Enormous capital equipment costs, shortages in experienced IT personnel, and skyrocketing storage demands are driving the move to outsourcing storage services.
BY LISA COLEMAN
Last year, storage service providers (SSPs)-companies that provide data storage capacity, services, and management-ended up with $89 million in their pockets. But the news improves: The SSP market is expected to hit $7.5 billion by 2003, according to Gartner Dataquest. With that much money on the line, it's easy to see why more and more storage companies are claiming a stake in this hot market.
Analysts are tracking more than 20 companies that offer some type of outsourced storage service or storage "utility." However, analysts differ on which and how many companies are most viable in this young market that was launched in 1998 when StorageNetworks Inc. was founded.
At the end of last year, SSP market predictions were as high as $8 billion in 2003. But Gartner Dataquest lowered that estimate to compensate for slowed growth of Internet Data Centers (IDCs), which were affected by venture capitalists pulling back funding for start-ups, according to Adam Couture, senior analyst, IT services, at Gartner Dataquest. In addition, some SSPs are entering the market and trying to offer cheaper prices than their competitors. However, analysts are bullish on the SSP concept even though some IT managers are concerned about which companies will survive.
"End users have trepidation about the SSP model. What would happen if a company went belly up? How would I get my data back?" asks Couture.
Nevertheless, as the demand for data storage doubles every year, the need for SSPs grows, too. For example, even with the economy slowing, "once you start doubling storage, managing it becomes increasingly difficult," says Couture.
Backup and recovery are the services most likely to be outsourced. Capacity and managed services also are being considered for third-party management.
One potential selling point for SSPs is the lack of IT expertise at some companies. Due to the challenge of hiring storage networking experts and the expense of building a storage infrastructure, third-party storage management sometimes becomes an easy sell. The retail and healthcare industries are leaders in using SSPs, says Couture. And the utilities, healthcare, and finance industries are most likely to consider outsourcing (see table on p. 26).
According to The Emergence of Stor-age Service Providers, a recent report by financial analyst firm Needham & Company, the proliferation of IDCs such as Exodus has helped the SSP market grow. IDCs offer a captive customer base, which is already comfortable with outsourcing some part of their IT infrastructure. Also, IDCs provide access to bandwidth and facilities. It's an easy step to access an SSP that already has an infrastructure at an IDC.
Needham's report concludes there are two overall models to storage outsourcing: off-site and on-site. Off-site models use IDCs or collocation facilities to provide data storage services for multiple customers. Customers access their data via fiber-optic connections. For the on-site model, storage architectures are designed and implemented at a customer's site. The data can be managed either at the customer's site or remotely via the Internet. With both models, the SSP is responsible for data storage, management, and availability.
"There's a huge difference between writing a check each month and hooking up at Exodus versus having all your own equipment and having an SSP come in and manage it on-site," says Glenn Hanus, a research analyst at Needham. "A customer has to define what model they are comfortable with."
Who needs SSPs?
Zoom Culture, a Chapel Hill, NC-based Internet content acquisition, distribution, and syndication company, chose an off-site SSP model. Zoom Culture expects to store more than 50,000 video files within the next two months and uses about 500GB of storage. "It's not practical for us to build up a 15-person IT department when the company's size right now is only 50 employees," says Bill Graham, vice president of technology operations at Zoom Culture. Exodus hosts Zoom's data, partnering with SSP WorldStor. "It's kind of a one-stop shop. I can call one person and get help with anything," he says.
Graham admits he never considered having his own staff manage Zoom Culture's storage needs because of the expense and bandwidth required to deliver files online. "We basically would be reinventing the wheel, and there are service providers out there that have talent pools specializing in areas like storage, security, streaming video, databases, and dynamically delivered Web content." Zoom Culture monitors its servers using managed storage services via Exodus. It uses WorldStor's services to monitor its communications closet as well as the status and performance of its network-attached storage.
On a pay-as-you-go pricing system, Zoom Culture can add more storage space quickly without powering down, says Graham. "We really haven't had any problems. Every time I call to say I need more storage space, I get a volume discount on it because we're using more space."
Cutting capital costs
Another company opting for SSPs instead of the "do-it-yourself" approach is InFlow, a Denver-based collocation provider that builds data centers and provides floor infrastructure, cabinets, power, security, and 24/7 monitoring, as well as managed services such as Internet access, firewalls, load balancing, and, most recently, data storage services. InFlow decided to use ManagedStorage and CreekPath as its SSPs.
However, the decision to use an SSP was an arduous one, says Mary Wagner, product-development manager for InFlow's StorageFlow product line. Capital outlay, time-to-market, best-of-breed equipment, and risk aversion were all considerations in the decision to use an SSP.
"There's a lot of sticker shock involved with storage," says Wagner. "The hardware and software are unbelievably expensive, and the services are expensive. Doing an analysis of whether to outsource or in-source the services is an incredibly complex task." InFlow considered both leasing and buying storage equipment-including switches, fiber, software, consulting services, and personnel to manage it. "All of that capital was enough to make us not want to do that across all of our sites," says Wagner. InFlow estimated those costs to range from $1 million to $3 million for capacities up to 5TB. The cost jumped to $30 million for 30TB.
Also, InFlow wanted to offer data storage services to its customers quickly, and the SSPs provided a way to get the services to market immediately. Because of the decision to use SSPs, InFlow didn't have to train its IT staff on new equipment and software. "Our customers demand top-notch services, and we didn't feel like we had the qualified personnel to provide all those services. We also want to provide them with 100% availability. In order to do that, we needed to rely on storage experts," Wagner explains.
Fleet Boston Financial signed up SSP pioneer StorageNetworks for data storage capacity, backup, and restoration capabilities for its fileTRUST electronic safety-deposit box offering. Because fileTRUST is not hosted at Fleet's main site in Albany, NY, the company searched for a place where it could use EMC equipment. "We knew we wanted to host our data on EMC equipment, but the equipment is very expensive," says Marcel Meth, senior vice president of Internet strategy at Fleet. After investigating different SSPs, Fleet chose StorageNetworks to provide the equipment, data lines, and storage expertise. "It was a convenient way of getting EMC storage without spending an arm and a leg," says Meth.
Fleet needed a powerful, highly scalable and secure architecture to host its fileTRUST service, which offers small businesses a collaborative storage area for important files. Using StorageNetworks' Global Data Storage Network, Fleet has a private high-speed fiber-optic network that connects Fleet to data centers and to a global operations center that monitors storage services 24/7. Meth also wanted to use an SSP because of its flexibility in quickly increasing capacity and sparing Fleet the burden of making a large investment in equipment.
Managing storage and replication
Burlington, MA-based EnMed, which provides Web-based clinical trial management and data-collection software and services, also decided to tap an SSP for its data storage, backup, restore, and remote data replication needs. The company, which helps clinical development organizations collect clinical trial data, manage the trial process, and bring products to market faster, will hit the 1TB mark by the end of this summer. EnMed never considered developing an IT department to manage its clients' storage needs. "When we started EnMed, we had about six people. We had so much to do that we really didn't want to get into the management of storage," says Ven Thangaraj, chief technology officer at EnMed. "We had a lot to worry about. Not just the storage but the archiving, reliability, and recovery-the aspects of data that are critical to our customers."
Thangaraj says EnMed did not want to build a data center and then manage its storage. The company had already enlisted Exodus as an applications service provider. "Since StorageNetworks had a straight pipe into that data center and the people at Exodus were working closely with them, we chose StorageNetworks." EnMed uses a variety of StorageNetworks' services, including DataPACS for primary data storage, BackPACS for backup-and-restore services, and SafePACS for remote data replication.
EnMed also wanted to be assured that in case of a natural disaster in the metropolitan Boston area, its data would be available at another data center out of the disaster area. Data replication is a service Exodus and StorageNetworks could provide. "One client even asked us to show how we would go through a disaster. We had to bring up a server and some data live in a specified amount of time per our standard operating procedures," says Thangaraj. "The [client] wanted to see if we could actually do what we said we could do." For example, delays in a drug's entry into the market can cost up to $2 million per day-a high price tag to attribute to inaccessible data. "These trials can last anywhere from a few months to a few years. We really wanted some kind of service that would be proactive with us," says Thangaraj.
One company presently investigating the SSP model is Thomson Financial's Broker/Fund Management Group in Boston. "I don't think I'm completely sold on the managed storage model," says Munish Agrawal, chief technology officer of Thomson Financial's Broker/Fund Management Group, which already uses Storability's consulting services and has a robust IT group. "As we grow more and more in the distributed computing world, we find that our environment is becoming increasingly complex, partly because of multiple vendors, multiple products, and multiple technologies," he adds. Finding experts in all the storage technologies and products is difficult when storage tools are very complex to implement or are not mature. "If we could find one place where we could always get the expertise associated with storage, that may be of significant value," says Agrawal.
Thomson Financial's Broker/Fund Management Group has more than 450 IT professionals and a large IT infrastructure. "We're not worried about capital outlay. We're more concerned about reliability and uptime and making sure we can provide the right level of support to our customers," says Agrawal. The company's IT department is active in product development as well as managing storage operations. However, Agrawal is interested in learning if outside IT expertise can potentially help his group bring products to market faster by freeing up valuable IT resources.
Agrawal anticipates making a decision about managed storage within the next few months and has already spent about two months investigating Storability's services and other SSPs' offerings.
Proving the SSP model
Although SSPs are winning customers for their storage management services, some enterprise IT managers are not yet ready to have their data managed by a third party. "I think the primary competition that SSPs are seeing is this missionary process of convincing IT managers, CIOs, and others to let them solve this headache for you instead of doing it yourself," says Needham & Company's Hanus.
WorldStor's chief technology officer, Steve Bishop, agrees that some IT managers are not ready to give up control of their data. "I don't think customers are ready to have their primary data storage live across town. I think there's still some security hurdles to get over, and we [the SSP industry] need to prove this model much more," says Bishop. He believes storage services end users do not question the value of the service but are more interested in how it's delivered. "The question is, 'What's the delivery mechanism, how do you get it to the customer, and how do you do it in a way that companies feel comfortable with security, performance, and availability?' "
However, some in the industry disagree. "I think we've proven the model enough. We're in the early stages of proving that a utility model is truly possible," says J. Kim Fennell, StorageWay's president and CEO.
The model seems to be working for SSP market leader StorageNetworks, which has 42 data centers and claims more than 100 customers. "The SSP model is appealing to enterprises because their staff challenges are so large," says Bruce Gordon, vice president of technical marketing for StorageNetworks. "Our goal is to help customers maximize utilization and avoid association with assets they don't need. We take the burden off managing devices," he says.
Tips on choosing an SSP
Assuming you're considering outsourcing your storage, which SSP will be the right choice? Who can be trusted with your company's data? Here are some tips offered by analysts, vendors, and SSP end users on choosing an SSP.
Dedicate time to investigate prospective vendors. SSP customers caution that finding the right vendor may take longer than expected. Look at how long the SSP has been established. The SSP market was launched in 1998, and the most established companies are two years old. Is the SSP financially stable? Some established SSPs are completing second or third rounds of financing. One analyst cautions that if an SSP hasn't been funded, it's not viable.
Prepare a list of your storage needs. "Don't let them tell you what they offer, tell them what you need," says Steve Duplessie, senior analyst at the Enterprise Storage Group.
Consider costs of managed storage vs. doing it yourself. On average, SSP customers should expect to see prices range from $25 to $50 per managed gigabyte per month (see "How much for 100GB?", p. 28). Pricing varies on the type of availability you request, bandwidth, and services, according to Duplessie. Compare the cost of the SSPs' services with the cost of buying, installing, and managing data storage equipment. Look carefully at opportunity costs: Will your resources be better spent on your core business or on managing data storage yourself?
Carefully negotiate Service Level Agreements (SLAs). Ask to review a typical SLA from the prospective SSP. Be prepared to review at least 25 pages. SLAs include standards of service, mea sures of service, and remedies for performance lapses. Make sure the SLA includes equipment upgrades, data- transfer time, and availability (SSPs offer availability from three to five 9s-99.999%). More important than data availability is the penalty for non-availability of data. Some SSPs refund part of their monthly fee if there is a performance lapse. What remedy will you require? Ask if this happened with other customers and how the SSP will respond. Incorporate a survivability clause into your SLA. What will happen if the company goes out of business? How often is your data backed up?
Review the hardware and software offered by the SSP. Are they offering the best software and hardware available for your needs? Are they supplier-neutral? Can they obtain technology from many different sources? Can you monitor your storage usage? Some SSPs such as Storage Networks have developed software that allows customers to see if the storage networks are operating at peak efficiency.
Ask about services other than just storage. Does the SSP have a test lab to ensure new hardware works before it's implemented into your storage environment? What type of security is offered for the data? Is real-time event monitoring available?
Ask for customer references and company partnerships. Call customer references. Check into partnerships. Some SSPs partner with collocation facilities and data storage hardware/software companies. How well-established are the relationships? What benefits do they provide?
Who's who in SSPs?
With more than 20 storage service providers (SSPs) in the market, there are a lot of choices. In a recent report, Needham & Company charted the SSP landscape based on targeted customer size and the SSPs' infrastructure investment. However, the chart is not attempting to analyze which relative position might be preferable, according to Glenn Hanus, research analyst at Needham.
The vertical axis in this chart refers to target customer size, which is related mostly to data storage requirements rather then revenues or total assets. Needham & Company recognizes that defining target customer size is somewhat murky, and certain SSPs may serve a broader range of customers or particular vertical markets. However, based on discussions with all of the industry participants on the chart, Needham found a delineation among SSPs based on target customer size.
The horizontal axis, or infrastructure investment, includes metrics such as presence and nature of a data storage network, the number and size of its storage points of presence or data centers, the sophistication of its network operating systems, and availability of value-added services. The chart is based on business plans for 2001.
How much for 100GB?
Price per managed gigabyte does not differ greatly among storage service providers (SSPs), say analysts. There is even some price competition from new SSP start-ups that are trying to sell storage and related services cheaper than more-established companies, says Adam Couture, senior analyst, IT services, at Dataquest.
As a benchmark, the current price per managed GB per month is $25 to $50, according to the Enterprise Storage Group. However, analysts and vendors agree that end users should look beyond this cost model when considering an SSP. Prices will increase depending on services such as backup and monitoring. A few SSPs report the cost range to be $30 to $60 per managed GB per month. Other SSPs do not follow the $/GB model and price per managed service.
StorageNetworks offers a pay-as-you-go pricing model per managed GB or TB.
A "managed" GB from an SSP will cost more than a raw GB of storage bought from a storage device manufacturer, according to Bruce Gordon, vice president of technical marketing at StorageNetworks. "It's going to cost more because there are people, process, engineering efforts, power, and space. However, the cost of our service level as part of our overall environment compared to trying to get the same thing yourself will cost less," says Gordon. He cautions that price comparisons should be based on a level of service and not strictly cost per managed GB.
ManagedStorage International (MSI) offers storage in the $25 to $50 range and beyond, depending on the services or if unique high-performance array technology is needed. However, SSP customers are looking for service, according to Bill Johnson, chief technology officer and chief operating officer at MSI.
WorldStor offers prices between $30 and $60/managed GB/month. For higher capacities such as 5TB, end users receive volume discounts. "I think an end user would be ill-served using cost/GB as the only measuring stick of who they'll go to as an SSP. For that to work, you have to look at an apples-to-apples comparison of commodity product," says Steve Bishop, chief technology officer at WorldStor.
Storage Service Providers
Arsenal Digital Solutions- www.arsenaldigital.com
CreekPath Systems- www.creekpath.com
Scale Eight- www.s8.com
Storage Access- www.storageaccess.com
Storage Alliance- www.storagealliance.com
Sources: InfoStor, Gartner DataQuest, and Needham & Company
Overall plans for storage outsourcing by industry are indicated. Industries most likely to adopt storage outsourcing are utilities and healthcare.