Silicon Valley startup ConteXtream (yes, the company name spelling is that silly!)  announced yesterday that it landed $14 million in Series B funding to go after a big problem in global networks: Virtualizing the management of broadband applications and content through data centers.

Here's the big picture: As the use of content and bandwidth-intensive applications such as movies, photos, social networking, and games explodes on mobile and wireline networks, service providers are having major headaches managing the bandwidth as well as allocating resources in the data centers to serve these applicatoins. ConteXtream's product, a software solution that loads on commodity PC hardware, adds "smarts" to the network delivery of these applications, allowing service providers to manage the resources on their data centers as a single virtualized "grid."

Yes, that's right -- it's another virtualization product! Yes, there are reasons to be skeptical of yet another "cloud-virtualized" hype story, but ConteXtream appears to be on the right track for two major reasons: 1) Its product runs on PC servers, so it can be added to a network at relatively low cost and doesn't require high-end expensive networking solutions such as routers 2) It has already generated significant interest from several larges service providers who are testing the product.

Two large service providers I have confirmed are actively testing the product include Comcast and Verizon, who also happen to be investors in the company. One source told me that "Verizon is very excited about this." The service providers think they can more efficiently deliever applications by useing the ConteXtream product to more efficiently manage their data center resources and give subscribers a better network experience.

"It's an incredible group of people, and the problem they are trying to solve is what a lot of service providers are looking for," says Eve Griliches, a managing partner at ACG Research who has been tracking the company for some time.

Griliches points out that the technology could be acquisition bait for a networking company such as F5 Networks, Juniper Networks, or Cisco Systems, especially if the service providers conclude that using a PC server approach to virtualize application delivery is more cost effective than integrating that functionality with traditional networking gear, which could be more complex and expensive. Apparently some of ConteXtstream's potential customers are weighing the same approach.

Thye ConteXtream Service Delivery Grid (SDG) is expected to be commercially deployed in the first half of 2011. The $14 million in Series B financing brings the company’s total financing to $29 million. Lead investor Comcast Interactive Capital was joined by Verizon Investments Inc. (assisted by Verizon Ventures) as well as all existing investors Benhamou Global Ventures, Gemini Israel Funds, Norwest Venture Partners and Sofinnova Ventures.