SSPs and storage outsourcing

Posted on November 01, 2000

The following Q&A session was excerpted from an online chat session hosted by searchstorage.com, a Web-based search engine site for storage-related articles and information.  Questions were posted by end users.  The respondent was Doug Chandler, a program manager at International Data Corp., a market research firm in Framingham, MA.  Chandler specializes in the outsourcing market, which includes storage service providers (SSPs) and storage utilities. 

Are there advantages to locating a company's server at an Internet Data Center as opposed to its own corporate data center when outsourcing storage with an SSP? 

Theoretically, if the network connection is good enough, it shouldn't matter, but you have to assume that you're more likely to get good, consistent performance if the storage devices and server are closer together physically.  From a broader viewpoint, there are discussions in the industry about how the server is actually the bottleneck, based on network bandwidth improvements compared with concurrent improvements in processing power.  Network improvements are outstripping those in processors. 

Do you think outsourcing data storage increases corporate exposure? 

The main exposure at this point is the viability of the individual SSP.  There's no guarantee they'll all be around in the next 12 to 24 months.  We think the market will grow, but that doesn't guarantee the future of each individual company. 

How do you see growth rates in the IDC/SSP market for the next few years? 

We haven't broken out SSP delivered through IDCs as a separate forecast yet, but overall we expect the market to grow to over $8 billion by 2004, up from about $11 million last year. 

Many companies are co-located in the secure environment of an IDC already.  Are there advantages to having an SSP in addition to an IDC? 

In the pure definition of co-location, the devices are owned and managed by the customer.  Even if the IDC is responsible for management, we find that most of them do not have the storage management expertise to do this effectively.  In the SSP model, the management responsibility is no longer the customer's.  This arrangement benefits customers who want to get out of the storage management business themselves. 

Is the trend to outsource PC-based user data or enterprise-wide data? 

We make a distinction between SSPs, who are focused on enterprise/corporate data, and personal online storage vendors, who are targeting you and me with a free 50MB or 100MB of space, accessed through their web site.  However, we're beginning to see the latter group go after corporate IT organizations, as well as ASPs and others. 

Can you describe the different approaches to security that SSPs have been taking?  For example, I know that StorageNetworks owns its own fiber lines so there is the added security there.  Do any other companies have their own lines?  Is it necessary? 

Generally, the model is not to own the lines outright.  I'm not convinced that this makes a big difference, security-wise. 

What are the biggest risks to outsourcing your data to an SSP?  Security, availability, cost? 

One risk in my opinion is that none of them has articulated a customer exit strategy.  That is, if I'm a customer and I decide that I want to pull my data out and put it somewhere else-in other words, end the contract-how does that work?  Security isn't a key issue at this point, because the vulnerability of your server to attack is more important.  But certainly any SSP has to have a good security plan. 

Who are the top players in the SSP arena? 

It's a new market and difficult to identify top players by revenues.  StorageNetworks and ManagedStorage International have been at it the longest, among pure plays. 

Do most SSPs begin as ISPs, or do they simply enter the ASP model as a storage provider? 

The SSPs today are focused on storage.  They may partner with ASPs to provide a fuller package, but they're not interested in getting into ASP or ISP markets. 

How quickly do you think this market will grow in the next several years and what segments will grow the fastest? 

Our latest forecast has the market growing to $8.8 billion worldwide by 2004.  This is rapid growth since the total market today is probably around $50 million to $75 million.  It's difficult to define individual segments at this time, since it is almost completely a horizontal market.  One segment that we'll be looking into is how much storage utility spending will be on the "private" utility model, where devices are at the customer site, but managed by the SSP.  This compares to the "public" utility, where the devices reside at a Storage Point of Presence or S-POP, often at a data center firm such as Exodus. 

A follow-up to the corporate exposure question: What guarantee do I have that they can meet expectations (service, scalability, etc.)?  What questions should I ask? 

The guarantee is the service level agreement (SLA).  Now, can they live up to the SLA?  That's the big question.  These are new companies, so you need to examine everything you can-management team, experience, funding/viability, technical prowess, hardware/software suppliers.  Find out what the process is if you don't renew the contract and need to get your data out of there.  What's the recovery plan if their facility goes down? 

What are the key differences between SSP offerings and how important are they? 

One key difference is whether the SSP will own and manage the devices and rent the capacity back to you or whether they want to take over management of your installed (and future) devices.  The latter is closer to a traditional outsourcing agreement. 

Do you envision IDCs or hosting centers displacing or competing with pure-play SSPs? 

Right now, the strategy for most SSPs is to sell their service to and through the IDC and/or host centers.  But it's a fair question down the road whether the hosting firms will decide they can do this themselves, or want to do it themselves.  Right now, they (the host-ing centers) aren't in a position to offer these services themselves. 

Is there a segment of the SSP market that addresses backup only? 

Most of the SSPs offer a backup service that is distinct from their primary or "managed storage" offering. 

What are SSP customers asking for most?  Software?  Scalability?  Number of data centers? 

Good question.  Most customers, or potential customers, we talk to are looking to offload the storage management headache, with reduced cost if possible.  The prospect of increasing storage capacity by 50% over the next 12 months is daunting for most organizations, and the utility model begins to look like a possible alternative in that scenario.  But at the same time, most customers we talk to are just beginning to learn about this market and who's offering these services. 

What risk do you have when a central SSP failure takes down all of its customers? 

The model in most cases is to have the data replicated across multiple data centers, so if one center goes down, it doesn't bring down all the customers, e.g., the data is still available. 

Why aren't the hosting centers in the position to offer storage services now or near term? 

Theoretically, they could buy up storage devices just like an SSP, but they don't have the storage management or integration skills to build and manage an efficient system.  And these skills are in short supply, for everyone. 

How successful has the SNI model been in outsourcing storage? 

I wouldn't call it the "SNI model," although StorageNetworks Inc. was an early entrant into the field.  It's still very early and spending on managed, primary storage is only around $50 million total, according to our current estimates.  The market is waiting for some high-profile reference customers to take the plunge into the storage utility model. 

What would you consider the downside of personal SSPs-for example, i-drive and driveway? 

By downside I'm assuming you mean risk, problems, etc.  I think there's a performance issue when using these Web-based storage firms for many users, unless they've got a real fast Internet connection.  You also risk losing your files in failure, of course.  But for convenience, especially sharing files, these sites can be a nice option.  And they're starting to broaden their scope beyond mere file storage and sharing. 

What do you believe will ultimately make one SSP win out over another?  Will it be number of storage experts?  Funding?  Number of S-POPs?  Software?  Or is the market big enough for all to survive? 

Delivery against the SLA is critical for any of these firms to survive.  Cost-efficiencies are also important because there will inevitably be some pricing wars down the road.  Short term, the SSPs aren't competing with each other as much as they are the internal IT department, as well as entrants like IBM who instantly have some short-term advantages (e.g., global coverage, infrastructure, expertise on hand).  However, I'm not convinced the established product companies know how to compete successfully in a utility service market.  So, I think the future is bright for the smartest SSPs. 

Can you elaborate a bit on the financial side of a storage "utility"?  Have you identified the breakeven point of when it makes sense to use a utility vs. manage-their-own storage? 

We've been studying this issue and expect to have some research out on it in the future.  There are a lot of variables, of course.  And to be honest, customers we talk to don't just see this as a financial decision, but a trust and relationship issue as well because in the pure SSP model, you're turning over your data to someone else. 

How easy is it to get your data back from an SSP in the event you want to revert to in-house management? 

I haven't heard a detailed plan from any SSP on this point. 

What are the typical pricing models available for outsourcing storage? 

There's no typical model at the moment, although pricing today tends to be quoted along the lines of a per-managed-terabyte, per-month fee.  Generally, all of the managed storage offerings include a pay-as-you-go payment option. 

I've seen a lot of partnerships developing between storage manufacturers and SSP start-ups.  Is this a trend you see continuing?  Do you think SSPs can survive without partnerships? 

The SSPs need the equipment if the model is to own the devices and rent back the capacity, so they need supplier relationships.  I think the winning model for SSPs will be to be as agnostic as possible about the devices, though.  Otherwise you wind up being an integrator for Brand-X storage company. 

What is the primary method of interconnecting to an SSP IDC?  Is it leaning more toward direct connection via dark fiber or through existing telecom lines? 

Fiber is the typical interconnect. 

What is the real compelling reason someone would want to enter into a "utility" agreement just for storage vs. the entire application (server, storage, etc.)? 

Down the road, and probably not that far down, more of this stuff will be sold as a package (application, storage, etc).  That's why you see SSPs already allying with ASPs, for example.  But some customers may prefer to start with one function, like storage, to meet specific requirements they have. 

How do you determine the optimal connectivity (bandwidth) requirements to an SSP? 

This is something you would de-termine in the consulting phase of the engagement, with the SSP. 

Is there any risk to pure-play SSPs from the telcos, traditional storage vendors, or hosting services providers? 

Early on here, it's a partnering model: SSPs partnering with telcos, storage vendors, and hosting firms.  But I expect to see some of these "partners," for better or worse, come into the SSP market in some fashion, as the market grows. 

Will EMC and Compaq be entering the SSP market? 

Compaq has announced a "private" utility where the devices are on-site at the customer location.  EMC hasn't announced a utility offering, and I wouldn't expect one near-term. 

How will an SSP keep up with the new storage technologies?  Storage is always getting faster, so how can a customer ensure they get the best-of-the-best technology? 

This is a challenge, no question.  It's something for customers to discuss directly with an SSP during the sales cycle. 

Is there an expected decline in $ per GB for primary managed storage rates?  If so, what is the predicted percentage decline per unit price?  How closely will it match the $-per-GB trends for pure hardware? 

Pricing is not only impacted by falling hardware prices, but also by steady or increasing management (e.g., labor) prices.  SSPs will also begin to feel price competition from each other over time, as well as from product firms that say they can provide the same value for less. 

Who are the key hardware vendors for SSPs? 

The ones you would expect today-EMC, Compaq, IBM, Hitachi, HP, and Sun.  As start-ups, the SSPs have had to show their investors they're using a reliable platform.