Faster, Cheaper, Better? SSPs Try to Make Market Inroads
by Alan Earls
TidalWire
September 17, 2001
Storage doesn't come cheap. The convergence of two trends, growth in stored data and outsourcing of business applications has propelled the growth of an alternative approach to building storage capacity -- the Storage Service Provider (SSP) -- according to a new study, Storage Service Providers: More Storage, Less Stress by Cahners In-Stat Group, Scottsdale, AZ. As a result, revenue for North American based SSPs will have an estimated compound annual growth rate (CAGR) of 100% between 2000 and 2005 with the majority of these revenues coming from storage services.
Businesses have seen explosive growth in the amount of data they need to store over the last decade. "Storage has always been a part of the enterprise IT environment, however, it was just during the last 18 to 24 months that businesses started to consider services, instead of products, for their storage solutions," says Daryl Schoolar, senior analyst with In-Stat's ISP Strategies Service. "While storage as a service is not an entirely new concept, SSPs have taken storage to the next level by making it a totally separate service." The SSP market is still in the early days of its development as businesses are just starting to be exposed to the benefits of its service. As the market continues to take shape, SSPs will likely continue to create strategies to try to serve the customer and meet the challenges that they currently face, the study says. In-Stat predicts that SSPs that can overcome these challenges will profit from a market on the cusp of becoming a multi-billion dollar a year service.
Attracted to this opportunity, there are numbers of start-ups in the field includeing as StorageNetworks, StorageWay, Centripetal, WorldStor, Intira, Vixel, 3Pardata, Desana Systems and Yotta Yotta.
But it's not all startups in the SSP space. Take, as an example, Compaq which last year announced its Private Storage Utility. The Compaq Private Storage Utility consists of a broad range of services including professional consulting to help customers assess and design their storage utility, as well as installation, configuration, start-up, capacity, utilization and capacity reporting, storage management, and warranty support. Customers can also purchase several optional services: backup/restore management service, enhanced response service, guaranteeing a two-hour service response time, data migration service, availability review service, a customer service that provides an in-depth analysis of the customer's entire IT environment, and even a business continuity service.
Another big company player to enter the storage market is Qwest Communications International Inc., the broadband Internet communications company. Earlier this year, the company announced its Qwest Storage Services -- expansions of the company's portfolio of Web hosting and managed services.
Qwest has deployed technology from Hitachi Data Systems and EMC to deliver this storage solution at a a claimed 99.999 percent guaranteed SLA (service level agreement). Data storage solutions are tailored to each customer?s specific storage needs and can be used with any of Qwest?s dedicated hosting offerings. According to the company, Qwest?s storage services are invoiced on a flexible pay-per-use basis, have multiple uptime SLAs and are delivered through a Storage Area Network (SAN), using a fully redundant switch fabric. Qwest also offers dedicated storage options for businesses that elect to purchase and install their own storage hardware from a list of equipment Qwest manages on their behalf.
Nothwithstanding the flood of interest in providing SSP services from these giants and others, In-Stat warns that growth will not continue unchallenged, as providers will be forced to deal with new market financial pressures and customer concerns.
Indeed, while StorageNetworks can boast of having recently attracted high profile customers such as Cisco, Enron, Martha Stewart, American Greetings and Saksdirect, the Saks Fifth Avenue online initiative, the company also reported a net loss of $32.2 million, or $0.33 per share, compared with a loss of $32.9 million, or $0.34 per share, for the first quarter of 2001.
That financial uncertainty underlines the issues SSPs still face in the marketplace -- and, by implication, points to the concerns end user organizations must address in order to consider adopting an SSP approach.
Tony Prigmore, an analyst with Enterprise Storage Group, Inc., Milford, Mass., says end users need to ask whether they have a better chance of getting efficient management and lower total-cost-of-ownership by hiring and training their own teams or by outsourcing. "That is the fundamental calculus," says Prigmore. Within that choice, however, SSP's can offer a sometimes bewildering range of business models. Mostly, says Prigmore, the SSP offerings have shifted over the last 12-18 months from offering primary storage --offsite -- to current offerings that more often target only backup and recovery.
"Backup and recovery is a long-standing process that has often been poorly handled in the enterprise, partly due to rapid growth but also due to other factors as well," says Prigmore. "It is an area where customers feel pain," he adds. That pain, may translate into gain for SSPs, he said but only if they can convince skeptical customers not simply that they have the know how -- and that they can be cost-effective alternatives to home grown solutions -- but also by offering a convincing case for their own viability.
Daryl Schoolar, at In-Stat says customers need to take a long hard look at what SSPs are offering, at the "fine print" of contractual language, and at signs the particular SSP is actual viable.
"First, you've got to think about who owns the data," he urges. For example, he notes, if a customer and an SSP get in a billing dispute, who owns and controls the information is of critical importance as is continued access. "If the model is a phone company, then an SSP might simply choose to cut off service," he noted.
Similarly, says Schoolar, it is important to know what would happen if the SSP were acquired, changed ownership, or went out of business.
"There are certainly some gray clouds over all of this -- the small print needs to be carefully examined," adds Schoolar. And, he says, frequent changes in business models and types of service are a "red flag" that should suggest even closer scrutiny.
Perhaps mindful of the FUD (fear, uncertainty, and doubt) that may slow customer acceptance of their services, Prigmore notes that some SSPs are now primarily emphasize their willingness to provide some kinds of storage management services. Under these arrangements, the customer may retain ownership of the hardware -- and the data -- whether it is on site or elsewhere. And SSPs sell primarily their hard-won expertise. For SSPs, he notes, achieving "traction" in the market may depend on this kind of flexibility. Ultimately, says Prigmore, "SSPs need to win enterprise customers as they continue to run from the dot-coms."
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