Storage outsourcing gains interest, but faces hurdles

Storage outsourcing gains interest, but faces hurdles

Zachary Shess

The increasing complexity of storage environments, 24x7 data access demands, and the emergence of storage area networks (SANs) are among the top reasons for companies to consider storage outsourcing, according to recent reports.

Not surprisingly, the proliferation of "dot com" companies is expect-ed to drive storage outsourcing over the next few years.

Outsourcing may be the answer for companies that have to concentrate on their core competencies and don`t have the time or expertise to decipher, procure, and configure the storage infrastructures needed to implement backup/restore, disaster recovery, continuous availability, and SANs.

According to International Data Corp., a market research firm in Framingham, MA, worldwide storage services spending topped $11.5 billion in 1997. By 2002, it`s expected to reach nearly $34 billion, a compound annual growth rate of 24%. Storage services include assessment, design, implementation, management, support and training services, as well as sub-segments such as "pure" outsourcing.

Entrants into storage outsourcing appear to be entering the market from opposite sides. For consumers and SOHO users who want a secure data repository accessible from any PC with a browser, several vendors—including Atrieva and @Backup—offer free storage space on the Web (see InfoStor, November, p. 12). @Backup and other vendors, such as Connected, also serve these smaller environments by hosting client storage at their data centers.

At the enterprise level, recent storage outsourcing announcements show two different approaches. One approach, as illustrated by StorageTek and its partnerships with Frontier Communications and Level 3, provides management and hosting of data stored on client-purchased infrastructure. Conversely, companies like StorageNetworks Inc. (SNI) tout a utilitarian storage services model, in which data storage is delivered over WANs like water through a pipe. The success of these contrasting styles will depend on clients` comfort level and financial resources. Ultimately, the goal is improved storage management.

"The expertise that it takes to make this all work is probably the most attractive advantage that these organizations have going for them," says John Webster, an analyst with Illuminata, a market research firm in Nashua, NH.

On the other hand, security concerns will stifle outsourcing acceptance in some circles, analysts say. Government and military organizations, for example, are unlikely to give up control of sensitive data to off-site third parties.

Opportunities in the growing storage services market may not exclusively fall into the laps of the storage provider. For example, telco Qwest Communications recently announced a three-year outsourcing pact with Hewlett-Packard (see InfoStor, October, p. 1). Qwest is building data centers, filled with HP hardware, to provide enterprise-level outsourcing.

Industry analysts also expect pricing and participants to become better defined in 2000. Traditional service companies, such as EDS and IBM Global Services, are expected to offer storage-specific outsourcing plans next year. As enterprise storage outsourcers continue to generate awareness—and eventually revenue—leading systems vendors are expected to follow suit.

However, a variety of issues still need to be settled before storage outsourcing revenues can reach analyst projections. For example, pricing structures are still sketchy. Most analysts expect outsourcing fees to be metered on a dollar-per-MB basis, but pricing strategies will change as more participants, such as VARs and integrators, enter the market.

Adam Couture, an analyst with market research firm Dataquest, in Lowell, MA, says end users could be sorely disappointed if they expect immediate returns. "I haven`t seen anything that tells me that end users are going to save a lot of money. If they expect to reduce costs on Day One, then it`s going to be a failure. Outsourcing savings will be cumulative," says Couture.

"There`s a lot of infrastructure that still has to be put in place," says Anil Vasudeva, president of Imex Research, in Santa Clara, CA. "I wouldn`t be surprised if it takes at least two years before storage outsourcing is profitable."

This article was originally published on December 01, 1999