Is the enterprise ready to entrust vital corporate data to storage service providers?
That is a billion-dollar question for the ever-growing number of SSPs, which are banking on the idea corporations will find it easier to manage growing mountains of data by, in effect, renting storage capacity from service providers.
The SSP industry burst onto the scene over the past two years, driven by a surge in e-commerce and the dot-com strategy of rapidly deploying IT infrastructure through outsourcing.
IDC estimates that the storage utility, or SSP, market grew domestically to $139 million this year from a mere $11 million in 1999. That's still small potatoes. But IDC says the market could mushroom to $5.6 billion by 2004,a beef stew, by any standard.
That is one reason why a few dozen companies, among them spin-offs from storage integrators or venture-backed start-ups, jumped into the market this year. They are joining Internet hosting companies and storage vendors that are also banking on the idea that "storage as a utility" could catch fire in corporate America.
But at the moment, the biggest prize of all,thousands of terabytes of data stored in massive corporate data centers around the world,remains largely out of the reach of storage service providers.
While dot-coms are a relatively easy sell, SSPs will need to overcome CIO concerns about security, availability, performance and the long-term viability of their own businesses before convincing many CIOs to give up their legacy storage infrastructures.
The decision to use managed storage services comes down to an issue of confidence, says Raju Thadani, former director of IT for British Airways and now CEO of Raven Technology Group, River Edge, N.J.
"Storage is cheap and easy to integrate into existing operations today," Thadani says. "Then look at the connectivity requirements,not just bandwidth, but the cost of it, as well as its resilience,and when you put it together, you wonder if it makes sense to jump outside."
But like many IT executives, Thadani is watching the trend closely and is not ruling out the possibility of using SSPs in the future.
Service providers and analysts say some corporations are starting to move data outside the corporate firewall. They believe market forces will compel more enterprises to follow suit.
Management issues related to the boom in enterprise storage needs could be a major contributing factor. The top 2,500 companies anticipated their storage needs would grow 52 percent this year, Forester Research reported. That alone is prompting corporations to consider outsourcing.
"We absolutely hate the process of having to buy new equipment, configure it, protect it, back it up, etc.," says Irving "Bubba" Tyler, CIO of Quaker Chemical, Conshohocken, Pa.
Tyler believes outsourcing storage has merit because enterprise data is growing rapidly. "Data is critical to success, but the physical management of it is not a core competency that is needed per se within a given firm," he says.
Enterprises are starting to send their Web data to SSPs, but legacy data such as accounting and customer information will take longer, says Doug Chandler, program manager for storage and data management services at researcher IDC.
"In the few cases where an SSP has signed on an enterprise, it has mostly been for the Web part of their business," Chandler says. "That seems to be the early stage. Part of this is an issue of bandwidth,they've tried to find folks to handle their Internet business and can't find and retain them. For getting on the Web, it may be faster to outsource."
One concern of enterprises, Chandler says, is that the SSPs aren't profitable yet or aren't expected to show a profit for some time. Failure of an SSP could lead to data accessibility issues.
"Some will probably go under as they can't hold up long enough to wait for mass acceptance," he says. "This is a fear of enterprise customers."
Given such uncertainties, the initial leaders in managing legacy enterprises will probably be companies such as Intira or EDS, which offer a full range of managed services to large corporations, Chandler says.
By the end of the year, EDS could have $300 million in revenue from outsourced storage contracts, says Mike Cavender, vice president of indirect channels for EDS.
EDS customers include Akamai, Blue Shield of California, the e-billing side of WorldCom and "a big-sized customer in Detroit with the proclivity to buy storage services," he says.
EDS is already managing six petabytes of data worldwide for customers. "Nearly every client that asks us to do complete outsourcing has a storage component," he says.
Many enterprises are moving to B2B or B2C businesses, which, along with CRM applications, help drive outsourced storage, Cavender says.
Intira, which counts enterprises such as Armstrong Tile and Emerson Electric among its clients, specifically goes after larger customers with its full suite of managed offerings, says John Steensen, vice president and CTO.
As clients more tightly integrate legacy data with e-business operations, the data will increasingly reside outside the corporation, Steensen predicts. And the data held outside the corporation will become more valuable than the internally held data, he says.
"The only reason some data is not outsourced more is because of the cost of moving it," Steensen says. "Over time, this data will be less valuable."
Enterprises and SSPs face the same problems when it comes to managing storage growing at 50-plus percent a year, but SSPs have the software and methodologies to meet such needs, says Stan Nowak, senior director of enterprise business for StorageNetworks, an early SSP entrant.
StorageNetworks, which counts Merrill Lynch and Fleet Boston among its clients, believes security issues are overblown. "The storage back end is private, non-routable and dedicated to the customer," Nowak says.
Several other SSPs are now targeting the enterprise with varying degrees of success. Xdrive, an SSP that at first targeted consumers, is developing applications to help enterprise clients improve access to data by remote users, partners and customers. The company's clients include United Airlines; Donaldson, Lufkin, & Jenrette; and the Ethicon division of Johnson & Johnson.
Ethicon is using Xdrive to store medical photographs used to market its medical devices. Andrew Curtis, product director, is thrilled about the service. "We don't have the capability to do this in-house because we need to do this sooner rather than later," he says.
The Bank Card Center at Chase Manhattan is another happy SSP customer. John Camarillo, vice president of operations, says he has had no problems with either security or accessibility of the data.
Meanwhile, storage integrators are divided on the impact SSPs will have on their storage sales and integration service businesses.
TidalWire is seeing an increasing number of enterprises moving to outsourced storage, says CEO Jeff Brandes. His evidence? He sells kits that integrate SSP storage infrastructures with server cages, and he's seeing more and more corporate names on purchase orders.
Even so, Brandes says Fortune 100 companies will never outsource all their storage. "The more strategic [the data], the more you will want to keep it to your vest," he says.
Bandwidth issues and the fact that SSPs are quickly burning through their funds will remain barriers for enterprise clients, says Dan Carson, vice president of marketing for Open Systems Solutions. "People want their data, and they want it now," he says. "They don't want to go through 20 hosts to get it. The Internet is already slow enough."
Still, a number of storage integrators are getting into the SSP business themselves in anticipation that some of their corporate customers will move in this direction. Whether their enterprise customers will want help integrating their own equipment or decide to outsource to SSPs, these solution providers will be ready.