motivated, according to sources in the virtualization community. They point to friction between Greene and her bosses at EMC, as well as EMC’s worries about Greene as the CEO of a publicly traded company as the reasons behind her departure. Most people suspect we’ll see her at the helm of another startup within a few months. VCs will certainly be calling her — if not today, then tomorrow.

For a look at how open source figures into the story, check out OStatic.

From the company that spent $4.1 billion buying a tape company comes some cutting-edge storage news: Sun Microsystems said today that it will put solid-state Flash drives into a line of servers and other storage products, making access to stored data faster and more energy efficient. EMC made a similar announcement earlier this year.

The big vendors aren’t alone in their focus on speed. We’ve covered startups in the past whose entire existence is based on figuring out how to get to existing data faster, either through appliances or compression. With users storing more data and expecting continual access to that data, storage is no longer just about cramming as many bits and bytes in an archive as possible; it’s also about getting to them faster.

Flash, however, is a rather expensive way of solving the problem. Prices should drop as larger solid-state drives using Flash begin appearing in more consumer devices such as laptops, and the use of SSDs in the server world will only help prices fall, but it won’t be mainstream in the data center within the next year or two. Even as Flash gains ground, it will still be just one aspect of storage, for years — if not decades — to come.

While it may make sense for some companies to buy servers integrated with Flash, existing technologies will continue to flourish. Even tape is still in use today.

If this story interests you then you should definitely check out our upcoming conference, Structure 08.