Storage utilities show promise<br>But skepticism persists

By Zachary Shess and Dave Simpson

Ever-increasing storage needs, fueled by data-intensive applications and a robust e-commerce economy, will continue to pace the growth of the storage utility market, according to a number of research firms. For example, Dataquest expects the market for storage utilities, offered by storage service providers (SSPs), to grow from less than $10 million in 1999 to $8 billion in 2003.

Other research firms are some-what more conservative. Interna-tional Data Corp., for example, expects the storage outsourcing market to increase from $140 million this year to about $5 billion in 2003.

In a report released this month, Dataquest defines storage utility as "the provisioning of storage capacity for servers on a usage basis. This capacity may be delivered via a network at a user site or remotely on the Internet. An array of storage services may be delivered in conjunction with this capacity, ranging from administration services, backup, system and file recovery and restoration, archiving, data warehousing and others."

Over the next few years, Internet data centers-including co-location and hosting data centers-offering outsourcing services will comprise most of the stor-age utility market, accounting for an estimated $6 billion in 2003. In contrast, penetration into corporate data centers will be much slower, and may not exceed $1 billion until 2003.

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Co-location and hosting data centers will see the highest growth, the report says, because they serve customers with little or no storage infrastructure. In contrast, corporate data centers will be slow to give up control to outsourcers because they already have significant storage resources and expertise in place.

Beyond a strong economy and booming storage demands, Dataquest expects a growing intolerance for network disruptions and shrinking backup windows to cause companies to outsource their storage. Concerns about incomplete storage area network (SAN) standards also make storage utility providers attractive for companies that don't have the resources or expertise to implement their own storage infrastructure.

"Instead of taking a chance on the wrong technology, or wrong set of standards in building their own infrastructure, a lot of companies will look to storage utility providers to make those investments and take those chances for them," says Adam Couture, a senior analyst with Dataquest, in Lowell, MA.

Because of the small number of existing storage outsourcers, differentiation among them is difficult, but will eventually be based on how fast and effectively they can provide services beyond just raw storage capacity.

"Vendors will need to layer in capacity with incremental services such as business continuity, backup and recovery, data warehousing, and perhaps data mining as well," says Couture. "Because of this, successful storage utility providers will need to form partnerships with companies providing those services."

The market's relative infancy also means that pricing models are still being developed, but Couture anticipates a price-per-MB model, which could be measured in cents per MB.

Despite rosy revenue predictions, the storage utility model is still unproven. Most observers say the concept may appeal to cash-strapped dot-com startups, but not to Fortune 500 data centers.

"It's impractical to imagine that established data centers are going to give up control and security of their most critical asset-their data," says Richard Lee, president of Data Storage Technologies, a consulting firm in Ridgewood, NJ. However, Lee thinks that storage outsourcing may appeal to dot coms that don't have the time or expertise to build complex IT infrastructures: "Dot coms are building their business based on a process and a model, not on IT capability."

In addition to market pioneer Storage-Networks Inc. (which recently filed for an IPO), a number of systems/storage heavyweights hope to capitalize on the storage utility model. Hewlett-Packard, for example, has entered the market via partnerships with companies such as Qwest and Intira, and IBM is eyeing the storage outsourcing market with a number of pilot projects.

According to Strategic Research, in Santa Barbara, CA, there are more than two dozen vendors in the SSP arena, including AT&T, Centripetal, Creekpath, e.io Inc. (formerly e-trieva), Global Crossing, Hitachi Data Systems (HDS), HP, IAS, IBM, Qwest, Scale8, StorageTek, Storability, StorageNetworks, Usi, and WorldStor.

Strategic Research recently hosted a conference on the SSP and application services provider (ASP) markets, which underlined the blurring between SSPs, ASPs, ISPs, backup services providers (BSPs) and hosting services providers (HSPs).

Analysts expect a rash of partnership agreements. In addition to HP's partnering with Qwest, for example, StorageNetworks depends heavily on partnerships with companies such as Exodus.

Storage utility market accelerators

In a report published this month, Dataquest says it expects the storage utility market to grow dramatically over the next three years. Market accelerators include:

  • Explosive storage demand
  • Larger data-intensive applications
  • The need to handle spikes in storage demand
  • Intolerance of network disruptions
  • Shrinking backup windows
  • Lack of SAN standards

This article was originally published on May 01, 2000