The last–and first–SSP calls it quits

Posted on September 01, 2003

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By Lisa Coleman

StorageNetworks, which pioneered the ill-fated storage service provider (SSP) market, recently succumbed when its board of directors approved a plan to liquidate the company after failing to find a buyer after an extensive search.

StorageNetworks was the first pure-play SSP advocating the storage-as-a-utility model. In 2000, industry analysts predicted that the SSP market would grow rapidly from $10 million in 1999 to $8 billion in 2003.

But the market never materialized, dot.com businesses failed, and SSPs changed their business models drastically to shed the SSP label.

"One of the profound ironies of the SPP market is that the storage-as-a-utility model is more promising today than when Storage-

Networks initially brought the concept to market," says Adam Couture, a senior analyst at the Gartner IT consulting firm.

Today, users are more accepting of the pay-as-you-grow utility model, says Couture. Vendors such as Hewlett-Packard, IBM, and Sun all have "on-demand computing" programs that tout the advantages of shared resources, including storage that is provisioned, managed, and paid for on-demand.

There were several factors contributing to StorageNetworks' demise, according to Couture. First, the company changed its model at least five times, leaving potential customers confused. Second, it set its price-per-gigabyte too high and, third, the dot.com bubble burst. (Dot.coms were seen as the mostly likely candidates for SSP services.)

"Perhaps ex-StorageNetworks' employees can take some solace in the growing market acceptance of the concept they originally brought to market," says Couture.

While customers today seem willing to pay for on-demand storage, it is not enough to resurrect the SSP market, according to Couture. However, a few companies survived the SSP fallout by offering managed backup-and-recovery services. For example, Arsenal Digital Solutions, in Cary, NC, now has about 800 customers and recently announced that it is offering Storage-Networks' customers a migration path.

The original SSP concept was formed in August 1998 when former EMC director of sales Peter Bell and William Miller founded StorageNetworks.

The original go-to-market strategy included building their own storage data centers around the US. The centers consisted of enterprise storage systems and tape libraries connected directly to customer sites via virtual private networks or local Fibre Channel connections.

The concept proved attractive to investors, who backed StorageNetworks with more than $205 million in venture capital. To fine-tune its SSP strategy, the company also offered storage-on-demand at Internet data centers and then eventually moved to storage-on-demand at corporate data centers.

In the summer of 2000, during the peak of the dot.com wave, StorageNetworks was riding high. During its IPO, the stock price hit a high of $102, raising about $243 million to bolster the company's value to $7.96 billion. The successful IPO ushered dozens of SSPs into the market.

After the original SSP model failed, StorageNetworks eventually shifted from its service business to focus on providing storage management software. "Getting out of the service business before they had an alternative revenue stream was the death knell for StorageNetworks," says Couture.

The company even considered entering the storage resource management market, but it did not want to incur the "significant cash burn rate" required to support development costs and perform compatibility testing, according to the company's last press release.


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