By Hailey Lynne McKeefry
To manage an enterprise IS shop, you need the dexterity of a juggler, the balance of an aerialist, and the courage of a lion tamer. It also doesn't hurt to have the wisdom of Solomon. Supporting corporate users and the applications and data they rely on often requires nimble technical decision-making. Often, when a critical need arises, one of the key decisions is whether to build up your in-house capability or opt for an outsourced solution.
Until recently, outsourcing data storage was a novel idea at best and most often was considered only as a disaster recovery option. But given the unbridled growth of corporate data, most IT managers will be mulling over their options for effective data storage solutions. The good news is that a new service category has emerged to help meet spiraling data storage needs. Storage service providers (SSPs) offer companies a chance to pay a monthly fee based on the amount of storage that they actually use.
New service has growth potential
SSPs provide storage capacity on a utility-like basis for client companies that want to eliminate or at least greatly reduce the cost and time associated with the day-to-day management of data storage. Although still in its infancy, the storage service business promises to take off. The Enterprise Storage Group, a market research firm in Milford, MA, estimates that the SSP market reached $250 million in 2000 and expects an even more dramatic increase to $1.2 billion by the end of 2001. The research firm further predicts an exponential growth rate that will help SSPs reap $11.2 billion in revenues by the end of 2004.
According to Enterprise Storage Group's Steve Duplessie, five private companies and one public firm in the SSP arena bear watching. StorageNetworks is the leader and the "only pure SSP player in the market today." The others include Arsenal Digital, StorageWay, WorldStor, ManagedStorage International, and Storability (public). All of them focus on usage-based pricing, scalability, and service as their key selling points and have set their sights on Internet-based companies as the target markets for the lion's share of their business. While the names of these companies aren't likely to be household words, some more familiar companies, like IBM and Compaq, are also testing the SSP waters.
An open field with plenty of players
StorageNetworks' early start and willingness to pay for technical talent and infrastructure have helped the company take the lead among its rivals. But in a burgeoning market with plenty of competition, it's still very much a horse race.
Among the other SSPs, Arsenal Digital employs a model similar to StorageNetworks, with a storage-utility approach in which it provides always-available, fully managed, scalable storage services. Arsenal Digital's customers are charged on a cost-per-gigabyte basis. The company, based in Raleigh, NC, was founded in August 1998 and currently offers its services in North America. It serves a similar customer base as StorageNetworks, focusing on hosting service providers, including Internet data centers (IDCs), Internet service providers (ISPs), and application service providers (ASPs). It also targets original equipment manufacturers (OEMs), which include hardware suppliers, software providers, telecommunications companies, complementary service providers, and system integrators.
StorageWay, a relative newcomer to the SSP space, introduced its first services in 2000 and received $36 million in venture capital funding. The Fremont, CA, company focuses solely on serving Internet businesses. StorageWay touts its Organic Storage Model (OSM), which provides scalable storage, usage-based pricing, and guaranteed service levels.
Another SSP rookie, Storability of Southborough, MA, provides data storage on a pay-per-service basis. Storability will purchase storage hardware and software, install it at a customer's location, and then manage the configuration remotely. This twist on the SSP model keeps the client company's data on its own site, thus reducing security concerns.
WorldStor offers storage on a GB-per-month basis with round-the-clock operations monitoring. Based in Fairfax, VA, the company offers a selection of on-demand storage options.
Created by network data storage vendor StorageTek in 1999, ManagedStorage International (MSI) provides storage on demand, server and PC backups, and data management services. Also employing an on-demand business model, MSI will host a customer's data or manage storage at a customer's site or an Internet data center.
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Leader of the SSP pack
StorageNetworks has developed a viable model for providing storage utility services and is beginning to cash in on the huge opportunity in the marketplace. "Data growth rates, even for the large enterprises, are doubling every year, and that's a lot of data to manage, a lot of infrastructure to integrate, and a lot of servers and connectivity to oversee," said Bill Brodnitzki, the company's director of services marketing.
The Waltham, MA, company's direct sales force has inked more than 300 professional service agreements with more than 90 customers. StorageNetworks has a number of defining characteristics, not the least of which is being among the first to the market. "They've been at it longer than anyone else and have been able to garner more talent than anyone else," said Duplessie. "They have the longest-range eyeballs in the business. They see where technologies are moving, and they aren't just waiting for stuff to happen."
The company also puts a lot of focus on helping define and propagate storage technologies industrywide. "They have been marvelous evangelists of the storage utility concept. [They have] gone to trade shows, industry briefings, and conferences all beating the storage utility drum and shaking the storage utility tambourine," said Adam Couture, senior analyst, IT Services at Dataquest, a market research firm.
StorageNetworks' biggest opportunities have been with dot-com start-ups. Dataquest estimates that Internet data centers spent $7 million on outsourced storage in 1999, but by 2000, that figure had soared to $109 million. Corporate data centers are also buying outsourced storage but not at the same levels, the firm says, putting the figures at $3 million in 1999 and $6 million in 2000. According to Dataquest, the market's outlook is rosy, with Internet data centers spending $5.3 billion for outsourced storage by 2003, and corporate data centers chipping in another $1.9 billion.
Some of the company's biggest successes have been achieved with its high-technology clients. Enmed, a company that creates Internet-based clinical trial tools, teamed up with StorageNetworks in February 2001. "We started looking into storage providers because early on, we were facing the reality that we would have to support storage needs for our clients who didn't know how they would grow," said Venkatesan Thangaraj, chief technology officer at Enmed, in Burlington, MA. Enmed's flagship offering, Acceliant Clinical Trial Solution, is an ASP solution designed to reduce the time, risk, and cost of clinical trials. Thangaraj estimates that the outsourced model will cost more initially than the company would have spent setting up a data center itself, but over time, the benefits of the outsourced solution will outweigh the initial cost hit.
Xdrive of Santa Monica, CA, signed with StorageNetworks in March. The company provides enterprise and individual customers with online access to their files and needed a service provider that would allow it to scale its client companies quickly. "When we looked at the growth of our business, our ability to scale at the back end was fine, but when we started looking at how to scale for 20 or 25 million users, it was a whole different thing," said Keith Pinter, Xdrive's executive vice president of business services. "We wanted someone who would go out and select best-of-breed hardware and then manage it for us."
Both market research firms and SSPs say that just about every business sector can benefit from outsourcing storage. However, some vertical sectors of the high-tech market seem particularly well suited for outsourced storage; these include ASPs, manufacturers, financial firms, and government agencies. All of these segments generate or host huge amounts of data, and many would like to reduce their data storage efforts to focus more keenly on their core competencies.
It's all in the infrastructure
Part of StorageNetworks' success to date can be attributed to its efforts to create a global presence—a prerequisite if an SSP wants to be considered by large corporate customers or Internet-based start-ups that foresee rapid growth and global market penetration. The company currently has 15 locations in the United States and two in Europe (London and Frankfurt). "We started in the U.S. and have found the European market acceptance for new business models is a little bit behind the U.S.," said Brodnitzki.
StorageNetworks has invested heavily to build infrastructure, especially by subleasing (or re-leasing) installed but unused fibre-optic cabling—referred to as dark fibre by the trade. The aim is to weave the dark fibre into grids that would allow the company to fully control its own access to customers. One grid is already in place in New York, and others are being built in Washington, D.C., Chicago, the Silicon Valley, and London. While the expense of creating its own infrastructure makes StorageNetworks' cost model considerably higher than the competition's, the approach also serves as a strong selling point in some cases.
But while dark fibre re-leasing may give StorageNetworks a leg up on the competition now, down the road, it could prove to be a stumbling block. "They've invested a lot in dark fibre re-leases, which they are calling the Global Services Delivery Network," Couture said. "I can't say whether that is good or bad. If they are, in the long term, locked into dark fibre re-leases and then other technologies come to cancel them out, it will cancel the bandwidth advantage that it has provided them and they are left stuck with high-cost leases."
Alliances and acceptance
StorageNetworks has also forged a number of alliances with leading hosting providers, such as Exodus, AT&T, and Equinox, and with leading technology companies, such as Sun, Dell, Legato, and Veritas.
The biggest challenge that StorageNetworks and its competitors will face is getting corporations to accept this relatively new way of handling storage. Enterprise Storage Group's Duplessie pointed out, "It's a whole new paradigm, so it's getting end users to buy in—and once they do, it completely changes how this business operates. The biggest challenge is how to get the customer base to be adopters, and get off the fence and do it en masse. They don't need to worry about individual competitors, but rather about customers and how to move them to their own customer base."
Hailey Lynne McKeefry is a freelance technical writer based in Belmont, CA.
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