A look at what's driving storage service provider (SSP) market growth, and trends for the future.
BY PAT CURRAN AND BRYCE YOUNGREN
Salomon Smith Barney predicts the storage service provider (SSP) industry will have revenues of more than $8 billion in 2003 and will account for 25% of the market for storage products. Also, International Data Corp. predicts the market for storage "utilities" will reach $5.5 billion in 2003. So what's driving the need for these services?
It's no surprise that in today's market, companies are experiencing data overload. The onset of the Internet and the explosive amount of voice, video, and data can choke even the largest IT staffs. There is a growing call for outsourcing not just data housing, but also services that provide storage management.
In addition to the need for outsourcing, three key factors helped to produce the emergence of SSPs. First, the development of storage networking technologies allows many servers to be connected to the same storage device. In contrast, with direct-attached storage, storage devices could only be attached to a single server, which inhibits scalability.
According to a survey of IT managers, backup/recovery is the most likely storage service to be outsourced.
Simultaneous with these developments, the creation of large Internet data centers (IDCs) puts a tremendous amount of servers and computing power under one roof. Today's IDCs can range from 100,000 sq ft to 1 million sq ft and hold thousands of servers while providing services to hundreds of customers.
With all of these servers in one place, SSPs can spread their costs over many customers. In some cases, customers have already outsourced their servers, bandwidth, caching, and/or network monitoring to the data center provider, so outsourcing their storage needs is the next logical step.
The third and most recent change has resulted from dramatic declines in bandwidth prices. Blue Stone Capital recently projected that bandwidth prices will drop 25% to 30% in 2001 on domestic routes in the top 30 cities, after dropping 15% to 20% in the second half of 2000. For example, OC-3 that sold for $9,800 per month in December 2000 could sell for $7,400 per month in December 2001. These lower prices make it economically feasible for SSPs to place large storage repositories in major metropolitan markets, allowing users to access them over leased lines.
Prime targets for SSPs
Most data-intensive industries can potentially benefit from SSPs. Most companies fall under two categories: those requiring 24x7 storage uptime and those with temporary spikes in their storage needs.
Companies that are constantly outgrowing storage needs and cannot catch up with the growing amount of information-yet require 24x7 storage uptime-include data-intensive Internet companies and e-commerce businesses. Other examples are financial services, insurance, and marketing companies, and any company with large databases.
SSPs may also be attractive to companies that experience large temporary spikes in storage usage, because SSPs require those users to pay for storage only during the short period it is used. Examples could include
- Oil companies that accumulate large amounts of seismic data;
- Film producers that shoot large amounts of footage; and
- Retailers that collect large amounts of sales information.
How SSPs help
As IT quickly becomes a core competitive factor in many industries, the ability to efficiently manage and protect large storage volumes is becoming increasingly important. SSPs allow storage users to scale their storage needs on demand, to virtually limitless levels. This represents a solution for companies that find it difficult to obtain storage and hire new personnel as quickly as their storage needs expand. A survey of IT professionals at the Storage Networking World conference showed that 85% are experiencing a storage staffing problem.
SSPs offer users a high degree of reliability through their large staffs of storage professionals. Because of their size and scale, SSPs are able to take advantage of the latest storage technologies that are either too expensive or too complex for most users to implement. From multiple locations, SSPs can offer an added level of security and reliability by providing backup and mirroring services to different geographic IDCs. Many SSPs have also developed monitoring software to provide customers several key capabilities, including the ability to monitor their storage environment around the clock without a large dedicated staff, comprehensive reporting and analysis of the storage environment, and measurement of reliability statistics.
SSPs can potentially offer cost savings in addition to improved service and reliability. Goldman Sachs estimates that the average cost to manage primary disk storage in-house is $140 per gigabyte per month. In contrast, SSPs offer storage area network (SAN)-based disk storage for rates starting at $40 per gigabyte per month. Also, SSPs allow users to procure storage without large up-front capital costs.
As outsourcing becomes more accepted, variations in service provider models and offerings will surface. One likely possibility is the convergence of application service providers (ASPs) and SSPs, where ASPs that have built enough volume in particular market segments might host applications and storage.
Further down the road, SSPs may even host applications, but for now, partnerships between ASPs and SSPs are the norm. An example might be an SSP partnering with a vertical ASP that hosts data-intensive applications such as customer relationship management (CRM) and other business intelligence software.
Vertical specialization is another trend that may occur in the SSP industry. In the healthcare industry, for example, medical imaging produces large amounts of storage. SSPs are expected to forge partnerships with such companies to integrate storage outsourcing with the sale of imaging systems.
Storage exchanges will help to produce an open market for the sale and purchase of storage capacity. Enron Broadband Services recently announced the creation of such an exchange (see InfoStor, March 2001, p. 18).
Storage capacity will be connected to Enron's pooling points and dynamically provisioned to a number of producers and consumers, creating the physical capability to deliver data storage capacity. Pooling points, such as the ones created by Enron in more than 20 cities worldwide, provide an interconnection and switching platform for enabling and monitoring bandwidth and storage transactions between buyers and sellers.
Some new trends in SSP offerings are starting to crop up as well. Most SSPs have expended significant resources developing "storage dashboards"-a Web-enabled front-end that allows companies to cull detailed reports and monitor SLAs. SSPs are exploring the possibility of licensing and operating these systems for companies that want to own their storage devices but need help managing their often large and disparate storage environments.
Undoubtedly, there will be consolidation in the SSP market. For example, large telecommunications carriers have ex-pressed an interest in SSPs as a value-added service for their data-center customers and because of the large amounts of bandwidth used by SSPs. Furthermore, traditional outsourcers like EDS and Computer Sciences Corp. will likely be interested in SSPs as a platform to expand their IT solutions offerings.
Like most outsourcing opportunities, SSPs may be a good investment for companies looking to focus on core competencies, better return on investments, and faster time to market-while saving on capital infrastructure and IT staffing costs.
Pat Curran is the chairman of ManagedStorage International and a partner at Great Hill Partners. Bryce Youngren is a senior associate at Great Hill Partners and a former member of the board of directors at ManagedStorage International (www.managedstorage.com) in Broomfield, CO.
Two industry profiles using SSPs
In order for SSPs to achieve their strong growth projections, they will need to help expand the market for electronic storage. Two industries that show particular opportunity are healthcare and movie production.
According to a study by the School of Information Management and Systems (SIMS) at the University of California at Berkeley, approximately 2 billion radiographs-including X-rays, mammograms, and CT scans-are taken around the world each year. When X-ray films are converted to digital format, it is critical that no important clinical information be lost. The University of Pittsburgh Clinical Multimedia Laboratory suggests that an average conversion of a chest
X-ray to digital storage with loss-less compression requires 8MB. To store all the world's X-rays would require 17 petabytes each year.
Because storage is not a core competency for most healthcare institutions, this is an overwhelming organizational challenge, and many institutions find it difficult to scale fast enough to meet these demands. At the same time, many of the country's healthcare institutions are working aggressively to implement PACS (picture archive and communication systems) that allow for sharing of images among different hospital departments and help manage version control when doctors add notes or alter images. SSPs are beginning to offer systems to help healthcare institutions manage this influx of data.
By offering PACS as part of their outsourced solution, SSPs can alleviate the often complicated and difficult transition required of healthcare providers wishing to adopt PACS technology. This complexity generally stems from the fact that many healthcare institutions have installed different and incompatible systems. SSPs guarantee that these institutions will not see the common problem of having their storage systems fill to capacity.
Healthcare institutions are also attracted to SSP advantages such as the elimination of up-front costs and more-predictable storage expenditures.
Similar dynamics exist in the motion-picture industry. According to the SIMS study, it takes approximately 2GB to store one hour of motion-picture images in digital form using the MPEG-2 compression standard. These movies are copied approximately 1,000 times on average.
This is a massive amount of storage for film companies to manage, whose core competency does not lie in storage. In addition to the previously mentioned benefits, SSPs can be beneficial to film production houses because they help manage the spikes in storage necessary during film production. A movie production studio may produce more than 50 times the amount of film footage it needs for the actual movie during production. Once filming is completed, this extra footage is eliminated during editing. SSPs offer film producers the ability to purchase the extra storage they need during filming for only a limited period of time.
How to choose an SSP
Decision-makers should consider the following questions when selecting an SSP:
- Does the service provider have ample financial backing?
- Who are the corporate partners?
- What types of service level agreements (SLAs) are available?